Enterprise search business Elastic exploded onto the New York Stock Exchange last week, nearly doubling its share price on its first day’s trading and becoming one of the most successful initial public offerings of the year.
Shares rose 94% to close at $70 as investors endorsed the company’s pitch about the amplifying market for search. The open source Elasticsearch search engine offered by the California-based company has provided the crucial search requisite behind some of the most successful digital brands of the decade.
Uber uses Elasticsearch to match ride hailers with nearby drivers, and US drugstore giant Walgreens uses the system to power its product search for e-commerce. Elastic also provides the algorithms that match partners on Tinder and allows designers to search for fonts on Adobe.
Information Deluge Sparks Need for Enhanced Search
The rise of big data has exponentially driven the need for powerful search technology: Structured and unstructured data pours out of databases, websites, apps and mobile and connected devices. Data needs to be searchable to run company services, like presenting customers with accurate flight offers and information, or the gathering of customer behavior insight.
Most online activities involve some form of search, whether it’s dragging a finger across a map on a smartphone screen to finding a cinema screening, or from using natural language processing to fuel a chatbot to forecasting the weather.
There remains no doubt that search is one of the most hotly contested markets in the digital sector. Elasticsearch has been rated as the world’s number one search engine by DB-Engines, scoring almost double that of its nearest competitor Splunk and third-placed Solr. Cloud-based offerings from Google, Amazon and Microsoft Azure rank much further down the list.
Making Gains Amidst Losses
Elastic’s business model is based on offering open source software to developers for free, and then proffering a subscription service for advanced features. The paid product is a subscription service offering features for enterprises and strong customer support. Users require a licence for some premium features and subscribe for features such as reporting, a graph database and machine learning.
The software has been downloaded 350 million times, and the company has 5,500 customers globally, with 500 customers added between April and July alone. Sales for fiscal 2018 have hit $159.9 million, an increase of more than 80% on 2017, despite company losses of $52.7 million in fiscal 2018.
The fast-growing (albeit loss-making) company outlines booming markets for its services in its IPO document. According to IDC, the market for search, content analytics and cognitive AI and software is worth around $8 billion. IT operations management is worth approximately $9 billion, while the market for big data and analytics software is $23 billion, and a healthy $5 billion for the security analytics market.
How To Be the Missing Ingredient?
Competition in these markets is mounting. Amazon launched its own elasticsearch platform, Amazon ES, in 2015 using a similar stack to its rival, incorporating Logstash and Kibana. Elastic shot back a rebuttal in its IPO document, claiming Amazon’s pressure on prices is a potential threat to the ability to raise prices.
Elastic added, however, that the market is highly competitive, rapidly evolving and fragmented. It faces changing technology and shifting customer needs.
Elastic’s app search, site search and enterprise search faces competitors such as Solr and search tools including the ad-funded Google Custom search Engine, and enterprise search tools including Endeca, owned by Oracle, FAST, acquired by Microsoft and Autonomy, acquired by HP.
Businesses are spoiled for choice regarding search providers, but they demand speedy, relevant results and easy-to-use commands. This is a specialist area where the biggest players are lagging behind smaller startups. Giants are no doubt searching for relevant acquisitions as they seek to become the search ingredient that every business needs.