Comeback Kids of 2003

Blame Hollywood for the glorification of the underdog if you must, but it is difficult to ignore the charm of a comeback kid. In today’s high-tech world, it is even more notable than in the celluloid realm to see a turnaround, given the state of the still-struggling tech sector.

Yet some companies have brushed the dust from their jackets and managed to stand a little taller this year. These newly spiffed-up combatants are going into 2004 with stronger business plans, better stock prices and more enticing marketing strategies.

From behemoth to diminutive, this year’s comeback companies have put at least some rough road into the rearview mirror. In this special report at the year’s midpoint, the E-Commerce Times focuses on these newly spiffed-up competitors — and explores what separates them from the rest of the pack.

Follow the Leader

Since Microsoft has such overwhelming market share, it may seem counterintuitiveto think of the Redmond, Washington-based giant as a comeback kid. After all, the scrappy upstart and the king of the hill are usually two starkly different entities.

However, Microsoft overcame some major obstacles this year, according to Yankee Group senior analyst Laura DiDio. She told the E-Commerce Times that the company has worked to shed some of the bad reputation it garnered from the long-running antitrust suit and, most importantly, its recent licensing demands.

“They’re trying to circle back after getting beat up on those unfavorable licensing agreements,” DiDio noted. “They’re saying, ‘We’ve heard the complaints, we’ve changed.'”

This approach has allowed Microsoft to gain more customer loyalty so far in 2003 — something it has sorely lacked for the past few years. In fact, the company may have even better bounce in 2004 as more attention is paid to its intellectual property indemnity clause, introduced in licenses in April. This clause will let customers cover trade secrets against intellectual property claims.

“The clause will be huge,” DiDio said. “It’s an act of contrition for Microsoft, a public mea culpa that they turned off so many customers. They’re asking customers for a second chance.”

Into the Blue

Another big company that has swung around this year is IBM, according to Joanne Correira, an analyst at Gartner.

“This year, the big guys took shares from the little guys,” she told the E-Commerce Times. “That’s because they decided to step into the emerging software market, and that pushed some of the smaller players out.”

Specifically, IBM gained market share in integration services and ASP servers, two emerging sectors. Because Big Blue has established solid footing in new markets, it also has positioned itself well for the future.

“The big guys like IBM are filling the technology holes now,” Correira said. “That will make a difference for them this year.”

She added that companies with ready cash, like IBM, will find it easier than smaller businesses to make a strong comeback in the current economic climate.

Rising Star

However, some small companies are gaining ground as well. For example, despite the harsh criticism SCO has received from the Linux community as a result of its lawsuit against IBM, the company made an impressive comeback in the first half of this year.

Although the suit has drawn a great deal of attention, it was not the reason why SCO’sstock price rose from 60 U.S. cents to $8 in 2003.

Bill Claybrook, research director at Aberdeen Group, told the E-Commerce Times that SCO is making more money simply because it started collecting licensing fees on its intellectual property.

“Some of those licenses cost millions of dollars, so they got a huge boost from starting to sell them,” he said.

Moreover, Microsoft’s recent decision to license SCO’s Unix intellectual property will not hurt the smaller company in the long run. As Claybrook noted, “The deal with Microsoft might be a signal to other companies that haven’t paid licensing fees that they should.”

Lining Up the Dots

Even in the hard-hit dot-com arena, comeback stories exist. IDC analyst Jonathan Gaw told the E-Commerce Times that companies in the sector have bounced back because many of those that survived the implosion are stronger for it.

“We’re in an environment where there’s a lot less competition, so the survivors are more able to succeed,” Gaw said. “There are fewer players to divvy up the market.”

He mentioned that Yahoo, Ask Jeeves and Overture (formerly Go.com) all canboast a 2003 comeback after weathering the downturn in the advertising industry.

“They’re all seeing their advertising revenues bounce back in a fairly significant way,” Gaw noted. “Even AOL, to a certain degree, is having a comeback because of this, although it isn’t out of the woods yet.”

With fewer competitors and advertising picking up, dot-coms that have made it this far may see bright days in the year ahead.

Future Comeback Kids

Indeed, although forecasting business trends is no easy task, especially in this turbulent economy, some analysts have found that certain types of companies are worth watching.

For example, DiDio is looking at software companies that are trying to fight that hated Internet scourge, spam.

“Anyone who makes anti-spam products is selling the stuff hand over fist,” she said. “I’d watch Sunbelt Software. Last summer they put out a product that was $19.95, and the response was tremendous. I think people are looking for very inexpensive utilities, and it’s going to give companies like this a big boost.”

Meanwhile, Gartner’s Correira pointed to companies with solid bank accounts as potential top dogs. “Look at Progress Software,” she said. “They have no debt and $300 million in the bank. BEA has $900 million in the bank. There’s another company, called Hummingbird, that also has no debt.”

Cash-rich companies are better able than their poorer brethren to move into a comeback position, Correira added. “When you talk about which companies will weather the storm, start looking at the cash.”

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