Forterra Systems layoffs have implications for the enterprise immersive software market
by Erica Driver.
Today I spoke with Robert Gehorsam, president of Forterra Systems, about changes taking place at the company. In light of what Gehorsam termed challenging economic times, the company has laid off nearly 50% of its workforce (not quite the 60% I had posted in my December 18th tweet) since November 20th, when Forterra briefed ThinkBalm for our upcoming report The Enterprise Immersive Software Decision-Making Guide. Many of the layoffs took place last week. Forterra now has 20 employees, which includes most of the core engineering team and others focused on delivering billable work to government and corporate customers.
Gehorsam said that the company plans to continue operations, fulfill its contracts, and meet its obligations. He would not confirm or deny that the company’s remaining assets were being prepared for sale. He did say this: “We are always looking for ways to accelerate growth and adoption of virtual world platforms in organizations. We will look at ways to do that the best. We haven’t decided anything. It might be acquisition, further partnerships, further investment from investors, or organic growth over time.”
My take and recommendations
- Forterra’s position in the enterprise immersive software market has softened. Among those let go last week was Chris Badger, VP of marketing. Others who were in commercial sales and core R&D were also laid off. Without resources focused on selling and marketing OLIVE and Meeting Labs, Forterra will have difficulty maintaining its position in the emerging enterprise immersive software market. My take: in 2010, Forterra Systems’ revenue split will be weighted heavily toward professional services, with a smaller percentage coming from software license, subscription, and maintenance fees.
- Forterra Systems is a prime acquisition target. Likely acquirers include defense contractors and consulting companies that serve the government sector, given Forterra’s strengths and history. We’ve already seen acquisitions like this occur. Lockheed Martin acquired 3DSolve (3D Learning Solutions) and Applied Research Associates acquired Virtual Heroes. Given this possibility, project teams evaluating immersive software for use in non-government and non-defense related organizations should approach Forterra with caution. Current Forterra customers on the commercial side should meet with Forterra’s executive leadership team to discuss the implications of recent changes and the company’s future direction. Current enterprise customers should put a contingency plan in place in case Forterra is acquired by a company that plans to take OLIVE in a new direction.
- Expect more market churn in 2010. Many enterprise immersive software vendors are actively seeking outside funding. Not all of them will receive the investment they require to reach potential customers in this small, crowded market — or even to continue operations. We expect 2010 to be a busy year, with mergers, acquisitions, and even some business closures. This will be accompanied by new entrants getting in on the game. Within just the last few weeks we encountered new players Amphisocial and A World for Us (Assemb’Live). Organizations seriously evaluating enterprise immersive software can mitigate risk by speaking with reference customers (this is a must), using open source software (which doesn’t leave the custom dependent on any one vendor), escrowing the source code of products they license, or even making a financial investment in the company whose software they license.
© 2009 ThinkBalm. All rights reserved.
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Erica -
Reports of our demise — whether in specific markets or in general — are greatly exaggerated. Yes, these are challenging times, but we are not going out of business and have positioned ourselves to address the segments of the market that are actually growing, where there is real and well-articulated customer demand, and where we have a differentiated advantage. This includes both the Enterprise and Government sectors. Our focus will increasingly be on working with a wide range of partners to deliver virtual world solutions for innovators in these segments based on the industry-leading OLIVE platform. This strategy will enable us to operate profitably while the market develops and keep us well-positioned for what we all agree are significant future opportunities.
Thanks.
Robert Gehorsam
President
Forterra Systems
Robert
Robert: OLIVE and Meeting Labs are great products and we will continue to closely track their evolution. Exploring new ways to deliver technology is a hallmark of an emerging market and we look forward to continued innovation from you in this area.
Looks like some great expertise just hit the job market. What are the odds they don’t stay cubicle-less for long (unless they go where people work in “pods” lol)
Sadly the “uptake” on saving resources and lessening physical risk by working in a virtual world has not yet happened so people are still having to burn fossil fuel, pay higher insurance premiums, place themselves at risk during commutes, role play “office politics”, deal with various stereotyping opportunities because of physical appearance, etc. etc. because even the virtual world companies selling such solutions do not actually *use them*. Which means they are not eating their own dog food which means they are not accelerating development (in order to make their jobs easier) to sustain momentum.
I guess it will be a difficult and long journey to convince executives that they don’t really need to “see the serfs working” in order for the company to deliver positive revenue streams.
