Exclusive Interview: eGain Chairman Ashutosh Roy

Last Thursday, [email protected] featured eGain
Communications
(EGAN)
as a company worth a look for Internet stock investors.

It appeared to me that there is no reason eGain should be trading at such a substantial discount toKana Communications (KANA). I based the note on eGain’s market position, customer and revenue
growth, Web based architecture, scalability and its ability to sign up
corporate customers for its hosted solution.

[email protected] had the opportunity to sit down and speak with Ashutosh
Roy, eGain’s co-founder, chairman and chief executive officer.

[email protected] When talking about eGain, aren’t we really talking
about a complete Customer Relationship Management (CRM) solution, rather
than simply email management?

Roy That is correct. We characterize ourselves as an e-commerce
customer communications company, and the reason for it is that we
believe the management of communications between the customers and a
business is the most important piece of the relationship. So we have
developed, integrated, and deployed multi-channel communication
capabilities for email management, live Web collaboration, outbound
email marketing, and for voice over IP.

[email protected] Obviously a big business with room to grow when
you consider the amounts of money companies are willing to spend to
acquire customers, but you’re the answer to retaining these customers.

Roy That’s exactly right. Our tag line now is “Gain and
Sustain.” In other words, gain customers and sustain relationships.

[email protected] How has your experience with “WhoWhere?” ( a
company co-founded by Mr. Roy and sold to Lycos in 1998) helped with
building and managing eGain?

Roy We took a lot of things away from WhoWhere. One was that it
was important to take fundamentally long-term bets on behalf of your
customers if you wanted to come out ahead. So the first thing we did
when we started eGain was we did not look at what the market was doing
at that time, we looked at where the market would be 3-4 years out. We
made three strategic bets, we’ve stuck with them ever since, and they’re
now paying off: 1) It was a native Web-based architecture for everything
we did. Which means no client-server in our shop at all. Our
competitors are just now dumping their client server technologies and
moving to the Web, so we are far ahead here, 2) Businesses didn’t want a
one-point solution, they needed a platform. So we went out with this
platform strategy and added applications as we saw the market need for
it, and 3) is a bet we made directly related from our WhoWhere
experience and it is the notion that every business now is running
faster than they can. This means that very few companies have the
internal resources to manage and maintain their IT applications. So we
saw the hosted delivery of applications as the wave of the future.
Because of that initial bet we made on the hosted delivery and then
having the option of licensed delivery, today we are the leader for the
hosted application network with over 120 of our customers on our hosted
network.

[email protected] So WhoWhere? has given eGain a lot of its
direction.

Roy Yes, and the second learning experience we took from WhoWhere
was that we wanted to be in the Infrastructure business. We wanted to
be in a situation where we would only be dependent on the overall growth
of e-business and e-commerce. Whether it was books, shopping, or
movies, we didn’t care who won or lost. As long as the e-business and
e-commerce opportunities took off, we wanted to benefit

from that.

[email protected] Your revenue of $2.4 million representing 72
percent sequential growth for your most recent quarter actually beat out
Kana’s sequential growth. Can we expect more of a distancing between
eGain and Kana in the near and long-term future?

Roy I think so and I’ll tell you two things that are very
relevant. There is a major business model difference between the way we
are going about acquiring customers and accruing revenue from the way a
typical license software company does that. What we do on the hosted
side is we sign our customers up for a contract which averages a little
over one year. But we accrue revenue every month, only as we perform
the services. So what we have is in effect a strong booking of hosted,
contractual revenue. Yet we are not recognizing it and it’s not in our
balance sheet, nor is it on our income statement. That’s where you’re
seeing this organic growth of revenue growth coming from now. As we
acquire more and more of the critical mass of hosted customers, you’ll
see the revenue ramp up, which is a cumulative impact of all our hosted
customers as opposed to having to acquire and build revenue each quarter
from scratch in the pure license model. This is something that
investors need to take a second look at to understand just how valuable
and desirable it is.

