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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ended December 31, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-25375
VIGNETTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-2769415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
901 South Mopac Expressway
Austin, Texas 78746
(Address of principal executive offices)
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(512) 306-4300
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of each class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days
(1) Yes [X] No [_]
(2) Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_]
As of February 29, 2000 the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $10,985,000,000.
As of February 29, 2000 there were 63,637,096 shares of the Registrant's
common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 2000 Annual Meeting of
Stockholders to be held May 15, 2000 are incorporated by reference in Part III
of this Form 10-K Report.
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VIGNETTE CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Page
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Part I
Item 1. Business........................................................ 3
Item 2. Properties...................................................... 32
Item 3. Legal Proceedings............................................... 32
Item 4. Submission of Matters to a Vote of the Security Holders......... 32
Item 4a. Executive Officers of the Registrant........................... 32
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 35
Item 6. Selected Consolidated Financial Data............................ 36
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 37
Item 7a. Quantitative and Qualitative Disclosures about Market Risk..... 46
Item 8. Consolidated Financial Statements and Supplementary Data........ 47
Item 9. Changes in Disagreements with Accountants on Accounting and
Financial Disclosures.......................................... 47
Part III
Item 10. Directors and Executive Officers of the Registrant............. 47
Item 11. Executive Compensation......................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................................. 47
Item 13. Certain Relationships and Related Transactions................. 47
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K...................................................................... 48
SIGNATURES................................................................ 50
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PART I.
ITEM 1. BUSINESS
The statements contained in this Report on Form 10-K that are not purely
historical statements are forward looking statements within the meaning of
Section 21E of the Securities and Exchange Act of 1934, including statements
regarding our expectations, beliefs, hopes, intentions or strategies regarding
the future. These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those indicated in such forward-
looking statements. We are under no duty to update any of the forward-looking
statements after the date of this filing on Form 10-K to conform these
statements to actual results. See "Risk Factors that May Affect Future
Results," and the factors and risks discussed in our Registration Statement
filed on Form S-1 on December 9, 1999 (File No. 333-91085) with the Securities
and Exchange Commission.
Overview
We are a leading global provider of e-Business application software products
and services. Our e-Business solutions are designed to enable businesses to
build successful and sustainable online businesses. Our e-Business solutions
allow both traditional brick-and-mortar and startup dot-com businesses to
create and manage Internet business channels that are designed to attract,
engage and retain their customers, partners, and suppliers online. Using our
solutions, our clients build e-Business applications which are focused on
personalized and mass-customized interaction across multiple touchpoints and
communication channels. Since shipping our first products in 1997, we have
received numerous awards for our industry leadership and product capabilities,
including the Crossroads A-list Award and Red Herring Magazine's Top 50 Public
Companies and Best Product Award.
Our V/5 E-Business Platform (also "V/5 Platform" and the "Platform") is an
application platform that provides the business insight, rapid business
reconfiguration and integration across multiple touchpoints required for
online success. By providing a single view across customers, partners,
products and interactions, the Vignette V/5 E-Business Platform provides our
customers the ability to measure the return on investment of all of their
online relationships and initiatives. This allows our customers to drive
continuous improvement by providing measurable, closed-loop execution,
interaction and analysis. The platform's rapid configuration capabilities not
only improve our customers' time-to-deployment, but just as importantly, their
time-to-adapt, by significantly advancing the starting point, for e-Business
applications. Our open and modular architecture makes this possible by
allowing our customers to leverage existing investments and quickly integrate
new technology that is based on industry standards. Finally, the V/5 Platform
allows our customers to stay connected with customers and partners regardless
of the communication channel, device or touchpoint.
The Vignette V/5 E-Business Platform is built upon a proven, enterprise-
ready architectural foundation that powers some of the largest and most
successful e-Business applications today. It is unique in providing a modular
and reusable e-Business applications architecture that helps you respond and
adapt quickly to changing market demands. It leverages your existing IT
investment in open standards, component models, technical skills and best
practices. The Platform provides a scalable, reliable and high-performance
foundation for delivering content, profiling, and managing interactions across
multiple communication channels such as the web pagers, mobile phones, and e-
mail.
The V/5 E-Business Platform incorporates the Vignette Application Foundation
(VAF) - an open application framework and methodology for rapidly assembling,
deploying, and managing best-of-breed, componentized e-Business applications.
The VAF enables our customers to reduce their time-to-adapt - the ability to
rapidly reconfigure re-usable applications in response to changing business
needs and market conditions.
We complement our products with a professional services organization that
offers a range of services including strategic planning, project management
and implementation. We designed these services to improve our clients'
competitive position, shorten time-to-market and reduce project implementation
risk. We believe that our ability to successfully deliver an integrated
solution to our clients provides us with a significant competitive advantage
in the market for e-Business software products and services.
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We market our products and services globally through our direct sales force,
resellers and systems integrators to businesses seeking to enhance the value
of their Web-based relationships, maximize the return on their Internet-
related investments and capitalize on the substantial growth of the Internet
as a new marketing and distribution channel. We also leverage strategic
alliances with a number of technology and Internet organizations to increase
the penetration and market acceptance of our e-Business software and
professional services. To date, we have licensed our platform to more than 515
clients worldwide in a variety of industries including retail, financial
services, telecommunications, technology, media and entertainment. Our clients
include American Express, AT&T, Bank One, Charles Schwab and Company, Chicago
Tribune, Lands' End, Merrill Lynch, National Semiconductor, Nokia, Preview
Travel, Siebel Systems, Snap.com, StarMedia Network, Sun Microsystems and
TheStreet.com.
Industry Background
The emergence and acceptance of the Internet and the World Wide Web has
fundamentally changed the way that consumers and businesses communicate,
obtain information, purchase goods and transact business. International Data
Corporation, or IDC, estimates that the number of Internet users worldwide
will grow from approximately 142 million in 1998 to 502 million in 2003. IDC
also estimates that revenue generated from Internet commerce will exceed $1.3
trillion by 2003. As the Internet has become more accessible, functional and
widely used, it has emerged as a primary business channel alongside the
telephone, paper-based communication and face-to-face interaction. Businesses
are increasingly using the Web as both a marketing tool and distribution
channel to communicate and conduct business with partners, customers and
employees.
Origins of Online Business
The growth in the number of Internet users, as well as the open nature of
the Internet, has led many businesses to seek new ways to take advantage of
this global platform. The earliest business use of the Internet was the
creation of informational Web sites, which typically involved merely
reformatting existing marketing materials to create an online brochure. This
simple use of the Internet to present static information was quickly
supplanted by the first generation of electronic commerce businesses. The
introduction of new technology enabled businesses to create Web sites for
online publishing, which were financed by advertising, and electronic catalog
businesses where hard goods such as books or computers could be sold. These
Internet businesses focused on developing a basic advertising and transaction
infrastructure rather than capitalizing on the unique aspects of Internet
commerce. In addition, these first generation online businesses were based on
traditional, physical world business models and were differentiated only by
wider selection and lower prices. Success for these businesses was measured by
the total amount of Web site traffic.
Advertising-based and transaction-based Internet business models have been
successful in generating online transactions. However, as the number of
companies attempting to conduct business online has increased, the Web has
become a highly competitive business environment in which customers have a
large number of easily accessible choices, eroding customer loyalty. As a
result, it is becoming increasingly difficult for businesses on the Internet
to reach their target audiences, build customer loyalty and differentiate
themselves from their competitors using business strategies taken from the
physical world. Consequently, online businesses are finding it increasingly
expensive to locate and attract the right types of Web site visitors and
increasingly difficult to convert these visitors into profitable and long-term
customers.
Evolution of Online Business
As the next generation of online business models evolve, companies are
changing the ways they measure their success online. Both advertising-based
and transaction-based businesses have begun to use the percentage of Web site
visitors that actually convert from browsing a site to transacting business,
or the conversion rate, as the key gauge of their effectiveness in attracting
and retaining loyal customers out of their total Web site visitor population.
According to Forrester Research, the estimated average conversion rate for
first-time visitors to an electronic commerce Web site is 2.7%, a rate similar
to unsolicited direct mailings. To address this problem,
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businesses are beginning to focus their strategies on increasing online
conversion rates by more effectively engaging a new type of "connected
customer." Connected customers are individuals who place more value on
information convenience, online advisory services and improved access to
products and services, than on price and physical geographic location.
To capture the connected customer, businesses must focus on developing and
executing a new set of online strategies to build long-term customer
relationships and strengthen customer loyalty. To attract connected customers,
businesses must provide users with more relevant and targeted experiences each
time they interact with the company online. To achieve this objective,
businesses must provide potential customers with greater information
convenience, online advisory services and improved access to products and
services.
For the connected customer, information convenience means having all of the
data necessary to make a decision at one Web site. As a result, businesses are
finding it necessary to broaden their Web offerings beyond their own products
and services. Many online businesses are acquiring rich, third-party content
and product lines that allow them to deliver highly interactive, topical
portals that provide the convenience of one-stop shopping. For example, an
online stock brokerage firm might license daily industry news, company
analyses, and financial planning articles to provide their customers with a
complete set of financial management information on a single Web site.
Increasingly, businesses must also offer online advisory services to provide
the expertise the customer needs to make an informed purchasing decision. For
example, an online travel agency might add advisory services that help
vacation travelers perform extensive pre-purchase research on their favorite
destinations. Through highly personalized services based on the collection and
analysis of customer profiles, businesses can enhance the lifetime value of
each customer, increase customer switching costs and create strong competitive
barriers.
To offer improved access to products and services, businesses are extending
their online reach to engage potential customers in more online locations than
just their own Web sites. To increase Web-based revenues, businesses need to
maximize not only the number of visitors and customers coming to their own Web
sites, but also their total online reach across their entire Customer Chain.
