Startups Tame IM Beast

While most storage startups know theyll run into established players sooner or later, three upstarts today find themselves in a high-growth area where no public companies tread -- instant messaging (IM) management.

Akonix Systems Inc., FaceTime Communications Inc., and IMlogic Inc. are looking to cash in on the growth of IM, spurred by the rise of federal regulations as well as companies looking to increase productivity (see Akonix Provides FDIC IM Compliance, FaceTime Communications, and Random Walk Intros Power5 Solutions). The three startups have raised $43 million in funding over the past year while battling for market share.

While email-archiving startups have been frequent acquisition targets of larger players, the IM management guys have been left on their own for now. The Radicati Group Inc., a research firm specializing in messaging markets, lists the three as the leaders in the IM management segment.

“All three are growing well, and are pretty much the top dogs in the realm of managing enterprise IM,” Radicati analyst Genelle Hung says.

While the startups sprung up to help manage public IM offered by AOL, Microsoft Corp. (Nasdaq: MSFT), and Yahoo Inc. (Nasdaq: YHOO), they’re now tweaking their features to handle enterprise IM software from Microsoft and IBM Corp. (NYSE: IBM).The Radicati Group estimates there are currently 11.4 billion IMs sent per day and forecasts that number to grow to 45.8 billion by 2008. The firm says the worldwide IM market will grow from $131 million at the end of this year to $413 million by 2008.

The IM management vendors use the sheer volume of IM as their sales hook. They all have free software downloads that show a company just how much IM volume goes across their networks.

“Companies can’t believe what goes on with their IM,” says Akonix chief marking officer Francis Costello. “A large media company recently installed our application at midnight, and the volume they had by 6 a.m. shocked them.”

Products from Akonix, FaceTime, and IMLogic are similar. They allow administrators to monitor traffic, set policies for blocking and archiving IMs, and manage file transfers. They also have security add-ons for protection from viruses and spam.

IM management software captures the IM stream and archives it as searchable, logical conversations. The software can also block messages containing certain words, or can highlight messages containing the words. All three vendors sell software applications, and FaceTime also offers a hardware appliance.Akonix next week will upgrade its Akonix L7 Enterprise product to integrate better with Live Communications Server 2005, Microsoft’s upcoming enterprise IM platform. Facetime and IMLogic recently announced compatibility with Live Communications Server 2005.

Who’s using these products? They’re strongest in the financial services, government, energy, and technology markets. IM monitoring received a big boost in June 2003 when the National Association of Securities Dealers Inc. (NASD) ruled that financial services companies must save all IM correspondence, as well as emails, for at least three years (see IM Gets Regulated).

But Akonix’s Costello says compliance is not the most important factor behind his company’s sales. His customers are also looking to boost productivity by faster communication and to save money on long-distance phone calls.

“Companies have much broader messaging needs than compliance,” Costello says. “Last year our product was a point solution -- a few people in the company installed it, maybe the ones in charge of compliance. Now we’re seeing larger enterprise deployments. They’re using it as a communications tool.”

That’s reflected in Akonix recent sales. The startup claims it added 50 customers and 190,000 license seats last quarter -- an average of 3,800 licenses per company. Overall, Akonix has 400 customers and 500,000 seats for an average of 1,250 seats.Hung says FaceTime and IMLogic have done better with organizations looking to get a handle on compliance, while Akonix has more presence with companies seeking improved productivity through IM.

All three attracted VC funds over the past year. FaceTime picked up $16 million in August, three months after IMLogic hauled in the same amount. Akonix closed an $11 million round last December. Hung says she expects all three to grow for at least three years as the market expands.

Then again, they might catch the interest of bigger companies first. It wasn’t all that long ago that KVS, Legato, and Persist were looking to cash in on the growing email-archiving market. Now they’re part of Veritas Software Corp. (Nasdaq: VRTS), EMC Corp. (NYSE: EMC), and Hewlett-Packard Co. (NYSE: HPQ). (See HP Buys Archive Guys, No Brainer: Veritas Buys KVS, and (EMC Gobbles Legato.)

— Dave Raffo, Senior Editor, Byte and Switch