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TMF Interview With Vignette Corp. President and CEO Greg Peters

April 6, 1999

With Brian Graney (TMF Panic)

Based in Austin, Texas, Vignette Corp. (Nasdaq: VIGN) is a provider of Internet relationship management software, which helps online businesses build and retain their relationships with customers. On February 18, the company sold four million shares in an initial public offering at a price of $19. Since then, the firm's shares have appreciated about 411%. We talked with Vignette President and CEO Greg Peters about building customer relationships on the Internet and the role his company will play in the future of Web business.

TMF: You guys have had a busy couple of months since your initial public offering in February. Why did the company decide to go public and how has that decision really changed things at Vignette?

Peters: Well, we went public for a couple of reasons. First and foremost, it gives us the financial flexibility to really target and expand our opportunity [and] target a very, very large market opportunity. So one of the reasons to go public is to make sure you have the financial backing both from the cash that you can raise and from having a public currency available. As we see opportunities and interesting technologies to acquire, we have a currency with which we can acquire those kinds of technologies and expand our business going forward.

TMF: By going public, does that change any of the ways the company does business or internally how the financial decisions are made?

Peters: I think probably more than anything it validates the direction that we've been on for the last couple of years and [it] certainly validates the success that we've been able to achieve in the marketplace. I think that is certainly something that's important both to my existing employee base, from a teacher-employer recruitment perspective, but also [to] customers [when they] are trying to decide which vendors to go with. And certainly it is one measure, one validation they can use to say that they're on the right track.

TMF: Businesses on the Internet are progressing from attracting eyeballs and new users to converting those eyeballs into actual revenue dollars. How does your company's products help businesses make that transition?

Peters: Well, our whole company is really based on delivering what we call Internet Relationship Management solutions that fundamentally do that. What we're all about is enabling our customers to manage and own that customer relationship. We think you do that by providing convenience to visitors coming to your site, providing advisory services to them, so that they can start to get value from you. And if they're getting that kind of value from you and your site, there's a high likelihood that they'll continue to come back. That's how you can create stickiness and retention and so forth. And once you are successful with your own website, [you can] actually start to target other websites and distribute your products through them.

But fundamentally what our software does -- through the capabilities to manage content, the ability to personalize that kind of content for visitors coming in -- is to increase the stickiness or conversion ratio, or what people call the looker-to-booker ratio. If you think of all the lookers coming into the site, how many of those turn into bookers on the backend? Our software has proven that we can increase that ratio several percentage points. When people are getting millions of unique visitors to their site monthly, impacting that ratio -- the average from the industry is about 2.7% for a looker-to-booker ratio -- up to 4% or 6% or 8% or 10%, you're talking real money real fast.

I don't know of anybody who can exclude the Internet as part of their business objective and business model.
TMF: Is there a lot of competition out there for Internet relationship management software and if so, how does the company plan to keep its lead in the market?

Peters: Well, I think there's competition in every marketplace. We certainly believe that, A) we're the leader in this space but, B) that there are some very valid reasons why that is, in that we provide the kind of solutions that enable our customers, first, to get deployed very, very rapidly. That's one of the top two buying criteria that any company has. But once they're deployed, [they] actually start to see the benefits on the backend of these solutions that they're providing.

So the Vignette solution is both a revenue enhancement as well as a cost reduction model. Providing that kind of framework or flexibility to our customers and then having the thought leadership and vision to really help our customers drive forward into the different business avenues that they're interested in is very, very important.

TMF: As you help your customers develop Internet businesses, what's the biggest problem that you often find your clients running into?

Peters: I think certainly one of the biggest is that they have to completely think about their business very, very differently. They have to interact with their customers in a very different way than they've typically been used to interacting with customers.

We have banking customers that can't think about their customers simply as someone who has an account balance and a checking account and a savings account. They go online just trying to provide [their customers] with the kind of capability to understand what the balance is of their account and what checks cleared and those kinds of things. [But] they fundamentally have to change the way they think about those customers and start to be their financial adviser and provide some planning tools and financial planning capabilities -- providing some kind of convenience and advice -- if they're going to attract and retain a large online audience.

TMF: Do you think all businesses in five or ten years are going to have to think of their customers that way? Or are there certain businesses that can really go without an Internet presence at all?

Peters: I don't know of anybody who can exclude the Internet as part of their business objective and business model. [But] I don't think it's an "either/or" answer. I think that the really successful companies long-term will be the ones who can blend the two models together in a way that really provides increased services for their customers, both in an online world and in the traditional bricks-and-mortar world as well. The companies that can figure that blended business model will be the ones that ultimately succeed long-term.