For example, a business that sells books online needs to reach not only the
buyers that come to its own Web site, but also visitors to other book-related
sites, such as locations dedicated to authors, book reviews and literature. In
effect, it is as necessary for businesses to create broad distribution and
reseller relationships online as it is in the physical world in order to have
as many points of contact with the customer as possible. The creation of such
a super-distribution model forms an instantaneous, worldwide distribution
system. The Internet has made it possible for all companies to have a
worldwide online distribution system, a system that was previously available
only to large companies that could afford to build out such a network in the
physical world.
Need for Comprehensive e-Business Solutions
As online business models evolve and the amount of business transacted on
the Web increases, enterprises are seeking new e-Business solutions that will
enable them to develop, maintain and leverage relationships with customers and
affiliates. Just as companies adopted Enterprise Resource Planning software in
the late-1980s to manage back-office operations and Sales Force Automation
software in the mid-1990s to manage front-office operations, many businesses
are now searching for e-Business solutions to help them manage their online
customer relationships. Businesses realize that e-Business solutions, like
other enterprise solutions, are mission-critical and pose significant
technological challenges that require large resource commitments. For example,
early adopters of e-Business strategies, such as Amazon.com, built in-house
solutions that required significant custom development, evaluation,
implementation and integration of disparate technologies and platforms.
Companies building these solutions internally face long development cycles,
high ongoing maintenance costs, and limited functionality and scalability.
Accelerated adoption of the Internet as a business channel is driving
businesses to seek enterprise software providers that have the expertise to
deliver solutions that minimize their time to market and maximize the value
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of their Internet investment. To date, software providers have focused on
developing applications that managed discrete portions of a comprehensive e-
Business solution, such as transaction management, catalog tools,
collaborative filtering/personalization, authoring, site management and
application development. Today, however, businesses are increasingly demanding
an integrated package of platforms, tools and applications that address all
aspects of e-Business, rather than point products and toolkits. A fully
integrated e-Business solution must include the ability to attract, engage and
retain customers and understand their needs and preferences via a direct
relationship through a company's Web site. This solution also must enable
companies to create and manage Customer Chains, value-added distribution
networks whereby a company can distribute its electronic goods and services
outside of its own Web site through a network of reseller, affiliate and
partner Web sites. These solutions must be able to transcend the traditional
boundaries of the Internet as an information delivery mechanism. These
requirements demand an e-Business solution that supports advanced content
management and syndication, personalization and decision support capabilities.
The Vignette Solution
We are a leading global provider of e-Business software products and
services specifically designed to enable businesses to enhance the value of
their Web-based relationships, maximize the return on their Internet-related
investments and capitalize on the substantial growth of the Internet as a new
business channel. Our solutions enable businesses to create and manage
Internet business channels that are designed to enable businesses to rapidly
adapt their e-Business applications to market changes, to reach customers,
partners, and employees through multiple electronic touchpoints, and to
provide insight into the relative success of their e-Business strategies. We
believe our solutions allow our clients to increase their online effectiveness
and improve customer conversion rates, resulting in opportunities for greater
Web-based revenues and market share. Our integrated solution set includes an
enterprise-class e-Business application platform, as well as a set of tools
for business and technical managers to interact with customers through the Web
site and control its operation.
We have enhanced our e-Business application platform with the introduction
of the V/Series architecture, expected to ship in the first half of 2000. The
V/Series architecture expands on Vignette's past successes by migrating the
Vignette platform services to a next-generation achitecture based on Internet
standards. The V/Series architecture is leveraged by the Vignette V/5 products
including the V/5 Content Management Server, V/5 Lifecycle Personalization
Server, V/5 Syndication Server, V/5 Communication Server, V/5 Relationship
Marketing Server, and V/5 Advanced Deployment Server. These products are
designed to support the creation of applications that can be reconfigured
easily and quickly to account for changing market conditions, that can
interact with users through multiple electronic touchpoints, and which provide
insight as to the relative success of a company's e-Business strategies. We
are focused on continuing to develop and extend our product and service
offering to provide our clients with a comprehensive means for building,
managing, and delivering sophisticated e-Business applications, thereby
increasing our client's return on their Internet investments.
We believe our comprehensive, integrated e-Business solutions represent a
fundamentally new approach to doing business on the Internet and provide our
clients with the following benefits:
Increased e-Business Insight. Our products and services enable our clients
to use the Internet as a channel to build profitable, long-term customer and
partner relationships and to use those relationships to create new marketing
opportunities to drive revenue growth. Businesses that use our solutions can
develop Internet applications that interact, as opposed to solely transact,
with visitors, employees, and business partners via both the wired and
wireless Web. For instance, our e-Business software platform incorporates
unique technologies that allow our clients to create engaging, personalized
experiences that enhance a company's ability to leverage the Web as a first-
class business channel. At the same time, our platform enables you to gather,
analyze and mine in-depth customer and operational data from your e-Business
and across the enterprise to determine the effectiveness and profitability of
your e-Business strategies.
Rapid e-Business Reconfiguration. Businesses using our solutions can develop
e-Business applications more rapidly than most other third-party or in-house
alternatives. As a result, our solutions permit businesses to
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expand their existing online business and enter into new online markets on an
accelerated time frame. Vignette's products provide a unique architecture and
methodology that enables your e-Business to be built in re-useable components
that can be easily re-configured to keep pace with changing market demands and
competitive pressures. This approach not only lets your e-Business strategy be
more nimble, but also reduces overall maintenance cost in the long run and
protects your investment in people, systems, and information.
Increased Customer Reach through Multiple Electronic Touchpoints. Vignette's
e-Business software platform can unify closed-loop interaction with your e-
Business audience across multiple electronic touchpoints- web, e-mail, pagers,
and WAP wireless devices. Businesses can now gain insight into what your
audience wants, develop personalized interactions across multiple touchpoints,
and track behavior and responses in real-time to close the loop. This approach
enhances utility and service to the end customer, increases the efficiency of
customer service and support systems, and increases revenue opportunities with
existing customers.
Increased Revenue Opportunities Through a More Flexible Business Model. Our
solutions are designed to enable our clients to pursue a broad range of
business opportunities that enhance Web-based revenues, such as co-branding,
multiple Web site production and super-distribution. Our clients have obtained
partner license fees in return for co-branding their Web sites with partner
logos, content and navigation. For example, a major portal provider has co-
branded its destination with over 100 Internet service providers, or ISPs,
with each version of the Web site targeted specifically for that ISP's
customer base. In return, this portal receives royalty payments from each ISP
with very little actual cost to produce the branded Web site. Our multiple Web
site production capabilities have enabled a major online news provider to use
a small team to create over 200 online community Web sites that are specific
to urban areas in and around their local community. Each community has its own
Web site that contains local advertising and content. The news provider was
able to generate increased advertising revenue from these localized Web sites.
Increased Operational Control of Internet Applications at a Lower Effective
Cost. Our e-Business solutions permit clients to manage their Internet
business channels more efficiently and with greater control than most in-house
or other third-party alternatives. Our product features also dramatically
reduce the amount of labor and capital expenditure required to operate and
maintain sites on the Internet. Our solutions incorporate: (a) content
management capabilities designed to increase the efficiency of team-based Web
site production, enhance application developer productivity and reduce
maintenance costs; (b) decision support capabilities that allow businesses to
analyze customer preferences, examine demographic segmentation and determine
the popularity of individual products and services; and (c) a scalable
application server platform that is capable of handling a very large number of
Web site visitors with optimized performance while substantially curtailing
Web server hardware expenditures. Our products and services provide clients
with greater operational control and compelling cost advantages in operating
and maintaining their Web sites, as well as in the cost of customer
acquisition and retention.
Strategy
Our objective is to enhance our position as a leading global provider of e-
Business solutions. To achieve this objective, we have adopted the following
strategies:
Maintain Leadership in the e-Business Solutions Market. Our industry-leading
solutions for e-Business applications enable enterprises to build and rapidly
deploy effective online businesses. Our V/5 e-Business Platform allows
businesses to maximize their online potential by offering relevant products
and services to the appropriate audience, thereby increasing customer
conversion rates and strengthening the loyalty of customers and partners. Our
Vignette V/5 Syndication Server offers a platform for creating a new category
of easily-deployed, enterprise applications that will enable businesses of any
size to achieve instantaneous, online distribution of their products and
services across an extensive network of reseller, affiliate and partner Web
sites. With Vignette V/5 Communications Server, we enable the creation of
automated and personalized customer communication using multiple interactive
communication channels, including 2-way pager, email, and wireless web. Our
upcoming Vignette V/5 Relationship Marketing Server provides capabilities for
building and measuring the effectiveness of closed-loop interactive marketing
programs across multiple electronic touchpoints. The Vignette V/5 Advanced
Deployment Server provides content and application distribution and "n-tier"
staging
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capabilities. We intend to maintain our leadership position by developing new
e-Business software products and services that will help businesses generate
new online revenue opportunities.
Expand Sales Channels to Drive Market Penetration. We are working to
increase customer adoption of our solutions by expanding our direct sales
operations and our indirect sales channels through additional relationships
and strategic alliances with key systems integrators, value-added resellers,
or VARs, and original equipment manufacturers, or OEMs. We believe that by
establishing these relationships with key e-commerce partners, we can target a
broader client base and help our clients more rapidly deploy powerful e-
Business applications.
Expand International Presence. We believe that there will be significant
international opportunities for our products and services and that we will
continue to expand our global marketing and distribution efforts to address
the range of markets and applications for our e-Business solutions. We plan to
continue aggressive expansion of our international presence by adding direct
sales personnel and increasing our indirect sales channels to fully capitalize
on international market opportunities. We have opened sales offices in
Hamburg, Germany; London, England; Paris, France; Singapore; and in Melbourne
and Sydney, Australia and intend to continue our expansion throughout Europe,
Asia and those regions where businesses and other institutional clients are
using distributed networks and the Internet to create sales opportunities.
