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 RentACoder.com, 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.

  • Sid

    What did Austin have say about the ongoing legal battle, the Bologna court verdict and the trustee’s decision to cancel the contract with Versata? Cancellation of the contract meant Versata is forbidden to use think3 brand names, and is not allowed to develop or sell think3 products .

  • JhonJhon

    How many users attend the Versata webinar? 

  • JhonJhon

    In addition …. how many users are using the very stable code of 2011.3?
    Please answer …… :)
    Rate excellent 74% …. how many users give to WOW support problems?
    How many users need to have support in PLM customization?

    I suspect this data are very very ….. FALSE, I’m sure.

  • JhonJhon

    In addition …. how many users are using the very stable code of 2011.3?
    Please answer …… :)
    Rate excellent 74% …. how many users give to WOW support problems?
    How many users need to have support in PLM customization?

    I suspect this data are very very ….. FALSE, I’m sure.

  • 123

    I think Wersata is well versed with “professional fantasies” after acquiring 20 software companies in a span of 6 years !!!!!!
    better share statistics of customer support if its a true story..

  • Guest

    Even assuming that this is a workable turnaround strategy why does it include moving the IP to a third company and leaving the original company as bare as Mother Hubbard’s Cupboard. 

    And in the Think3 case Versata is proposing to revive the product when the IP has taken a walk back to its parent! 

  • JhonJhon

    I see Ray Kurland’s interview to Austin See. He claim that they are find a good CTO for Think3. Interesting ….. Think3 had a lot of people that can cover this position in the past ….
    Who will  be so clever to cover this position at Versata, even the history of the IP is true? Remember that the Italian Court claim back the acquisition because seems no one pay for the acquisition :)

  • http://www.deelip.com Deelip Menezes

     He said a few things about that. Nothing unexpected though. Claimed that they own the IP, bought it from Think3 Inc. US and not Think3 Italy, will fight in US and Italy, jurisdiction is wrong, stuff like that.

    This legal battle has just started. He made he point that Versata just won a four year long battle with SAP indicating that they were ready to do the same with Think3.

  • http://www.deelip.com Deelip Menezes

     That wasn’t disclosed.

  • http://www.deelip.com Deelip Menezes

     I would suspect that would be an integral part of the strategy. Because that is precisely what the current owners of the sick companies will not be able to do. Move the assets of the company into an entity that doesn’t have to deal with its liabilities. Remember that Versata bought only the IP of Think3. The liabilities of Think3 apparently went to someone else.

    As regards the IP, that issue is in court now and may stay there for a while.

  • JhonJhon

    Infact, no clear strategy. At the beginning of the acquisistion in the first mail from Scott was clear the they buy THINK3, non just the IP.
    He wrote with the address @think3.com. After some weeks they wrot with @versata.com. Now in the last e-mail from their you can find: Think3 is a trademark owned by think3.inc and licensed to Versata. So if the think3.inc is in bakcrupt how and who can license the think3 product to versata?  I’m not sure that the situation will stay in this status for a while. Only the Italian Court is the most clear structure in this situation, sure not Versata.

     

  • 1234

    since 123 is using my nick now, i will change to 1234…

    Ok, WOW – it´s true that wow support has quite low reaction times, if you compare it to former think3 support… But they don´t really have an idea what a cad system is ( my oppinion, perhaps some are better than those i had contact to so far)

    In the end neither think3 had nor has Versata has an excellent support.

    IP: Still it´s unclear who really owns the IP, but in my opinion it doesnt really make a difference where you buy your product, in the end one of the companies will win the fight, and they surely will do an offer to existing customers of the other company ( at least I hope so )

    Concluded – I hope that Versata will find some good coders for developing this product ( if they win the fight ), if not I hope think3 will find some

  • http://www.deelip.com Deelip Menezes

     What I find disturbing is the amount of time Versata needs to create a web site at http://think3.versata.com. Also with think3.com now under the control of the trustee, this is going to be a mess.