TMF: Recently we've seen a lot of businesses moving to the Internet, from online grocery stores to online banks to online car shopping services, you name it. What other present-day bricks-and-mortar businesses, like you said, do you feel are ripe to make the jump to the Internet?

Peters: I think, again, it cuts across almost every industry. We have a solution that really is applicable across a horizontal set of industries. We have some target vertical [industries] that we're going after, which include the high-tech sector, the financial service sector, the e-commerce sector, the retail sector, the publishing sector.

But, more importantly, what are customers deploying with our solutions? It's really a horizontal set of applications, things like portals. I'm sure you've read a lot about "portal-mania," both horizontally and, more importantly, where companies are moving to building their own vertical portals. Maybe if you're Siebel (Nasdaq: SEBL), you're building a portal focused on and targeting exclusively sales executives and trying to be the center of their world. Or if you're a bank, you're targeting a financial portal. Or if you're a service provider and you're targeting the elderly, you provide an elderly home portal. Those kinds of capabilities are popping up everywhere and it's all about building an online audience and retaining that audience and starting to build services on the backend.

[Vignette has] a good blended model for investors: high top-end in growth with an understandable business model.
TMF: How does Vignette attract new customers itself? Is it through good word of mouth or positive buzz throughout the Internet community? Is that more important than a dedicated sales force? Or is it a combination of both?

Peters: I'd call those tradition means, in terms of the traditional ways you would build up and target through telemarketing and through a sales force and through advertising and PR and all of those capabilities.

But, fundamentally, we have a way of leveraging our business model which increases the lead-generation activities for us through a product that we have called the Vignette Syndication Server. And what that product does is allow companies, as they build a successful online business themselves -- in terms of interacting directly with their customers through their own websites -- to actually start to expand that and then target and distribute their products through what we call a network of affiliates online and build up those affiliate relationships. As they do that, we come in contact with all of the affiliates that they're targeting and building. Then it becomes a lead-generation activity for us to go sell additional software to them and empower them to go do the same thing and build up their own level of affiliates.

So, there's this networking opportunity that is being created that over time will continue to grow and grow. That provides not just a large opportunity for Vignette to sell products, but it also increases the value Vignette can provide, not just for one individual, but to the network of customers that we have as they can begin to inter-operate amongst each other.

TMF: That's a really interesting aspect of the company. Does that mean your selling, general, and administrative (SG&A) expenses will be continuously declining over time?

Peters: Well, I certainly think that we are targeting what I'll call a very difficult enterprise software business model, [one] that you would expect to see from other enterprise offers companies like Siebel or Oracle (Nasdaq: ORCL) or somebody like that. I think what you'll see over time is that the business model follows in a line very similar to that, so that our SG&A kind of targets or starts to move in the direction or ends up in the direction that those companies are in. So we think that we can drive a very serious operating margin over time.

TMF: Could you talk a little about the convergence of the Internet software and the enterprise software markets? What do you think the leaders in those businesses are going to look like in five years? What features of the businesses do you think are going to separate who wins and who loses?

Peters: I think we are really at the core of the convergence between those two marketplaces in that we have an Internet-related top-line opportunity in terms of the market size. And what's driving the market growth is certainly Internet related. But particularly from an investor's standpoint, our business model is something that investors understand. They're used to dealing with enterprise software companies and [they] understand what the different frameworks [are] in terms of revenues and in terms of all of the cost characteristics underneath that from an investor's perspective. So, it's a good blended model for investors: high top-end in growth with an understandable business model.

I think over time, though, the old paradigm of an enterprise software company is falling to the side and there's a new one being born where companies like ourselves have to provide software solutions and provide the kind of service capabilities to get customers successful. But there are other opportunities to provide value to our customers and that's again through part of this networking opportunity. We can provide value to our customers and to our customer's customers by providing the interlocking and internet-working of all of these companies so that they can begin to sell and distribute their products to and through each other.

TMF: With your company growing so fast, what are the main elements that you personally focus on day to day? What takes up most of your daily time?

Peters: I think we have a very large opportunity marketwise. We're very focused at this time. I think we've articulated, particularly to the investment community, the direction we are in. We're very much focused on execution at this stage -- making sure that we do the things that we've said we are going to do, that we continue to deliver, and continue to execute and keep focused on that execution that we've had over the last couple of years.

TMF: That's all of our questions. I really appreciate you taking the time again today.

Peters: My pleasure.

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