Leverage Professional Services Capabilities. We have established successful
relationships with our clients by serving as an advisor in developing and
deploying e-Business applications. We are extending our direct professional
services capabilities to provide an expanded set of services to address such
areas as online business strategy, project management and application
development. In addition, we offer similar high-quality professional services
capabilities through third-party alliances and are currently focused on the
development of relationships with VARs and Global/National systems
integrators. By offering our clients a full range of professional services on
a global basis, we believe we can broaden market awareness about the
advantages of our e-Business solutions and create opportunities to sell new or
enhanced products to clients.
Products
Our integrated solution set includes an enterprise-class Internet
application platform and tools for both business and technical managers to
interact with customers through the Web site. The following table summarizes
our current and future products:
Category Features Shipment Dates
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Platform/Products
. V/5 E-Business Products run on Sun Solaris, IBM AIX, or First version of
Platform Products: Microsoft Windows NT/2000 servers and StoryServer shipped
supports Oracle, Sybase, IBM, and Microsoft January 1997. V/5 E-
SQL databases. business Platform
products available
first-half of 2000.
. V/5 Content (Capabilities previously available as part of StoryServer 5.0
Management Server StoryServer 5.0) Supports the creation and available December 1999.
management of V/5 Content Management
e-Business applications with project Server anticipated July
management, production management, asset 2000.
management, workflow, and meta-data
management.
. V/5 Lifecycle StoryServer 5.0
Personalization Server (Capabilities previously available as part of available December 1999.
StoryServer 5.0) Supports the delivery of V/5 Lifecycle
personalized e-Business applications with a Personalization Server
wide array of personalization technologies. anticipated July 2000.
. V/5 Syndication Designed to enable businesses to automate and Vignette Syndication
Server manage the creation of Customer Chains-- Server 5.0 shipped
networks of valuable business-to-business December 1999. V/5
relationships which enhance customer reach Synidcation Server
through partner, affiliate, and resellers anticipated first half
sites. of 2000.
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Category Features Shipment Dates
- -------- --------------------------------------------- ------------------------
. V/5 Communication Designed to enable businesses to personalize Anticipated first half
Server and automate communication with their of 2000.
customers using multiple communication
channels, including wireless Web, telephone,
pager, email, fax or mail.
. V/5 Relationship Provides a complete closed-loop e-marketing Anticipated first half
Marketing Server solution. It enables businesses to gain of 2000.
critical insights by measuring and analyzing
customer interactions across multiple
business touchpoints and to automatically
deliver highly targeted content to those
groups in the form of interactive marketing
campaigns.
. V/5 Advanced Supports enterprise-wide distributed Anticipated first half
Deployment Server development, testing, and production of 2000.
environments for eBusiness applications. It
enables geographically distributed teams of
application developers, content contributors,
editors, and administrators to connect their
distinct Vignette environments to create an
n-tiered deployment system with a simple
browser-based interface.
. Vignette Application Provides a comprehensive set of reusable, Anticipated first half
Power Pack cross-platform, packaged application modules of 2000.
designed to accelerate the assembly,
deployment, and managment of eBusiness
applications. These modules provide browser-
based user interfaces and API's for managing
and finding information, enabling
personalized interactions, and building
online communities.
Tools
. Production Center Designed for team-based project and content First version shipped in
management. Allows authors, managers, September 1997. Shipped
developers, editors, designers, and business with StoryServer 5.0 in
analysts to work collaboratively in the December 1999.
production of their e-Business applications.
. Development Center A visual development tool designed to reduce First version shipped
the time to deploy critical e-Business April 1999. Shipped with
applications by simplifying programming and StoryServer 5.0 in
permitting a wider range of users to December 1999.
participate in application development.
. Business Center Enables business managers to analyze and First version shipped
report on customer demographics and behavior, July 1998. Anticipated
and to create, manage and monitor the success shipment of latest
of interactive marketing campaigns across version first half of
multiple customer touchpoints. 2000.
. Vignette Development Provides software developers with First version shipped
Kit for Microsoft capabilities for integrating Microsoft Office March 2000.
Office 2000 applications with Vignette V/5 E-Business
applications. Provides end users with the
ability to use standard content development
tools with Vignette's plartform products.
Platforms
V/5 e-Business Platform -- Provides an open, secure, scalable, and reliable
foundation for e-Business. It natively supports the two major paradigms --
ASP/Windows DNA 2000 and JSP/J2EE for application
9
development and enterprise deployment. This allows businesses to leverage
existing IT investments in open standards, component models, technical skills
and best practices. It also supports a number of integration mechanisms --
COM, EJB, C/C++, HTTP/Servlets, XML, SQL -- for legacy systems, application
servers and 3rd party applications.
V/5 Content Management Server -- Previously available as part of Vignette
StoryServer 5.0, the V/5 Content Management Server provides tightly integrated
content management, scalable content delivery and personalization. With
comprehensive support for managing content stored in databases, XML
repositories, and static files, it is the de facto standard for team-based
enterprise-wide collaboration for e-Business today.
V/5 Lifecycle Personalization Server -- Previously available as part of
Vignette StoryServer 5.0, the V/5 Lifecycle Personalization Server brings a
wide array of proven personalization capabilities for e-Business to provide
highly personalized service to customers, employees and business partners. It
is tightly integrated with content management and empowers business owners
with the capabilities necessary for planning and executing a winning
personalization strategy.
V/5 Relationship Marketing Server -- In January 2000 in connection with our
acquisition of DataSage, Inc., a leader in e-Marketing and personalization
solutions, we announced the development of the V/5 Relationship Marketing
Server. It provides a complete, closed-loop e-marketing solution that enables
business users to gain critical business insight by measuring and analyzing
customer interactions across multiple business touchpoints, deliver highly-
targeted content across multiple communication channels, measure the success
of e-marketing initiatives and drive continuous improvement to e-business
strategy.
V/5 Communication Server -- In July 1999 in connection with our acquisition
of Diffusion, Inc., a leader in multi-channel information delivery solutions,
we announced the development of V/5 Communication Server. This product,
anticipated to be available in the first half of 2000, empowers a business to
connect to a mobile audience and manage relationships with customers,
partners, and employees via multiple electronic touchpoints such as e-mail,
pagers, PDAs, and WAP enabled mobile phones. It enables the proactive
distribution of personalized content, and provides complete close-loop
interaction with the mobile e-Business audience.
V/5 Syndication Server -- Enables businesses to expand their e-Business
offerings to and through a scalable network of affiliated e-Businesses. Built
using open protocols, XML and ICE (Information & Content Exchange), it enables
the packaging and distribution of digital assets such as content,
applications, supplier information, and product catalogs to a large number of
affiliated e-Businesses.
V/5 Advanced Development Server -- Allows businesses to manage enterprise-
wide development, testing, and production environments for e-business
applications. It enables geographically distributed teams of application
developers, content contributors, editors, and administrators to connect their
distinct Vignette environments to create a secure, "n-tiered" staging system.
V/5 Relationship Marketing Server. The Vignette V/5 Relationship Marketing
Server utilizes a number of proprietary technologies to deliver complete
closed-loop e-marketing capabilities. These capabilities consist of 1)
measurement and analysis of customer interactions across multiple business
touchpoints; 2) segmentation of customers and web site visitors into relevant
groups for purposes of analysis and targeted communications; and 3) campaign
management to enable automated delivery of highly targeted communications
across a variety of digital channels. The result is that communications with
customers become more effective at achieving business objectives, such as
delivery of timely and relevant information, larger and more frequent online
purchases, and increased customer loyalty. The first two capabilities above --
measurement/analysis and segmentation -- were obtained through the
acquisition of DataSage. Segmentation algorithms incorporated into the V/5
Relationship Marketing Server include Kmeans, leader clustering, Kohonen
neural networks, top-down hierarchical clustering, and cellular clustering
(proprietary). Classification and estimation algorithms include C4.5 decision
tree,
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RegressionTree, linear/polynomial regression, nearest neighbor classification,
backpropagation neural networks, and CirrusNet (proprietary).
With the development of the V/Series product architecture and the release of
the V/5 E-Business Platform we have also invested significantly in adapting
our products to comply with emerging Internet architecture standards --
specifically the Java 2 Enterprise Edition (J2BE) standard and with
Microsoft's Windows DNA 2000 architecture. Our efforts in these directions
enable our customers to leverage JSP and ASP programming models, COM and EJB
as integration models, as well as the services provided by compliant
application servers in each respective architectural standard.
Tools
Production Center. Production Center provides an environment for team-based
project and content management by centralizing the elements of content
application development and deployment. This tool allows authors, editors,
designers, developers and business managers to work collaboratively. With
Production Center, each type of user involved in content development and
deployment is dedicated a different area of the desktop application.
Business Center. Business Center enables business managers to analyze and
report on visitor demographic and behavior data collected by StoryServer 4.
This tool allows business managers to gain an in-depth understanding of the
needs and preferences of their Web site visitors and customers. With this
knowledge, managers can improve the design of and visitor interaction with the
Web site, thereby increasing conversion rates and revenues.
Development Center. Development Center is a visual environment for building
Internet applications. Development Center is designed to reduce the time to
deploy e-Business applications by simplifying programming and permitting a
wider range of users to develop e-Business applications.
Vignette Professional Services
The Vignette Professional Services, or VPS, organization is integral to our
ability to provide our clients with an innovative and comprehensive e-Business
solution. VPS has over 200 staff years of combined software project management
experience. VPS helps clients plan, design and rapidly implement successful
Internet businesses with innovative e-Business applications. VPS focuses its
consulting services on influencing the client's ability to understand and
build online relationships with their customers. The goals of the VPS
organization are to mitigate client implementation risks, improve the time to
market and integrity of the solution and provide competitive advantages to and
share best practices with client project teams. We charge for our services on
either a time and materials basis or on a fixed fee basis, and provide our
services through our VPS practices in San Francisco, California; Austin,
Texas; Boston, Massachusetts; New York, New York; Chicago, Illinois; Atlanta,
Georgia; Bellevue, Washington; Denver, Colorado; London, England; Hamburg,
Germany; Singapore; and Sydney, Australia.
