Omniture IPO Offers All Angles

Omniture isn't exactly a startup. It was founded in 1996, making it about as old as eBay and Yahoo! , if not nearly as well known. Like many Web analytics companies, Omniture's fortunes began to pick up in 2003 as the industry moved from crude spreadsheets with site user stats and usability tests in company labs to a more sophisticated parsing of what a site's visitors were doing in real time.

As the technology improved, Omniture remained competitive. But it also faced stiffer competition. The Forrester report noted that with more than 20 viable vendors to choose from, the average company had already signed up three analytics firms to make sense of their site's traffic.

"The decade-old Web analytics market has yet to settle down," Root wrote. "The proliferation of vendors has put buyers on a seemingly never-ending quest to find the one package that will finally answer all the questions that they can think up."

This is a 10-year-old industry that is still acting like it was created a few years ago. There's no telling when a clear leader will emerge, let alone whether it will be Omniture or someone else. This is also reflected in the stock of WebSideStory, which is down more than 30% this year.

The on-demand ASP model of Omniture is also being used by WebSideStory, Coremetrics, SurfAid and Google's new Web analytics unit. On top of that, it's not favored by companies preferring instead the old-fashioned licensed software allowing easy integration -- or the ability to switch to another vendor entirely.

Then there is that nagging problem of Omniture's sustained losses. The company has an accumulated deficit of $35 million. So, while it's good news that operating expenses shrank to 79% of revenue in the first quarter, it's still disconcerting to realize that Omniture is spending that much of its revenue on sales and marketing and other costs.

Sales and marketing expenses are likely to remain high. Omniture says much of the $70 million it raised in the IPO will go toward "expansion of our domestic and international sales and marketing organizations."

Last year, venture capitalist John Hummer, whose firm Hummer Winblad helped fund Omniture, told the newsletter Private Equity Week that Omniture is "easily going to be a $500 million IPO." Omniture was valued at two-thirds that figure this week. It raised a little more than half the $120 million it said it planned to back in April.

In light of its reduced offering price, Omniture went out the gates looking more like an old hag than a young colt. But if it continues to hold up and grows its share of the Web analytics market, it could find itself buffeted by a second wind.