Wednesday, March 23, 2005

WebSide Story (WSSI)

I'm a big believer in the benefits that website analytics can bring to
an e-commerce company. Here are some of the issues that a good web
analytics program can help a marketer address:

Where are my visitors coming from, natural
search, paid search,directly to the site? How do
natural search visitors perform on my site vs.
paid search visitors? How do the different paid
search programs stack up against each other? You
can break this type of analysis down even further
by keyword. Also, one would hope to learn the best
way to optimize his site for the search engines.

On site behavior--Which products/categories are most
profitable on my site? Are we effectively converting
visitors into buyers? What does the path analysis
of a customer look like? Are they dropping off of
the site at a particular place? What impact does
shopping cart abandonment have?

Site Real Estate--What are the effective areas of
different pages on your site? Where do visitors
gravitate to? If I change something on the home
page, how will visitors be effected?

After we come up with this massive
amount of data, how can we use it? Can we segment
our customers based on certain characteristics?
Can we come up with a hi/medium/low type grouping?

There are many more components to a web analytics
solution, but this is the idea. I feel strongly
that many e-commerce companies (esp. medium sized down)
have no idea about how their customers or visitors
perform on-line. For them, it's a huge black box.
I think eventually many of these companies will
realize the benefits of digging deeper.

There are four main players in this space: WebSide
Story, Omniture, Coremetrics and Web Trends. Both
Omniture and Coremetrics are private and have roughly
the same annual revenues as WebSide Story ($20-40MM).
I have some experience at my current job at a direct
marketing company with Web Trends and am not that
impressed. The interface is a bit clunky and support
is mediocre at best. Also, Web Trends is a part of
Net IQ. I have no interest in the other parts of Net
IQ so that pretty much rules them out as an investment
for me. Note that Web Trends is the industry leader
(at least in terms of rev) at something like an $80MM
annual rate.

I encourage you to do more research into this space,
but I think a CAGR through 2010 will be in the 25% range.
Specifically, I like WSSI for the following reasons:
well respected offering (Forrester)

WSSI offers subscription based model. This creates
a good deal of revenue visability.

operating leverage. Right now op income is around 14%.
Management would like to drive this to 25%-33%
recent acquisition of Atomz brings two important
elements to WSSI: on-site search and bid management

Even though I like the story, I'm not interested
in going long on too many stocks now (WSSI included).
Maybe if it pulls back to 10.50 from its current price
around 12.50, I'll pull the trigger.


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