We currently offer our customers a broad spectrum of services across the
design, implementation and ongoing support stages of an e-Business solution
deployment including the following:
. strategic business consultation;
. needs analysis;
. architectural analysis and performance planning;
. project management;
. technical site design;
. development and deployment;
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. software integration; and
. client education and training.
In the design stage, VPS provides a variety of services that help ensure that
the client and VPS understand the client's business objectives and determine
the technical requirements of the e-Business solution implementation. In the
implementation stage, we utilize our Site Development Methodology to ensure
that the project is well managed. At this stage, VPS's extensive experience
with Web site design reduces technical project risk and ensures proper
integration of any third-party software. Finally, VPS offers comprehensive
basic and advanced education and training to enable a client's internal team to
seamlessly assume control over ongoing support of the Web site.
The following graphic depicts the services that we provide during the three
stages of a system deployment:
[GRAPHIC APPEARS HERE]
We have established complementary relationships with several service partners
including Agency.com, Andersen Consulting, Cambridge Technology Partners, CSC
Consulting, debis Systemhaus, IBM, KPMG, Oracle, Perficient,
PricewaterhouseCoopers, Sapient, Scient, Viant Corporation and Web Connections,
as well as a number of leading graphic design firms and other business
integrators. These partners provide VPS with a substantial network of
expertise, as well as the ability to lead large and complex projects and
deliver a complete solution.
Clients
To date, we have licensed versions of our products to over 515 clients. Our
clients represent a broad spectrum of enterprises within diverse sectors,
including financial services, health, education and government, media, retail,
services, technology, telecommunications and entertainment.
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The following is a partial list of our clients that have purchased licenses
and/or services from us and that we believe are representative of our overall
client base.
Financial Services Manufacturing
Allianz Otis Elevator Company
American Express Volkswagon of America, Inc.
Autoloan.com, Inc. Media
Bank One Bertelsmann
Baan BET.com LCC
Ceridian The Bureau of National Affairs
Charles Schwab and Company CBS Broadcasting
Chase Manhattan Bank CBS Sportsline
CheckFree Chicago Tribune
Citicorp City Online BV
Credit Suisse CNET
Dain Rauscher Deseret News Publishing
Egg Financial Services Direct Medical Knowledge
Fidelity Investments E! Online
First Chicago EHow, Inc.
First Union National Electronic Newsstand
Interactive Investor International Entreprenuer Online
Massachusetts Mutual Life Insurance Company
Encyclopaedia Britannica
Merrill Lynch The E.W. Scripps, Co.
Michigan National Bank The Guardian
Morningstar The Houston Chronicle
The Mutual Life Insurance Company of New York
IDG Corporation
NASD The Industry Standard
New York Life Insurance Company iVillage, Inc.
PaineWebber La Republica
PeoplesBank Lycos
Postbank Mecklermedia Corporation
PricewaterhouseCoopers On Health Networks
RBC Dominion (Royal Bank of Canada) Orlando Sentinel
Salomon Smith Barney Playboy Enterprises
TheStreet.com Que Pasa.com
Zacks
Road Runner Group
Health, Education, and Government R.R. Donnelley & Sons
American Medical Association The Seattle Times
Asymetrix Simon & Schuster
City of San Carlos Sitestuff.com
Columbia University Spiegel Online
The Family Education Co. StarMedia Network
HealthPartners, Inc. Time Inc. New Media
Kaplan Education Centers Tribune Media Services
Lifescape.com World Media Online
National Cancer Institute Ziff Davis Publishing
United Healthcare Services ZineZone.com
USDA Graduate School
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Retail Headland Digital Media
Amway Corporation Hewlett-Packard
Beyond.com I3S
Bookcraft Ingram Micro, Inc.
Brain.com Juniper Networks
BuyDirect, Inc. Motorola
Checkout.com National Semiconductor
Holiday Channel Santa.com Promega Corp.
Inc.com Sabre Technology
Lands' End Sales Logix
Living.com Seagate Technology
Oakley Siebel Systems
Stationary Office Siemens Business Communication Systems
Webvan Group, Inc. Sun Microsystems
Wherehouse Entertainment Sybase
Whole Foods
Tektronix, Inc.
Services Tpuppy.com
American Business Information Vantive
Atevo WebMethods, Inc.
Xircom
Browning-Ferris Services
Daimler Chrysler Telecommunications
Deutsche Post Ameritech
DHL Worldwide Express AT&T
EDS British Telecom
FedEx Cincinnati Bell Directory
Forrester Research Interpath
Hoover's Nokia
Intelliquest Sonera
Lufthansa Executive Network Sprint Corp.
PECO Energy Southwestern Bell Mobile
Preview Travel Telstra
Shell US West
The Trip.com Travel
Volvo
United Airlines, Inc.
Technology Entertainment
Advanced Micro Devices Cablevision (CSC Holdings)
Bay Networks Children's Television Network
Cendant Software Online Services Hollywood Online
Compaq Computer Corporation LAUNCH Media
Emprise Corporation Turner Entertainment Group
Excite, Inc.
Case Studies
The following case studies illustrate the issues faced by three
representative clients in deploying e-Business applications, and the benefits
derived from developing and deploying these applications using StoryServer.
Online Travel Services Company
A highly successful online travel services company selling an increasingly
commoditized product faced intense competition from two large online
competitors. The firm elected to focus its business on vacation
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travelers who make highly considered purchases and need value-added travel
planning assistance before making purchasing decisions. To increase its
revenue targets and customer conversion rates, the firm needed an e-Business
solution that delivered interactive travel planning assistance to facilitate
vacation purchases through its Web site. Such a system would have to handle a
multi-million member customer base and support tens of thousands of
personalized visitor sessions each day. In addition, to meet the firm's
application goals, the system also would have to automatically integrate a
series of travel-related resources licensed and syndicated from other Web
sites, and integrate this content within the firm's travel planning
application. An internally built system would have been too expensive, and
most packaged solutions did not provide an application architecture that would
accommodate the necessary content flexibility or deliver adequate system
performance.
The travel services firm deployed Vignette's platform and worked with VPS to
launch a major new version of their Web site in less than six months. The firm
was first to market with a Web-based vacation travel planning service that
integrated syndicated travel guide content and delivered it as an integral
part of their e-Business applications. The firm was immediately able to
process significantly more visitor sessions because Web server utilization
dropped from 90% to 10%. By reducing Web server utilization, the firm was able
to delay significant planned hardware expenditures. The Vignette platform also
enabled the firm to reduce its time to deployment for new versions of the
travel planning application, creating significant advantages over its online
competitors. The firm's marketing staff is now considering additional
syndication arrangements to further increase the customer value of the travel
planning application. Vignette provided the company with an e-Business
solution that significantly increased its customer conversion rates.
Financial Services Company
A major retail banking company planned an extensive Internet banking
initiative in which the Internet would become a primary business channel for
its retail customers. The bank's existing Web site was a simple system that
allowed customers to check account balances and read information about its
banking products. The bank needed to position the new version of its Web site
as a daily financial gateway that would assist customers with loan selection,
college planning, house purchases and managing personal stock portfolios. The
problem was that the bank's existing Web systems were designed as either a
means of delivering simple brochure content, or as Web-enabled front ends on
top of its proprietary transaction systems. Neither of these systems by
themselves could create an integrated advisory experience that would
reasonably engage clients on a daily basis and allow the bank to better retain
customers. The bank's new Web-based business required an Internet application
platform that could deliver a set of highly interactive, content-rich
applications to a large, diverse population of customers, and be managed on a
real-time basis by the bank's marketing managers. The bank knew that its
competitors were working on a similar project, and that time to market was
critical in order to increase market share and establish itself as an Internet
banking leader.
The bank selected our products as the strategic technology platform for the
future of its relationship-based banking business on the Web. By engaging VPS,
the bank was able to meet its application functional requirements and launch
dates, going online within months of its investment in the Vignette solution.
The bank's new Web site delivers a broad personal banking experience, offering
planning tools for products and services ranging from money management to auto
loans to insurance, as well as an individual investor portfolio management
system. In addition, the Web site delivers a news and research section that
syndicates daily investor information from the Dow Jones news service. The
success of this venture recently resulted in the bank's new parent deciding to
invest in another deployment of Vignette's platform for its next generation
retail banking Web site due to be launched early next year.
Worldwide Provider of News and Information
A major news and information publishing company planned on entering the
online regional communities business to compete with CitySearch and
Microsoft's (now CitySearch's) Sidewalk. The company's business plan called
for a major regional Web site accompanied by up to 250 local community Web
sites targeted to reach the local online communities. Existing technologies
made delivering multiple online communities cost-prohibitive
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because the cost of producing and managing each new Web site outweighed the
revenue potential. The company needed a platform that would enable it to
rapidly and cost-effectively deliver new online services across dozens of
regional Web sites, target local businesses as advertisers and let local
community leaders as well as staff editors produce editorial content while
controlling the overall production of each property at a central location.
Likewise, the development team needed a highly scalable application
architecture that would allow new online properties to be designed and
deployed using reusable applications and content yet allow each online
community Web site to uniquely interact with its visitors on topics of local
interest.
The client chose us because our platform offered a complete end-to-end
solution for hosting multiple Web sites from a single environment and content
base, and automating content management so that the control over the
production of each property was centralized. Using Vignette's products, the
company was able to build a broad base of advertising slots and maximize the
revenue potential of each Web site without the expense of running each
property individually. The production team now produces enhanced application
functionality from a central location for the various Web sites. At the same
time, community leaders retain control over their own presentation, navigation
and content. As a result, the company has been able to increase its market
share position for interactive community Web sites in its regions. It has
rapidly deployed dozens of local properties, and established a fixed-cost
business model that limits the growth in developer, producer and editor
headcount required to support the opportunity.