I believe we are in the midst of a transformation from a services-based (marketing “builds”, anything “builds”) to a product-based virtual world solution set. Powerful apps which run within virtual worlds is the way to put power in the hands of the users.
OLIVE is one of the engines Green Phosphor is betting on for realization of the dream of the virtual world platform functioning as a collaborative presentation layer extending across many enterprise systems.
If you have any doubts about the effectiveness of combining live application screens and desktop sharing with a 3d immersive environment with VOIP, try out Meeting Labs or Wonderland, or any other platform which has achieved that level of software utility.
Arkowitz
what I can’t quite get my head around is this: is the downsizing a result of revenues declining? or a case where the company scaled to meet demand that never materialized in the first place? Further, where did the $10’s of millions of VC funding go? I am not able to connect all the dots to understand why 1) funding 2) talent 3) market demand, has not resulted in corporate success? If there is a lesson to be learned here, I would truly like to understand it.
Brian–have you received any information in response to your questions?
While we may be left to speculate on this, as a community, we should also be concerned about the perception to potential clients and the industry at large. What, if anything, can be done to mitigate the potential backlash this experience may have industry-wide?
Brian and Virtuola: Because Forterra Systems executives have not made public announcements about the company’s direction, there isn’t much more I can say at this time. My strong recommendation is that if you are a Forterra Systems client or prospective client, you reach out to the executive team there to set up a call.
Forterra’s CEO should do all of us who monitor the growth of the virtual worlds market a favor and state exatcly what happened. Is this an individual company problem or is it a market growth problem? Other companies in this space seem to be growing, so I believe the former.
My source says that the Forterra products are fine, but just selling much more slowly than had hoped, and meanwhile they sold next to nothing in Q409…and neither did the partners (IBM, Adobe) because partners were too focused on closing more straegic deals themselves. So management warned the Board, and meanwhile blamed a soft economy, sales execution, and its marketing team for failing to achieve ‘market awareness.’ Then the VCs got really squeamish, pulled back a lot of unused capital, and forced Forterra to make a brutal staff reduction and narrow its focus on two key markets.
These are all textbook moves that occur when a company writes a lofty business plan and doesn’t deliver. But I do wonder: What were the VCs smoking if they were letting the company burn that much cash so early in the game? Was there a really big deal that didn’t come through? And just how many markets did they really think they could penetrate at the same time before “narrowing focus” like any smart startup always does?
to paraphrase a marketing blurb from Forterra “$50m has gone into the product”… $50m? burn rate can be a killer: overemployment, excessive real estate, misguided development. but who knows, maybe they will have the last laugh and be acquired for $500m….
in the meantime, to comment on Virtuola’s concern: this is still a niche space. 80%+ of the activity in this industry is conducted by suppliers, not consumers(eg this website for example). Forterra is not a name brand behind a tight circle of cognoscenti who spend time analyzing Virtual Reality. IF Forterra ceases to be, it will not have an impact on the industry consumers. But the demise(if it comes to pass) should have an impact on suppliers who can learn from the lesson.
Brian hit the nail on the head: this is an emerging market. The market is small ($50M in 2009), volatile, fragmented, and characterized by fast-changing technology. Three trends I’ll highlight from ThinkBalm’s “2010 trends” blog post (full text here: http://www.thinkbalm.com/2010/01/13/enterprise-immersive-software-trends-for-2010-2/):
1.The market is and will remain in the early adopter phase.
2.Cash will be king, for the vendors.
3.The year will be marked by churn.
Currently ThinkBalm is covering nearly two dozen vendors. They are either small companies or small, experimental teams within large companies (e.g., Avaya, IBM, and Sun Microsystems). There is no way that a small, emerging market like this can sustain two dozen players — shakeout is inevitable. Not easy or fun, but inevitable.
Well, it’s way worse than we thought 2 weeks ago. The news today: SAIC buys Forterra. Terms of deal not disclosed, meaning it’s a fire sale. Rumor mill says only a couple product engineers will be employed, the rest of the fearless Forterra crew will be lost.
Again, this is a colossal failure of an individual company due to a bubble-era VC financing strategy and a bad business plan. It does not signal the failure of an emerging market. Lots of good things are taking shape.
Kent: Thanks for your comment. Indeed these are sad times.
Here is a link to the SAIC press release about the acquisition: http://investors.saic.com/releasedetail.cfm?ReleaseID=441633.