  • Castro

    Pensate che scenario : due società diverse, un solo prodotto, due sviluppi completamente diversi e in competizione….WOW 

  • Jagadish R

    just so you know, many of the questions are hatched by Versata executives themselves — they do run-throughs before the live event, and since they asked the questions, they have time to ponder the best way to answer

  • Kevin Quigley

     As an ex Think3 customer the support at Think3 was good “back in the day” but the basic issue was the quality of the software – at the time the Think3 management were comparing themselves to CATIA and NX, whilst most the customer base was squarely in the SolidWorks bracket. After 3 years of trying I gave up fighting with the software – as did most of the UK customer base at the time. Pretty much all of us moved to (or back to) SolidWorks.

    Of course there are some who fitted the exact niche Think3 had carved out – mainly those manipulating geometry created in other systems (Global shape modelling was built for this) and for them Think3 was a good solution – and it was interesting to see how they changed track shortly after this mass exodus into a more polarised sales model.

    I always kept tabs on Think3 but nothing ever enticed me back. The bottom line is and was the cost was high (in the UK it was well into the NX and CATIA bracket) and there was next to no local VAR support (which if you are buying a system that costly you do need and expect).

    All this Versata/Think3 battle means is that I would not touch it with a barge pole. I mean why would you buy into a system that you knew were disputing ownership? If I was still a Think 3 customer, I wouldn’t be for much longer  - SolidWorks, Siemens, PTC, Dassault are all chomping at the bit for sales and existing think3 customers look (to me) like easy prey – that is the bottom line.

  • Rob

    Dear think3 Customers and Partners,

    I look forward to having the current IP ownership questions behind us so we can all focus on more productive matters. For now, let me reassure that we are very confident in our case, and we are using all legal and commercial means at our disposal to protect our investment and to assert our rights. I will share more detail on our legal activity later this week. In the interim, I’d like to update you on upcoming product releases, and share some important assurances we are making to protect your investment in the products.
    We continue to make progress revitalizing the products we acquired from think3 Inc, and we expect to release version 2011.4 this week. Our first thinkTeam release will come mid-summer, and our Enterprise offering will be released in the third quarter of this year. The old think3 products are like a beautiful park in a city that ran out of money to maintain it. For the past several years, weeds have taken over and park benches have been overturned. With every release of the code, we are reclaiming the splendor of this once great park, and I am excited about our progress on the Versata think3 products.
    That said, much has happened in the last month. So, let me take a moment to reassure you on several points, and to further clarify our position on IP ownership.
    90-Day No Obligation Payment Holiday. If you feel uncertain as to whom you should pay for Versata’s think3 products, I urge you to wait until you feel you have clarity. We are confident that the legal issues will be resolved in the coming months, and that the Courts will have validated Versata’s legal ownership of the think3 products by that time. To eliminate any uncertainty in the interim, we are offering customers a “No Obligation Payment Holiday.” Any customer purchasing licenses, upgrading or renewing WOW Support, or taking advantage of our “Stop the Shelfware” offer will be able to do so free for 90 days. If at any point during those 90 days you reconsider your decision, you can cancel your contract with us with no questions asked. After 90 days, you will be invoiced for the next 12 months. To clarify, we are offering you an opportunity to get 15 months of maintenance or subscription for the price of 12 months with no invoice for 90 days.
    Support. We will continue to support customers who have not contracted with or paid Versata. You will not have access to new releases of the code, but we will continue to support you.
    Indemnification. Customers and partners that have contracted with Versata are protected against IP ownership claims. This is a standard term in software license and subscription agreements, but it is important to note that Versata has the resources to back up the guarantee.
    Misappropriation of IP. Any entity other than Versata providing licenses for think3 products is infringing on our intellectual property rights. We take these matters very seriously, and have top attorneys in the US and in Italy working on our behalf to resolve the current IP ownership questions. We understand this is a confusing time for customer and partners, and we want to be sure you are protected from any IP related exposure. So, please be sure you are only purchasing officially licensed think3 products from Versata.
    Look for another message from me this week updating you on our legal activity.
    Warmest Regards,
    Austin Scee
    General Manager
    think3 Division of Versata
    austin.scee@versata.com 

