Kana Buys BEI and NetDialog

In an effort to beef up its online customer service offerings, Kana Communications, Inc. announced yesterday that it will pay $230 million (US$) in stock to acquire Business Evolution, Inc. and NetDialog, Inc.

Both closely held companies specialize in providing Web-based customer assistance, which Kana hopes to use to enhance its own software. The company produces products that enable online merchants to answer incoming e-mail quickly.

“These acquisitions are instrumental in extending our market and product offering,” said Kana chief executive Michael McCloskey. “It also accelerates our growth and critical mass to approximately 350 employees — one-third of which are in research and development.”

Wave Of Acquisitions

This acquisition is just the latest in a string of customer-service applications companies that Kana has purchased. In October, the Redwood City, California-based firm bought Connectify for $262 million in stock.

Meanwhile, other companies have also been gobbling up customer-service software firms. Cisco acquired Webline in September for $325 million; Ask Jeeves bought NetEffect in November for $288 million and eGain acquired Sitebridge in May for $20.1 million.

Many analysts believe that the reason for the sudden buying spree is the growing need for customer service in the wake of the exponential growth of e-commerce.

Real Time Communication

By paying $140 million in stock for the Princeton, New Jersey-based BEI, Kana adds a software product that prioritizes customer queries by urgency and then responds to the customer in real time.

When Kana acquired San Mateo, California-based NetDialog for $90 million, it also acquired software that helps e-tailers develop self-service customer support directly from their Web sites without the intervention of a customer service representative.

According to Kana officials, both acquisitions will make it possible for the company to provide the kind of services that will transform online shoppers into online buyers. The NPD Group reports that 75 percent of online shoppers abandon their shopping carts before completing their purchase.

About Kana

Kana’s products include Kana Mail, which manages incoming customer e-mail; Kana Direct, which helps create customized outbound e-mail based on customer feedback; and Kana Reports, which analyzes customer data and identifies trends.

The company also offers hosting services, which allows companies to use its applications on an outsourced basis.

Kana’s customers include eBay, The Gap and Northwest Airlines. Its shareholders include entities affiliated with Draper Fisher Jurvetson — which holds an 18 percent stake in the company — and Benchmark Capital, which holds a 15 percent stake.

In its fiscal year ending December 1998, Kana lost $6.3 million on revenue of $2 million.

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