December 23, 2009

Forterra Systems layoffs have implications for the enterprise immersive software market

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.

Erica Driver

Erica Driver was a co-founder and principal at ThinkBalm. She is a leading industry analyst and consultant with 15 years of experience in the software industry. She is quoted in mainstream and industry trade press including the Boston Globe, The Wall Street Journal, The New York Times, CIO, and Computerworld. Prior to co-founding ThinkBalm, Erica was a principal analyst at Forrester Research, where she launched the company’s Web3D coverage as part of her enterprise collaboration research. She was also the co-conspirator behind Forrester’s Information Workplace concepts and research. Prior to her tenure at Forrester, she was a Director at Giga Information Group (now part of Forrester) and an analyst at Hurwitz & Associates. She began her career in IT as a system administrator and Lotus Notes developer. Erica is a graduate of Harvard University.