[email protected] Lets talk about eGain’s approach to acquisitions.

Roy This quarter, all our growth was organic, as opposed to
pulling together a lot of different businesses to try to make our
numbers. We have a very integrated view for our acquisition
strategies. Acquisitions have to help us meet our customers’ needs in
an integrated manner on a consistent Web-based architecture. We don’t
want to create a hodge podge of multiple solutions that are incompatible
and then try to pass it off as one big piece — customers can see through
that very quickly.

[email protected] So the idea is to only acquire companies that
help the network as a whole and help scale the entire platform.

Roy Exactly right.

[email protected] I know you’ve made moves into Europe and
Australia. When can we expect to see results hitting eGain’s top line
and possibly bottom line?

Roy I think our European operations will begin showing results
this year. Last quarter we announced our move into Australia. The
pipeline there is quite attractive right now. We are in discussions
right now on the Asian front, where we haven’t made any announcements
yet. But you can expect that, I would say, in the next quarter or so.

[email protected] On to the Kana Communications acquisition of
Silknet Software. Where does this deal leave eGain (the deal was
announced on Monday, one day before our interview)?

Roy We see the deal as a very expensive way to try and create a
perception of motion. I think there are some synergies, but it looks to
me like they’re trying to back-fill their valuation with what they think
is real meat. I have respect for Silknet, but I do believe they are in
the system integration business, and this is not the business Kana is
in. I think the deal just makes our story a lot more cogent and
credible to our customers and shareholders. We are marching to a very
methodical and predictable tune, which is we made these three bets early
on, and whatever we do, whether it is build, buy, or partner, it will
all reflect the same consistency in our strategic direction.

[email protected] So there may be a Silknet out there for eGain but
you guys aren’t even interested.

Roy No, we are not. We believe Silknet has good people and
certainly some attractive customers. The question comes down to how
much you pay for that and that’s what is boggling my mind right now with
regard to Kana’s premium offering.

[email protected] Valuations aside for a moment,

Kana will now bring
450 customers to the table opposed to eGain’s 200.

Roy We believe that our acceleration is sufficient that we will
achieve critical mass in a short period of time. The number of big
customer names that we are signing up now is a testimony to our ability
to win in a head-to-head battle with Kana. We have not seen Silknet in
deals, competitive situations. Today, when we meet Kana, we win a lot
more than we lose to them. We have heard that they are now deciding to
discontinue their client server products. Well, guess what! 350
customers are not going to let you walk away from that model easily. We
think Kana now has a huge challenge on its hands trying to integrate the
companies they have bought (Kana has made 3 major acquisitions in the
past 3 months), all who have client server technology, except Silknet.
If they’re going to walk away from their customers who have client
server installations, it’s a huge opportunity for us to get in and show
those customers that we have been on the Web architecture for 2-1/2
years. This is the reason we made the Web architecture bet early on and
now we will benefit from this transition.

[email protected] Right now eGain offers two applications, eGain
Mail and eGain Live. I know you’re prepared to roll out three new
applications with real-time Web assistance and voice over Internet.
When can customers and investors expect this to happen?

Roy We are anticipating these products to come out in the next
60-90 days.

[email protected] Investors love to hear about additional revenue
streams. Do you expect that a solid amount of your customers will use a
number of these solutions?

Roy Yes, close to a quarter of our deals made last quarter were
joint email management and eGain Live deals. You can expect a strong
acceptance and demand for our new products from new and existing
customers.

[email protected] The value and story seems very clear to me for
customers as well as investors.

Roy Yes. Our strategy is working very well. Our competition is
doing all kinds of things to make sure that they can stay in the race
and somehow justify their valuation(s). We’re confident that we’re
building long-term value, which will get reflected out to both the
capital markets and to our customers.

[email protected] That about wraps it up. Thank you for your time.

Roy Thank you Luke, Have a nice day.

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