Rise of Vignette a good start-up story

But as Wall Street has turned its attention in recent months to companies that provide the underlying software for electronic commerce, a recent stock run-up makes Vignette look more like a late bloomer.

The company's stock price soared eightfold from August to late January, peaking at $248.50 to bring its market value to about $15 billion {mdash} more than that of giant Xerox Corp.

Headquartered in an anonymous office park off Austin's Mopac Expressway, Vignette is barely known except by a hard-core group of investors in Internet stocks and an impressive list of customers.

Their secret is that Vignette, which shipped its first product in 1997, is the fastest-growing software business ever.

"They're growing faster than anyone else in the industry, faster than any company I know of that size," said Manuel Royo, an analyst at Southwest Securities Inc. in Dallas, whose target price for the stock is $360.

In the fourth quarter, Vignette's revenue of $40.9 million represented a 512 percent increase from the year-ago period and a 69 percent jump from the third-quarter figure. For the year, revenue reached $89.2 million.

Like most Internet start-ups, the company is unprofitable as it invests in building its infrastructure. Vignette lost $42.5 million in 1999, though officials expect the company to be in the black by the end of this year.

Analysts said Vignette's rocket engines for growth have barely kicked in. Mr. Royo, for one, expects Vignette's revenue to grow to $200 million this year and $330 million in 2001. His biggest concern about the company is whether it can manage the pace.

If the market for e-commerce expands to the forecasted $1.4 trillion by 2003, then it will need tens of billions of dollars' worth of supporting Internet software, according to market research estimates.

Vignette officials said they are hiring people as rapidly as they can. Vignette now employs about 1,000 and operates offices nationwide as well as in Europe, Asia and Australia.

"This is a land grab," said Gregory A. Peters, president and chief executive of Vignette. "We need to make sure we get customers fast."

Vignette already has amassed 545 customers, including such industry leaders as AT&T, BMW, CBS Broadcasting, CNet, DaimlerChrysler, Drug Emporium, FedEx, Kinko's, Simon & Schuster, Sprint, United Airlines, Waste Management and Fort Worth-based Tandy.

William R. Daniel, Vignette's senior vice president of products, dismissed suggestions that interest in e-commerce is a fad or that Internet stocks are a bubble poised to burst.

"There's a tremendous sense of urgency across the board for businesses to figure out what to do online," he said. "This is real. Not, 'Maybe we'll get an Internet strategy.' This is now."

Demand for work outstrips the ability of companies such as Vignette to respond, Mr. Daniel said, and the pace has only been quickening since companies have finished year 2000 computer remediation projects and shifted their attention to e-commerce.

"We're being picky about which prospects we respond to," Mr. Daniel said. "We're getting the best customers. No wonder you see these valuations attached to what we're doing."

Vignette's biggest existing rival is Redwood City, Calif.-based BroadVision Inc., another highflier on Wall Street. Of course, if the area is so hot, other software companies will want to do the same thing.

But Mr. Daniel said Vignette's biggest advantage is speed. "By the time they get to market, it'll be two years from now, and we'll be way beyond where we are today," he said.

Indeed, lots of companies sell the picks and shovels for the Internet gold rush, but Vignette is set apart by helping businesses manage their online relationships with customers - whether they are consumers or representatives on corporate accounts.

Personalization is a hot buzzword for Internet sites in general. It's the specialty at Vignette. The idea is that a Web site should display information based on the user's interests.

While many sites already make specific recommendations to customers based on their past purchases, a site using Vignette software can offer different information based on patterns that customers show as they click through a site.

"Every site gets a cold start and if the customer doesn't get engaged in three or four clicks, they're probably leaving," Mr. Peters said.

And as wireless devices become more popular, companies will be more interested in new services, Mr. Peters said. For example, he said, a travel site might send a message to a Web-enabled cell phone to report that a flight has been canceled and the passenger has been rebooked on one an hour later.

"Or you're a financial-services customer, waiting for a wire transfer to arrive. First Union targets you through e-mail on your cell phone. Your wire transfer for $100,000 has arrived. Do you want it in an overnight money market account? Yes or no?"

Every Web site would like to have these types of features, said Fred Bush, research analyst at Tejas Securities Group, an investment banking firm in Austin. "When a site adds personalization, it increases their sales efficiency," he said.

Mr. Peters said the software is used by dot.com start-ups as well as by traditional businesses that are implementing e-commerce strategies.

It is also for business-to-business or business-to-consumer sites.

"The fundamental underpinnings are almost identical," he said. Vignette was formed in December 1995 by refugees from Dazel Corp. of Austin, which has since been purchased by Hewlett-Packard Co.

One of their first customers was CNet, which had Web publishing capabilities but wanted help with the underlying software.

Mr. Peters, 39, joined the company in June 1998 from Logic Works Inc., another software company. Earlier he had worked at Micrografx Inc., which was then based in Richardson.

One of the first changes that he implemented was a policy for recognizing revenue. The company doesn't book sales until the customer does, using Vignette products.

"It fundamentally aligns our success with customer success," Mr. Peters said.

Another advantage, though, is Vignette has better visibility into its customers' operations and where future income lies.

The success of Vignette is shared among employees, all of whom have some stock options.

The company also has set up a unique venture-capital fund for young Vignette customers to which it will allocate $50 million annually.

Substantial portions of the proceeds from the fund are to be directed to employees.

Vignette's stock price has given up some ground since late January, closing Friday at $209. Markets were closed Monday.

But John Thornton, a general partner in Austin Ventures, a leading venture-capital firm, said that as investors see serious businesses depending so deeply on Vignette, their faith grows in the company.

"People are betting their business on the platform," said Mr. Thornton, a founding investor in Vignette and a board member. With Internet stocks, "the Street is valuing category leaders and this is the biggest category that I can think of."