Technology
We believe our advanced technology enables our clients, partners and
consultants to build, deliver and manage enterprise-class e-Business
applications in less time, at lower cost and with better business results than
existing alternatives.
Product Architecture
We believe that we have developed a unique architecture for meeting the
technical demands of applications designed for e-Business. By emphasizing an
application architecture based on content management, a lifecycle
personalization model that effectively accommodates both Web customer
acquisition and retention, and a patented design for scalable and high-
performance Web page delivery, our solution provides an efficient architecture
for clients to build and deploy scalable e-Business applications quickly and
cost-effectively. We believe that this architecture also provides a strong
foundation on which we can develop future products.
V/5 Content Management Server. We have developed proprietary content
management technology designed to manage the high volume of dynamic
interactions that occur between many concurrent Web site visitors and the
relationship management application. The content management system provides
three key functions:
. Content Abstraction Services. Allow application developers to build and
deploy applications that can access and manage any type of content, such
as relational data, flat files, or XML (Extensible Markup Language) data
through a single Application Programming Interface, or API, model. This
simplifies application development and significantly reduces time-to-
deployment by uncoupling decisions about storage repositories and data
formats from application logic and protects existing database repository
investments. Our Development Center tool, a visual data modeling and
drag-and-drop application builder tool, takes further advantage of these
content abstraction services.
. Automated Asset Management. Provides a broad set of functionality for
managing and automating most tasks associated with managing content
assets, including production team access control, asset-specific
workflow, version control, launch and expiration scheduling, and visual
project management.
. Content Components. Greatly enhance the template-based approach to
Internet application development. Components allow Internet applications
to be built and operated in an object-oriented fashion, with components
serving as the building blocks for dynamic assembly and adaptive
navigation. Unlike other products that require complex programming to
support interactivity, StoryServer 4 provides native support for
interactive content components. This approach eliminates the problem of
inflexible application structures associated with existing template-
based dynamic architectures.
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V/5 Lifecycle Personalization Server. Our Lifecycle Personalization Server
is designed to help clients substantially increase their conversion rates and
increase the lifetime value of the typical online customer by managing
relationships through their complete lifecycle. These services, which are
described below, enable clients to personalize Web experiences by adapting the
site's presentation, navigation and content based on implicitly observed
behavior and explicitly stated preferences as the relationship evolves over a
number of interactions from anonymous visitor to well-known customer. We
believe that our approach requires less time and effort to deploy and
maintain, and requires substantially less investment in Web server hardware
than competing alternatives.
Our Lifecycle Personalization Server consists of five primary components,
which when utilized in combination with V/5 Content Management Server enables
clients and partners to develop applications that are effective for both
online customer acquisition and customer retention.
. Presentation Agent for System Targeting. Automatically adapts the
application's presentation to accommodate a new, anonymous visitor's
environment to present content that is suited to the visitor's browser
capabilities, operating system, and local language.
. Matching Agent for Behavior Targeting. As a new visitor becomes familiar
with the site, the Matching Agent uses observations about a visitor's
behavior on the Web site to infer the visitor's interest and to adapt
navigation and content to observed affinities. With the Matching Agent,
businesses can implement targeted merchandising over the Web without
requiring visitors to explicitly divulge information about themselves.
. Recommendation Agent for Needs Targeting. The Recommendation Agent is
utilized when visitors become sufficiently familiar with the site to
facilitate targeted suggestions. The Recommendation Agent recommends
content to a visitor that others with similar tastes found interesting.
. Personal Pages for Customization. Useful at the well-known stage, the
site can offer the capability for visitors to define personal pages that
are explicitly tailored to their needs each time they return to the
site.
. Open Profiling Services. Open Profiling Services manage and populate a
centralized repository of visitor profile and content information. This
feature provides a visitor registry for storing visitor information, a
content catalog for creating taxonomy of content on the Web site for use
in personalization, and an Observation Manager that observes, tracks and
records visitor behavior and preferences without impacting site
performance.
V/5 Syndication Server. The Vignette V/5 Syndication Server utilizes a
proprietary set of technologies that allows customers to build online reseller
channels through affiliate Web sites. V/5 Syndication Server allows the
creation of these channels by using a logical set of content, or packages,
business rules for governing affiliate relationships, or subscriptions, and
automated remote management services for managing content within affiliate Web
sites. These proprietary services have been based on the emerging Information
and Content Exchange, or ICE, specification standard for content syndication,
which is an XML-based specification being jointly developed by us and over
seventy other companies including Microsoft, Sun Microsystems and Adobe. None
of the companies involved in the development of the ICE specification have any
proprietary rights with respect to the technology. Although we have no
obligation, as the initial member of the authoring group, to continue
developing ICE for the World Wide Web Consortium, or W3C, it is our intention
to continue to assist in the development and use of the ICE protocol. We
believe that by fostering the creation and adoption of an open standard for
content syndication, and being the first company to provide proprietary value-
added services in the delivery of a product that embodies these concepts, we
will be able to quickly establish technology leadership in this arena.
V/5 Communication Server. Vignette V/5 Communication Server is designed to
extend the Web beyond the Web site. It will enhance e-Business applications
with the ability to automatically reach out to the customer via wireless web,
e-mail, 2-way pager, and other communication media. An open architecture
allows dynamic integration of new communication options, such as instant
messaging systems and palmtop organizers. Customer interaction can be tailored
by customer preferences and by organizational policies. Communication
initiated by the server, as well as responses by the customer, can be
monitored and tracked. V/5 Communication Server originated from technology
obtained through the acquisition of Diffusion.
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V/5 Relationship Marketing Server. The Vignette V/5 Relationship Marketing
Server utilizes a number of proprietary technologies to deliver complete
closed-loop e-marketing capabilities. These capabilities consist of
1) measurement and analysis of customer interactions across multiple business
touchpoints; 2) segmentation of customers and web site visitors into relevant
groups for purposes of analysis and targeted communications; and 3) campaign
management to enable automated delivery of highly targeted communications
across a variety of digital channels. The result is that communications with
customers become more effective at achieving business objectives, such as
delivery of timely and relevant information, larger and more frequent online
purchases, and increased customer loyalty. The first two capabilities above--
measurement/analysis and segmentation--were obtained through the acquisition
of DataSage. Segmentation algorithms incorporated into the V/5 Relationship
Marketing Server include Kmeans, leader clustering, Kohonen neural networks,
top-down hierarchical clustering, and cellular clustering (proprietary).
Classification and estimation algorithms include C4.5 decision tree,
RegressionTree, linear/polynomial regression, nearest neighbor classification,
backpropagation neural networks, and CirrusNet (proprietary).
Scalability and Performance
We believe that one of our key technological strengths is the Vignette V/5
E-Business Platform's ability to deliver industry-leading Web page delivery
performance and scalability while running on low-cost Web server hardware.
Internet applications that are built with competing products that dynamically
generate Web pages can be significantly slower (depending on the server
configuration) than first generation static Web sites. This degrades the
overall Web site experience for the site visitor, lowers the visitor's
interest in returning to the Web site, reduces the client's ability to handle
large visitor traffic volumes, and creates a requirement for the client to
significantly increase Web server capital equipment expenditures.
The V/5 Platform's ability to deliver unique performance characteristics is
achieved using three techniques:
. A patented caching mechanism is integrated with the product's content
component architecture and allows applications to deliver dynamically
generated and personalized Web pages at speeds nearly equivalent to the
performance of static Web page delivery.
. Integration of this patented caching mechanism with our personalization
technologies, so highly personalized Web pages can be delivered without
the cost and real-time delay of significant transactional computation
required by other solutions attempting to offer personalization
capabilities.
. The ability to distribute server-side application components of the
platform product across multiple physical Web servers allows high-end
sites to scale up performance and gain increased system availability as
a result.
Adherence to Industry Standards
We have invested significant resources in developing our architecture to
comply with widely accepted commercial software industry standards for
building large scale Internet applications. Our products use SQL (Structured
Query Language) for accessing RDBMSs (Relational Database Management Systems),
HTTP (Hypertext Transfer Protocol) for Internet access, NSAPI (Netscape
Application Programming Interface) for access to Netscape's Internet servers,
ISAPI (Information Server Application Programming Interface) for access to
Microsoft's Internet servers, and XML for representing and processing content.
Adherence to these industry standards provides compatibility with existing
applications, enables ease of modification and reduces the need for software
to be rewritten, thus protecting the client's investment. Furthermore, our
products can be operated in conjunction with RDBMSs provided by Oracle, IBM,
Microsoft or Sybase, utilizing their native, high-performance interfaces. With
the development of the V/Series product architecture and the release of the
V/5 E-Business Platform we have also invested significantly in adapting our
products to comply with emerging Internet architecture standards--specifically
the Java 2 Enterprise Edition (J2EE) standard and with Microsoft's Windows DNA
2000 architecture. Our efforts in these directions enable our customers to
leverage ASP and JSP programming models, COM and EJB as integration models, as
well as the services provided by compliant application servers in each
respective architectural standard.
18
We have focused our investments in particular on developing our architecture
to comply with XML, a recently approved standard for data representation being
adopted by the industry. Software systems that are XML-compliant provide
customers with the ability to reduce application development time, easily
integrate with legacy enterprise systems, and build applications that span the
business processes of the company, its suppliers, distributors and customers.
We believe that our rapid adoption of XML and our leadership position in
building applications based on XML will allow us to further our technology
leadership as this standard becomes the de facto data representation model for
enterprise applications delivery. Specifically, we first introduced XML
services in the 3.2 release of StoryServer and built our Vignette Syndication
Server on top of an XML-based protocol known as ICE. We continue to invest in
XML technologies and participate as a member of the W3C standards committee,
with representation on the W3C Advisory Committee.
