How Versata Revives Software Companies

Last night I attended a Versata webinar hosted by Austic Scee, the new General Manager of Think3 products. One of the things that interested me the most was the way Versata revived sick software companies that it acquired.

Over the past 6 years Versata has acquired 20 software companies in varying degrees of financial distress. Apparently, the first 100 days are spent in stabilizing the code (I assume fixing bugs) and understanding what customers need. After that is done the products are revitalized by increasing performance and stability. This takes around 18 months during which time no effort is made to get new customers. All the focus is on the current customer base, I guess to ensure that they don’t run away. After that the code is advanced and the focus then includes getting new customers.

There are two ways to look at this. One way is to take this at face value and assume that this actually happens. If it does then one has to wonder what was stopping the current owners of the sick companies from doing exactly the same thing. Another way is to look at Versata as a company that buys sick companies and then tries to get as much money from the existing customer base for as long as it can. By their own admission, they actually start developing the code and start marketing the product only alter 18 months. Before that its all about bug fixes and getting existing customers to pay for their support contracts.

Austin mentioned that this recipe of reviving software companies works in some cases better than others. One of the slides in his presentation had an array of logos of companies I assume were revived in this fashion. However, he did not give any hard numbers indicating the health of the companies before and after they had underwent CPR by Versata. I wonder why.

One of the things that I am still trying hard to get a grip on is the way Versata does software development. They have something called devFactory which is basically around a thousand software developers strewn all across the world, I guess working from their homes or basements. Someone at Versata writes a spec of something to be coded and puts it out for these programmers to bid. One of them (or one team) is awarded the development contract (for the lack of a better term) and he starts implementing the feature or fixing the bug or doing whatever was detailed in the spec. After he is done he submits his code which is tested to see if it meets the spec. Accordingly the programmer is rated positively or negatively which increases or decreases his chance of winning another bid in the future. So basically they have a system like, a service that I have personally used with varying degrees of success. I stopped using it because it ended up causing more problems than it solved.

According to Austin Versata didn’t start out with an outsourcing business model. When the company was called Trilogy, they had their own development team. They started outsourcing development to programmers all around the world and found that it was a cost effective way to get the job done. So they continued to do that and are now applying that same philosophy to revive the software companies they they acquire.

There is something else I am having a hard time believing. Take a look at this chart from one of the slides of Austin’s presentation.

According to Austin, when Think3 was acquired in October 2010 and its employees were laid off, some of them were contracted to help support the existing customers. During that time around 11% of the customers rated the support they received as excellent. In December, Versata started to add their own support people to the mix and terminate the contracts of the former Think3 support engineers. This increased the numbers to 38% and then to 46% in March. The number now sits at 74%.

So if I am to believe this I have to also believe that the Versata support people who have little to no experience in CAD and PLM, let along the Think3 range of products, offer better support than the Think3 support engineers who have been supporting Think3 customers for all these years. Another thing. Are these Versata support people strewn all across the world bidding for support tickets? Frankly, I wouldn’t be surprised if they were.

What I find more interesting is that during the Q&A session at the end of the webinar someone asked Austin whether he was looking for expertise in CAD and PLM. Austin replied that we had an urgent need for product managers and was hoping that he could use former Think3 employees to fulfill his needs.

Make of this what you will.