  • Rob

    Dear think3 Customers and Partners,

    I look forward to having the current IP ownership questions behind us so we can all focus on more productive matters. For now, let me reassure that we are very confident in our case, and we are using all legal and commercial means at our disposal to protect our investment and to assert our rights. I will share more detail on our legal activity later this week. In the interim, I’d like to update you on upcoming product releases, and share some important assurances we are making to protect your investment in the products.
    We continue to make progress revitalizing the products we acquired from think3 Inc, and we expect to release version 2011.4 this week. Our first thinkTeam release will come mid-summer, and our Enterprise offering will be released in the third quarter of this year. The old think3 products are like a beautiful park in a city that ran out of money to maintain it. For the past several years, weeds have taken over and park benches have been overturned. With every release of the code, we are reclaiming the splendor of this once great park, and I am excited about our progress on the Versata think3 products.
    That said, much has happened in the last month. So, let me take a moment to reassure you on several points, and to further clarify our position on IP ownership.
    90-Day No Obligation Payment Holiday. If you feel uncertain as to whom you should pay for Versata’s think3 products, I urge you to wait until you feel you have clarity. We are confident that the legal issues will be resolved in the coming months, and that the Courts will have validated Versata’s legal ownership of the think3 products by that time. To eliminate any uncertainty in the interim, we are offering customers a “No Obligation Payment Holiday.” Any customer purchasing licenses, upgrading or renewing WOW Support, or taking advantage of our “Stop the Shelfware” offer will be able to do so free for 90 days. If at any point during those 90 days you reconsider your decision, you can cancel your contract with us with no questions asked. After 90 days, you will be invoiced for the next 12 months. To clarify, we are offering you an opportunity to get 15 months of maintenance or subscription for the price of 12 months with no invoice for 90 days.
    Support. We will continue to support customers who have not contracted with or paid Versata. You will not have access to new releases of the code, but we will continue to support you.
    Indemnification. Customers and partners that have contracted with Versata are protected against IP ownership claims. This is a standard term in software license and subscription agreements, but it is important to note that Versata has the resources to back up the guarantee.
    Misappropriation of IP. Any entity other than Versata providing licenses for think3 products is infringing on our intellectual property rights. We take these matters very seriously, and have top attorneys in the US and in Italy working on our behalf to resolve the current IP ownership questions. We understand this is a confusing time for customer and partners, and we want to be sure you are protected from any IP related exposure. So, please be sure you are only purchasing officially licensed think3 products from Versata.
    Look for another message from me this week updating you on our legal activity.
    Warmest Regards,
    Austin Scee
    General Manager
    think3 Division of Versata
    austin.scee@versata.com 

  • Betternot

    Deelip, what do you know about this?

    http://www.chapter11blog.com/chapter11/2011/05/think3-inc-files-for-chapter-11.html

    Computer software company, think3 Inc., filed for chapter 11 yesterday at the United States Bankruptcy Court for the Western District of Texas.   The Austin, Texas-based Debtor is represented by Haynes and Boone, LLP.  The Debtor was acquired by ESW Capital LLC in September, 2010 in a stock -purchase transaction.
    According to Board member affidavit, “the Debtor has been in severe financial distress for some time.  The worldwide economic downturn caused a decline in the industries of the Debtor’s target customers, and the Debtor has been operating at a loss for several years”.  Moreover, on March 14, 2011, several creditors commenced an insolvency proceeding against the Debtor and its Italian Subsidiary in Bologna, Italy.  The Italian Court appointed a trustee that “has seized control of the Debtor’s and the Italian Subsidiary’s assets and property”.
    The Debtor seeks postpetition financing from Gensym Cayman, L.P.

  • Think3-Support-gDev-Team

    No they don’t bid for support tickets!