We develop most of our software in Java or C++, two widely accepted standard
programming languages for developing object-oriented applications. We choose
whichever language is best suited to the requirements of a particular
component.
Research and Development
We have made substantial investments in research and development through
both internal development and technology acquisitions. Although we plan to
continue to evaluate externally developed technologies for integration into
our product lines, we expect that most enhancements to existing and new
products will be developed internally.
The majority of our research and development activity has been directed
towards feature extensions to our family of products. This development
consists primarily of adding new competitive product features and additional
tools and products as we expand into new markets.
Our research and development expenditures, including the write-off of
acquired in-process research and development, for fiscal 1997, 1998 and 1999
were approximately $2.9 million, $7.0 million and $16.4 million, respectively.
We expect that we will continue to commit significant resources to research
and development in the future. All research and development expenses have been
expensed as incurred. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer requirements. The
introduction of products incorporating new technologies and the emergence of
new industry standards could render existing products obsolete and
unmarketable. Our future success will depend in part on our ability to
anticipate changes, enhance our current products, develop and introduce new
products that keep pace with technological advancements and address the
increasingly sophisticated needs of our customers. See "Risk Factors--Risks
Related to Our Business--If We are Unable to Meet the Rapid Changes in e-
Business Applications Technology Our Existing Products Could Become Obsolete."
Sales and Marketing
We market our products primarily through our direct sales force and also
intend to expand our indirect sales through additional relationships with
systems integrators, VARs and OEMs. We generate leads from a variety of
sources, including businesses seeking partners to develop interactive
marketing and selling applications. Initial sales activities typically include
a demonstration of our product capabilities followed by one or more detailed
technical reviews. As of December 31, 1999, the direct sales force consisted
of 166 sales executives and support personnel.
We seek to establish partnerships with major industry vendors that will add
value to our products and expand distribution opportunities. We also pursue
marketing agreements with premier content authoring vendors, site usage
analysis vendors and vertically aligned Web server vendors.
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We use a variety of marketing programs to build market awareness of us, our
brand name and our products, as well as to attract potential clients for our
products. A broad mix of programs are used to accomplish these goals,
including market research, product and strategy updates with industry
analysts, public relations activities, direct mail and relationship marketing
programs, seminars, trade shows, speaking engagements and Web site marketing.
Our marketing organization also produces marketing materials in support of
sales to prospective clients that include brochures, data sheets, white
papers, presentations and demonstrations.
Strategic Alliances
A critical element of our sales strategy is to establish strategic alliances
to assist us in marketing, selling and developing customer applications, as
well as to increase product interoperability within the industry. This
approach is intended to increase the number of personnel available to perform
application design and development services for our clients and provide
additional marketing expertise and technical expertise in certain vertical
industry segments. These alliances fall into four categories: (a) the
Information & Content Exchange alliance, (b) platform alliances, (c) e-
commerce and technology alliances and (d) design alliances.
Information and Content Exchange Alliance. To facilitate the adoption of
Web-based content syndication technologies in the marketplace, we co-founded
the ICE working group to create an industry-standard protocol for enabling
cross-Website syndication capabilities. In January 1998, we formed the ICE
Authoring Group comprising 12 additional companies: Adobe, CNET, Firefly,
Hollinger International, Microsoft, National Semiconductor, Net Perceptions,
News Internet Services, Preview Travel, Sun Microsystems (JavaSoft), Tribune
Media Services and Ziff Davis. In support of this protocol creation, we have
also co-founded the ICE Advisory Council comprising over 70 companies that
provide input and feedback to the Authoring Group during the creation of the
protocol.
Customer Profile Exchange Alliance. In September of 1999 Vignette founded
the CPExchange working group to create a standard for customer information
across enterprise applications. CPExchange offers a vendor-neutral, open
standard for facilitating the privacy-enabled interchange of customer
information across disparate enterprise applications and systems. The
CPExchange standard integrates online and offline customer data in an
XML-based data model for use within various enterprise applications both on
and off the Web. Chaired by Siebel Systems, CPExchange now counts among its
70+ members companies such as IBM, Oracle, Intuit, Acxiom, Lucent Technologies
and Sun/Netscape.
Platform Alliances. To ensure that our products are based on industry
standards and take advantage of current and emerging technologies, we
emphasize strategic platform alliances. The benefits of this approach include
enabling us to focus on our core competencies, reducing time to market and
simplifying the task of designing and developing applications by both our
customers and us. Key strategic platform alliances to date have included
strategic relationships with IBM, provider of industry-leading e-Business
software; Sun Microsystems, developer of the Java language; Oracle and Sybase,
providers of industry-standard relational databases; and Hewlett-Packard, a
leading Internet server hardware manufacturer.
e-Commerce and Technology Alliances. To assure that our products are
compatible with the latest e-commerce and technology trends, we have formed
alliances with many of the leading companies serving the Web. We exchange
marketing and sales information, sales leads, and technology integration
practices with our partners. Our e-commerce and technology alliance categories
include: e-commerce transactions; ad management; site traffic management;
multi-lingual site support and translations; personalization; operations
management; security; information architecture and navigation; high value
content loading and maintenance and building online communities.
Representative alliance partners include Vitessa for e-commerce transactions,
BizRate.com for consumer reporting and iSyndicate for Web content syndication.
Design Alliances. Our prospective customers often retain the services of Web
design firms. These companies' primary business is to provide design services
rather than software resale. However, many are regarded as thought leaders in
the field and have influence over technology choices for the customer. We have
established relationships with 36 of these design firms.
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Our strategy is to establish additional alliances as new technologies and
standards emerge, although no assurance can be given that we will be
successful in establishing such alliances.
Competition
The market for our products is intensely competitive, subject to rapid
technological change and significantly affected by new product introductions
and other market activities of industry participants. We expect competition to
persist and intensify in the future. We have three primary sources of
competition: in-house development efforts by potential clients or partners;
other vendors of software that directly address e-Business solutions, such as
BroadVision; and developers of point solution software that address only
certain technology components of e-Business solutions (e.g., content
management), such as Interwoven.
Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do and
thus may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Also, many current and potential
competitors have wider name recognition and more extensive customer bases that
could be leveraged, thereby gaining market share to our detriment. Such
competitors may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies, and offer more attractive terms to
purchasers than we can. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or
with third parties to enhance their products. Accordingly, it is possible that
new competitors or alliances among competitors may emerge and rapidly acquire
significant market share.
Such competition could materially and adversely affect our ability to obtain
revenues from either license or service fees from new or existing customers on
terms favorable to us. Further, competitive pressures may require us to reduce
the price of our software. In either case, our business, operating results and
financial condition would be materially and adversely affected. There can be
no assurance that we will be able to compete successfully with existing or new
competitors or that competition will not have a material adverse effect on our
business, financial condition and operating results. See "Risk Factors--Risks
Related to Our Business--We Face Intense Competition for e-Business
Applications Software Which Could Make it Difficult to Acquire and Retain
Clients Now and in the Future."
Proprietary Rights and Licensing
Our success and ability to compete is dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret, and copyright law and contractual
restrictions to protect the proprietary aspects of our technology. These legal
protections afford only limited protection for our technology. We presently
own two patents and have two patent applications pending in the United States.
We have one registered trademark in the United States, seven pending trademark
applications in the United States, six registered trademarks in foreign
countries, and 38 pending trademark applications in foreign countries. We seek
to protect our source code for our software, documentation and other written
materials under trade secret and copyright laws. We license our software
pursuant to signed license or "shrinkwrap" agreements, which impose certain
restrictions on the licensee's ability to utilize the software. Finally, we
seek to avoid disclosure of our intellectual property by requiring employees
and consultants with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source
code. Due to rapid technological change, we believe that factors such as the
technological and creative skills of our personnel, new product developments
and enhancements to existing products are more important than the various
legal protections of our technology to establishing and maintaining a
technology leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of
our software exists, software piracy can be expected to be a persistent
problem. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary
21
rights of others or to defend against claims of infringement or invalidity.
However, the laws of many countries do not protect our proprietary rights to
as great an extent as do the laws of the United States. Any such resulting
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition. There can be no assurance that our means of protecting
our proprietary rights will be adequate or that our competitors will not
independently develop similar technology. Any failure by us to meaningfully
protect our property could have a material adverse effect on our business,
operating results and financial condition.
To date, we have not been notified that our products infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement with respect to our current or future
products. We expect that developers of Web-based commerce software products
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and as the functionality of
products in different segments of the software industry increasingly overlaps.
Any such claims, with or without merit, could be time-consuming to defend,
result in costly litigation, divert management's attention and resources,
cause product shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all. A successful claim of product
infringement against us and our failure or inability to license the infringed
technology or develop or license technology with comparable functionality
could have a material adverse effect on our business, financial condition and
operating results. See "Risk Factors--Risks Related to Our Business--Our
Business is Based on Our Intellectual Property and We Could Incur Substantial
Costs Defending Our Intellectual Property From Infringement or a Claim of
Infringement."
We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms. We
license RSA BSAFE software under a perpetual license agreement for security
functionality in our StoryServer software. We license software from Net
Perceptions for certain personalization functionality in our StoryServer
software. We license the Autonomy KnowledgeBuilder product for the development
of certain concept and keyword search functionality. The agreement expires in
October 2001, but it is renewed automatically for successive one-year terms
unless one party gives six months notice prior to the renewal date. We license
the Vitessa Internet Product Code and related technology for product
identification and related functions in an e-commerce environment. The
agreement continues in force indefinitely, but may be terminated for any
reason upon 90 days notice, provided such termination may not occur before
October 2002. In addition, we license RogueWave Software to provide embedded
low-level C++ utility functions in its software under a perpetual license
agreement accompanied by annual maintenance renewals. If we cannot maintain
licenses to this third-party software, shipments of our products could be
delayed until equivalent software could be developed or licensed and
integrated into our products, which could materially adversely affect our
business, operating results and financial condition.
Employees
As of December 31, 1999, we had a total of 757 employees. Of the total
employees, 187 were in engineering, 243 in sales and marketing, 246 in
professional services and 81 in finance and administration. Our future success
will depend in part on our ability to attract, retain and motivate highly
qualified technical and management personnel, for whom competition is intense.
From time to time we also employ independent contractors to support our
professional services, product development, sales, marketing and business
development organizations. Our employees are not represented by any collective
bargaining unit, and we have never experienced a work stoppage. We believe our
relations with our employees are good.
22
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information in this Report, the following risk
factors should be considered carefully in evaluating our business and us.
Risks Related to Our Business
We Expect to Incur Future Losses
We incurred net losses of $3.6 million for the year ended December 31, 1996,
$7.5 million for the year ended December 31, 1997, $26.2 million for the year
ended December 31, 1998, and $42.5 million for the year ended December 31,
1999. As of December 31, 1999, we had an accumulated deficit of $79.8 million.
We have not achieved profitability and we expect to incur net losses for the
foreseeable future. To date, we have primarily funded our operations from the
sale of equity securities and have not generated cash from operations. We
expect to continue to incur significant product development, sales and
marketing, and administrative expenses and, as a result, we will need to
generate significant revenues to achieve and maintain profitability. Although
our revenues have grown significantly in recent quarters, we cannot be certain
that we can sustain these growth rates or that we will achieve sufficient
revenues for profitability. If we do achieve profitability, we cannot be
certain that we can sustain or increase profitability on a quarterly or annual
basis in the future.
Our Limited Operating History Makes Financial Forecasting Difficult
We were founded in December 1995 and thus have a limited operating history.
As a result of our limited operating history, we cannot forecast operating
expenses based on our historical results. Accordingly, we base our expenses in
part on future revenue projections. Most of our expenses are fixed in the
short term and we may not be able to quickly reduce spending if our revenues
are lower than we had projected. Our ability to forecast accurately our
quarterly revenue is limited because our software products have a long sales
cycle that makes it difficult to predict the quarter in which sales will
occur. We would expect our business, operating results and financial condition
to be materially adversely affected if our revenues do not meet our
projections and that net losses in a given quarter would be even greater than
expected.
We Expect Our Quarterly Revenues and Operating Results to Fluctuate
Our revenues and operating results are likely to vary significantly from
quarter to quarter. A number of factors are likely to cause these variations,
including:
. Demand for our products and services;
. The timing of sales of our products and services;
. The timing of customer orders and product implementations;
. Unexpected delays in introducing new products and services;
. Increased expenses, whether related to sales and marketing, product
development or administration;
. Changes in the rapidly evolving market for e-Business applications
solutions;
. The mix of product license and services revenue, as well as the mix of
products licensed;
. The mix of services provided and whether services are provided by our
own staff or third-party contractors;
. The mix of domestic and international sales; and
. Costs related to possible acquisitions of technology or businesses.
Accordingly, we believe that quarter-to-quarter comparisons of our operating
results are not necessarily meaningful. Investors should not rely on the
results of one quarter as an indication of our future performance.
23
We plan to increase our operating expenses to expand our sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services and support and improve
operational and financial systems. If our revenues do not increase along with
these expenses, our business, operating results or financial condition could
be materially adversely affected and net losses in a given quarter would be
even greater than expected.
Although we have limited historical financial data, we believe that our
quarterly operating results may experience seasonal fluctuations. For
instance, quarterly results may fluctuate based on our clients' calendar year
budgeting cycles, slow summer purchasing patterns in Europe and our
compensation policies that tend to compensate sales personnel, typically in
the latter half of the year, for achieving annual quotas.
Our Quarterly Results Often Depend on a Small Number of Large Orders
We derive a significant portion of our software license revenues in each
quarter from a small number of relatively large orders. Although we do not
believe that the loss of any particular customer would have an adverse effect
on our business, our operating results could be materially adversely affected
if we were unable to complete one or more substantial license sales in any
future period. For example, in five of the last twelve quarters in the period
ended December 31, 1999, we had at least one customer that accounted for at
least 10% of total revenue in such quarter.
We Depend on Increased Business from Our Current and New Customers and If We
Fail to Grow Our Customer Base or Generate Repeat Business, Our Operating
Results Could Be Harmed
If we fail to grow our customer base or generate repeat and expanded
business from our current and new customers, our business and operating
results would be seriously harmed. Most of our customers initially make a
limited purchase of our products and services for pilot programs. Many of
these customers may not choose to purchase additional licenses to expand their
use of our products. Many of these customers have not yet developed or
deployed initial applications based on our products. If these customers do not
successfully develop and deploy such initial applications, they may not choose
to purchase deployment licenses or additional development licenses. Our
business model depends on the expanded use of our products within our
customers' organizations.
In addition, as we introduce new versions of our products or new products,
our current customers may not require the functionality of our new products
and may not ultimately license these products. Because the total amount of
maintenance and support fees we receive in any period depends in large part on
the size and number of licenses that we have previously sold, any downturn in
our software license revenue would negatively impact our future services
revenue. In addition, if customers elect not to renew their maintenance
agreements, our services revenue could be significantly adversely affected.
Our Operating Results May Be Adversely Affected By Small Delays in Customer
Orders or Product Implementations
Small delays in customer orders or product implementations can cause
significant variability in our license revenues and operating results for any
particular period. We derive a substantial portion of our revenue from the
sale of products with related services. In these cases, our revenue
recognition policy requires us to substantially complete the implementation of
our product before we can recognize software license revenue, and any end of
quarter delays in product implementation could materially adversely affect
operating results for that quarter.
In Order to Increase Market Awareness of Our Products and Generate Increased
Revenue We Need to Expand Our Sales and Distribution Capabilities
We must expand our direct and indirect sales operations to increase market
awareness of our products and generate increased revenue. We cannot be certain
that we will be successful in these efforts. We have recently expanded our
direct sales force and plan to hire additional sales personnel. Our products
and services require a sophisticated sales effort targeted at the senior
management of our prospective clients. New hires will require
24
training and take time to achieve full productivity. We cannot be certain that
our recent hires will become as productive as necessary or that we will be
able to hire enough qualified individuals in the future. We also plan to
expand our relationships with value-added resellers, systems integrators and
other third-party resellers to build an indirect sales channel. In addition,
we will need to manage potential conflicts between our direct sales force and
third-party reselling efforts.
Failure To Maintain The Support Of Third Party e-Business Consultants May
Limit Our Ability To Penetrate Our Markets
A significant portion of our sales are influenced by the recommendations of
our products made by systems integrators, consulting firms and other third
parties that help develop and deploy e-business applications for our clients.
Losing the support of these third parties may limit our ability to penetrate
our markets. These third parties are under no obligation to recommend or
support our products. These companies could recommend or give higher priority
to the products of other companies or to their own products. A significant
shift by these companies toward favoring competing products could negatively
affect our license and service revenue.
Our Lengthy Sales Cycle and Product Implementation Makes It Difficult to
Predict Our Quarterly Results
We have a long sales cycle because we generally need to educate potential
clients regarding the use and benefits of e-Business applications. Our long
sales cycle makes it difficult to predict the quarter in which sales may fall.
In addition, since we recognize the majority of our revenue from product sales
upon implementation of our product, the timing of product implementation could
cause significant variability in our license revenues and operating results
for any particular period. The implementation of our products requires a
significant commitment of resources by our clients, third-party professional
services organizations or our professional services organization, which makes
it difficult to predict the quarter when implementation will be completed.
We May Be Unable to Adequately Develop A Profitable Professional Services
Organization Which Could Affect Both Our Operating Results and Our Ability to
Assist Our Clients with the Implementation of Our
Products.
We cannot be certain that we can attract or retain a sufficient number of
the highly qualified services personnel that our business needs and we cannot
be certain that our services business will ever achieve profitability. Clients
that license our software typically engage our professional services
organization to assist with support, training, consulting and implementation
of their Web solutions. We believe that growth in our product sales depends on
our ability to provide our clients with these services and to educate third-
party resellers on how to use our products. As a result, we plan to increase
the number of service personnel to meet these needs. New services personnel
will require training and education and take time to reach full productivity.
To meet our needs for services personnel, we may also need to use more costly
third-party consultants to supplement our own professional services
organization. We expect our services revenue to increase in absolute dollars
as we continue to provide consulting and training services that complement our
products and as our installed base of clients grows. To date, services costs
related to professional services have exceeded, or have been substantially
equal to, professional services-related revenue. Although we expect that our
professional services-related revenue will exceed professional services-
related costs in future periods, we cannot be certain that this will occur. We
generally bill our clients for our services on a "time and materials" basis.
However, from time to time we enter into fixed-price contracts for services.
On occasion, the costs of providing the services have exceeded our fees from
these contracts and, from time to time, we may misprice future contracts to
our detriment. In addition, competition for qualified services personnel with
the appropriate Internet specific knowledge is intense. We are in a new market
and there is a limited number of people who have acquired the skills needed to
provide the services that our clients demand.
We May Be Unable to Attract Necessary Third Party Service Providers Which
Could Affect Our Ability to Provide Support, Consulting and Implementation
Services for Our Products
There may be a shortage of third party service providers to assist our
clients the implementation of our products. We do not believe our professional
services organization will be able to fulfill the expected demand for
25
support, consulting and implementation services for our products. We are
actively attempting to supplement the capabilities of our services
organization by attracting and educating third party service providers and
consultants to also provide these services. We may not be successful in
attracting these third party providers or maintaining the interest of current
third party providers. In addition, these third parties may not devote enough
resources to these activities. A shortfall in service capabilities may affect
our ability to sell our software.