  • Think3-Support-gDev-Team

    No they don’t bid for support tickets!

  • http://www.deelip.com Deelip Menezes

    That’s very relieving to know.

  • Kiran Kumar

    haa haaaaaaaaaaaaaa… Good one.

  • Sailor

    I have experience with Versata through their acquisition of Everest enterprise management software.  Everest was going down the tubes when Versata purchased the company.  There were big promises of wonderful improvements to come, along with a big increase in support fees.  Our experience since has been horrible! 

    This company believes that if you just report glowing numbers, such as the 74% excellent rating above that it will somehow make it true.  I was on a recent quarterly conference call for all Everest customers where they were touting a similar number, however, during the call they did a live survey which revealed a satisfaction level below 15%.

    The Everest software operates way too slow.  At the time we purchased our support program, we were told that there would be major speed improvements in future releases.  They just announced that they have completed the speed improvements, and that we can have those speed improvements by upgrading to Enterprise “PLUS”.  WHAT???  We have to upgrade to get the promised improvements?  YES, and that upgrade will cost us 5 TIMES our current support fees.  I still can’t wrap my mind around what this company is thinking.

    Their most recent release has major bugs.  We cannot even make it work.  Support is absolutely terrible.  With more glowing numbers, they claim that nearly all of their support tickets are closed, but the problem is they usually “close” their support tickets by saying the fix will be in the next release.

    I truly believe this company is doing just enough to keep their customers on the hook in order to suck as many support fees as possible, with no real concern about the long term viability of the product.

  • Rox

    It’s exactly what we guess from the beginning
    this versata company is what we call a predator (exactly the “Wall street” movie scenario)

  • TenTimesNo

    I can tell you from experience that this is precisely what they do. They buy troubled companies and squeeze the customer base for every last dollar they can. They put essentially no effort in development, maintenance or support, but say that they will (a blatant and shameful lie). And they jack up the prices for upgrades and support to the maximum level they can.

    Versata is a horrible company, their business model is customer exploitation and lies. If you use software that’s been acquired by Versata, *please* take my advice: don’t look back, just run away, it’s only going to get worse.

  • http://www.smbresearch.net Bob Eastman

    With regard to Versata, Everest Software, and – to the extent that this is relevant – to Think3:

    > There is nothing inherently wrong with a company like Versata buying Everest Software (or Think3) and maintaining the solution in return for maintenance fees.

    > There comes a time with some solutions that they outlive their marketability, and so there remains a market for the support of the customer base more so than for new sales.

    >I find inherently implausible, however, the story that a vendor might take 18 months off, to maintain and improve the solution, only to take it back to market 18-24 months later.  During that time, the vendor and solution lose share of voice in the market, and any market momentum (to say nothing off experienced management)..

    > Also, without the infusion of new sales revenues into R&D, how could such a company keep pace competitively with other solutions, except for either (1) exceptionally high support fees, or (2) considerable cash reserves to pump into R&D as well as for a reinvigorated marketing effort.

    > Whether this is indeed the strategy or not, the idea should at least have some positive effect on customer retention in the base (and retention of maintenance revenue) as customers believe that they still are using a solution with a solid go-forward plan.  Could that be the plan, perhaps?

    > Versata has owned Everest Software for about 27 months, and I have yet to see any evidence of this strategy at Everest Software.  If this is the strategy at Think3, that would be an interesting change in Versata typical practice.

    >Versata’s operating unit CEOs are not particularly noted for strong software industry experience.   If the intent is seriously to re-market a solution after an 18 month “hiatus”, one would expect to see Versata place at the top someone with extraordinarily strong software industry experience – such as think3 probably had in place a few months ago.

    Bob Eastman
    Managing Director
    SMB Research
    Boston, MA 02205
    reastman  //(at)// smbresearch  //(dot)// net

    ph (781) 904-0408
    reastman (twitter)
    @smbresearch (twitter)
    http://www.smbresearch.net/

    Delivering Technology Advisory and Due Diligence to the Midmarket and SMB sectors




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