Our Business May Become Increasingly Susceptible to Numerous Risks Associated
with International Operations
International operations are generally subject to a number of risks,
including:
. Expenses associated with customizing products for foreign countries;
. Protectionist laws and business practices that favor local competition;
. Dependence on local vendors;
. Multiple, conflicting and changing governmental laws and regulations;
. Longer sales cycles;
. Difficulties in collecting accounts receivable;
. Foreign currency exchange rate fluctuations; and
. Political and economic instability.
We received 15% of our total revenue in the year ended December 31, 1999,
respectively, through licenses and services sold to clients located outside of
the United States. We expect international revenue to account for a
significant percentage of total revenue in the future and we believe that we
must continue to expand our international sales activities in order to be
successful. Our international sales growth will be limited if we are unable to
establish additional foreign operations, expand international sales channel
management and support organizations, hire additional personnel, customize
products for local markets, develop relationships with international service
providers and establish relationships with additional distributors and third
party integrators. In that case, our business, operating results and financial
condition could be materially adversely affected. Even if we are able to
successfully expand international operations, we cannot be certain that we
will be able to maintain or increase international market demand for our
products.
To date, a majority of our international revenues and costs have been
denominated in foreign currencies. We believe that an increasing portion of
our international revenues and costs will be denominated in foreign currencies
in the future. In addition, although we cannot predict the potential
consequences to our business as a result of the adoption of the Euro as a
common currency in Europe, the transition to the Euro presents a number of
risks, including increased competition from European firms as a result of
pricing transparency. To date, we have not engaged in any foreign exchange
hedging transactions and we are therefore subject to foreign currency risk.
In Order to Properly Manage Growth, We May Need to Implement and Improve Our
Operational Systems on a Timely Basis
We have expanded our operations rapidly since inception. We intend to
continue to expand in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. In order to manage growth effectively,
we must implement and improve our operational systems, procedures and controls
on a timely basis. If we fail to implement and improve these systems, our
business, operating results and financial condition will be materially
adversely affected.
We May Be Adversely Affected If We Lose Key Personnel
Our success depends largely on the skills, experience and performance of
some key members of our management. If we lose one or more of these key
employees, our business, operating results and financial
26
condition could be materially adversely affected. In addition, our future
success will depend largely on our ability to continue attracting and
retaining highly skilled personnel. Like other software companies, we face
intense competition for qualified personnel, particularly in the Austin, Texas
area. We cannot be certain that we will be successful in attracting,
assimilating or retaining qualified personnel in the future.
We Have Relied and Expect to Continue to Rely on Sales of Our StoryServer
Product Line for Our Revenue
We currently derive substantially all of our revenues from the license and
related upgrades, professional services and support of our StoryServer
software products. We expect that we will continue to depend on revenue
related to new and enhanced versions of our StoryServer product line for at
least the next several quarters. We cannot be certain that we will be
successful in upgrading and marketing our products or that we will
successfully develop and market new products and services. If we do not
continue to increase revenue related to our existing products or generate
revenue from new products and services, our business, operating results and
financial condition would be materially adversely affected.
Our Future Revenue is Dependent Upon Our Ability to Successfully Market Our
Vignette Syndication Server
We expect that our future financial performance will depend significantly on
revenue from Vignette Syndication Server and the related tools that we plan to
develop, which is subject to significant risks. We began shipping Vignette
Syndication Server to clients in the first quarter of 1999. This is the first
version of a new product designed for a new market opportunity. There are
significant risks inherent in a product introduction such as Vignette
Syndication Server. Market acceptance of Vignette Syndication Server will
depend on a market developing for Internet syndication products and services
and the commercial adoption of standards on which Vignette Syndication Server
is based. We cannot be certain that either will occur. We cannot be certain
that Vignette Syndication Server will meet customer performance needs or
expectations when shipped or that it will be free of significant software
defects or bugs. If Vignette Syndication Server does not meet customer needs
or expectations, for whatever reason, upgrading or enhancing the product could
be costly and time consuming.
If We are Unable to Meet the Rapid Changes in e-Business Applications
Technology Our Existing Products Could Become Obsolete
The market for our products is marked by rapid technological change,
frequent new product introductions and Internet-related technology
enhancements, uncertain product life cycles, changes in client demands and
evolving industry standards. We cannot be certain that we will successfully
develop and market new products, new product enhancements or new products
compliant with present or emerging Internet technology standards. New products
based on new technologies or new industry standards can render existing
products obsolete and unmarketable. To succeed, we will need to enhance our
current products and develop new products on a timely basis to keep pace with
developments related to Internet technology and to satisfy the increasingly
sophisticated requirements of our clients. Internet commerce technology,
particularly e-Business applications technology, is complex and new products
and product enhancements can require long development and testing periods. Any
delays in developing and releasing enhanced or new products could have a
material adverse effect on our business, operating results and financial
condition.
We Face Intense Competition for e-Business Applications Software Which Could
Make it Difficult to Acquire and Retain Clients Now and in the Future
The Internet software market is intensely competitive. Our clients'
requirements and the technology available to satisfy those requirements
continually change. We expect competition to persist and intensify in the
future.
Our principal competitors include: in-house development efforts by potential
clients or partners; other vendors of software that directly address elements
of e-Business applications, such as BroadVision; and developers of software
that address only certain technology components of e-Business applications
(e.g., content management), such as Interwoven.
27
Many of these companies, as well as some other competitors, have longer
operating histories and significantly greater financial, technical, marketing
and other resources than we do. Many of these companies can also leverage
extensive customer bases and adopt aggressive pricing policies to gain market
share. Potential competitors such as Netscape and Microsoft may bundle their
products in a manner that may discourage users from purchasing our products.
In addition, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share.
Competitive pressures may make it difficult for us to acquire and retain
clients and may require us to reduce the price of our software. We cannot be
certain that we will be able to compete successfully with existing or new
competitors. If we fail to compete successfully against current or future
competitors, our business, operating results and financial condition would be
materially adversely affected.
We Must Successfully Integrate Our Recent Acquisitions of Diffusion, Inc.,
Engine 5, Ltd. and DataSage, Inc.
We acquired Diffusion, Inc., Engine 5, Ltd. and DataSage, Inc. on June 30,
1999, January 18, 2000 and February 15, 2000, respectively. Our failure to
successfully address the risks associated with our acquisitions of these
companies could have a material adverse affect on our ability to develop and
market products based on their respective technologies. In particular, we are
developing integrated products and, accordingly, are devoting significant
resources to product development, sales and marketing. The success of these
acquisitions will depend on our ability to:
. Successfully integrate and manage their operations;
. Retain their key employees; and
. Develop and market products based on the acquired technology.
Potential Future Acquisitions Could Be Difficult to Integrate, Disrupt Our
Business, Dilute Stockholder Value and Adversely Affect Our Operating Results
We may acquire other businesses in the future, which would complicate our
management tasks. We may need to integrate widely dispersed operations that
have different and unfamiliar corporate cultures. These integration efforts
may not succeed or may distract management's attention from existing business
operations. Our failure to successfully manage future acquisitions could
seriously harm our business. Also, our existing stockholders would be diluted
if we financed the acquisitions by issuing equity securities.
The Internet is Generating Privacy Concerns in the Public and Within
Governments, Which Could Result in Legislation Materially and Adversely
Affecting Our Business or Result in Reduced Sales of Our Products, or Both
Businesses use our StoryServer product to develop and maintain profiles to
tailor the content to be provided to Web site visitors. Typically, the
software captures profile information when consumers, business customers or
employees visit a Web site and volunteer information in response to survey
questions. Usage data collected over time augments the profiles. However,
privacy concerns may nevertheless cause visitors to resist providing the
personal data necessary to support this profiling capability. More
importantly, even the perception of security and privacy concerns, whether or
not valid, may indirectly inhibit market acceptance of our products. In
addition, legislative or regulatory requirements may heighten these concerns
if businesses must notify Web site users that the data captured after visiting
certain Web sites may be used by marketing entities to unilaterally direct
product promotion and advertising to that user. We are not aware of any such
legislation or regulatory requirements currently in effect in the United
States. Other countries and political entities, such as the European Economic
Community, have adopted such legislation or regulatory requirements. The
United States may adopt similar legislation or regulatory requirements. If
consumer privacy concerns are not adequately addressed, our business,
financial condition and operating results could be materially adversely
affected.
Our StoryServer product uses "cookies" to track demographic information and
user preferences. A "cookie" is information keyed to a specific server, file
pathway or directory location that is stored on a user's
28
hard drive, possibly without the user's knowledge, but generally removable by
the user. Germany has imposed laws limiting the use of cookies, and a number
of Internet commentators, advocates and governmental bodies in the United
States and other countries have urged passage of laws limiting or abolishing
the use of cookies. If such laws are passed, our business, operating results
and financial condition could be materially adversely affected.
We May Be Adversely Impacted by the Year 2000 and Other Information
Technology Issues
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example,
software with date-sensitive functions that is not Year 2000 compliant may not
be able to distinguish whether "00" means 1900 or 2000, which may result in
failures or the creation of erroneous results.
We are exposed to the risk that the Year 2000 Issue could disrupt our
operations. However, as discussed in prior filings, we undertook certain
planning and implementation efforts. We did not experience any significant
system failures at the turning of the new millennium. We presently believe
that the Year 2000 Issue has been mitigated. The amounts incurred and expensed
for developing and carrying out the plans to complete the Year 2000
modifications did not have a material effect on our operations. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Update."
We Develop Complex Software Products Susceptible to Software Errors or
Defects that Could Result in Lost Revenues, or Delayed or Limited Market
Acceptance
Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Despite internal testing and testing by current and potential
customers, our current and future products may contain serious defects,
including Year 2000 errors. Serious defects or errors could result in lost
revenues or a delay in market acceptance, which would have a material adverse
effect on our business, operating results and financial condition.
If We Experienced a Product Liability Claim We Could Incur Substantial
Litigation Costs
Since our clients use our products for mission critical applications such as
Intern