CTSpace dissected

Yesterday’s announcement of a merger of BuildOnline and Citadon to form CTSpace (see earlier post) presents a positive view of the past history of the two firms, so it is worth analysing some of the background. Let’s start with BuildOnline.

BuildOnline backstory

BuildOnline was actually originally founded in Ireland and set out to become an e-marketplace for construction, quickly relocating to the UK and focusing on collaboration when the dot.com bust showed there was no market appetite for e-commerce platforms (Arrideo, AECventure and Mercadium were among other doomed construction dot.com ventures). During 2000, it raised a lot of money and spent some on an effusive public relations campaign (“without even having a product” recently admitted CEO Mark Suster – see post), but the appetite for ‘project extranet’ solutions kept it alive. While there was little market rationalisation in the UK collaboration sector following the dot.com bust, BuildOnline took over the European operations of collapsed vendor i-Scraper in Spring 2001 (my employer BIW Technologies claimed i-Scraper’s UK business), and acquired Germany-based MyBau in May 2002.

Despite BuildOnline claims in November 2002 to be the first UK extranet business to reach profitability, annual reports for BuildOnline (UK) Ltd (see BIW’s growth continues – but what about the others?) show that it has continued to make losses in its home market (presumably its UK operation was shored up by revenues from its more successful European ventures?). BuildOnline was also rather coy about how many users it had; the only recent figure I’ve seen said BO had 43,000 users (30 October post: BuildOnline statistics) – which put it some way behind BIW’s 68,000 at the same date – and some way off the CTSpace claim that BO held ‘the market leadership position in Europe’.

Keeping UK and European costs down, BuildOnline’s software development has also been off-shored to Bangalore, India since 2004. The India operation, by the way, was headed, coincidentally, by Azhar Khan, one-time head of engineering at Citadon (and before that Bidcom and before that Cubus, and, before Cubus’s formation in 1997, Autodesk) – Khan has since left BuildOnline to co-found another e-business, Riya.com.

Citadon backstory

While the CTSpace news release says Citadon was formed in 2001, its origins go back at least four years earlier. As the final sentence in the previous paragraph suggests, Citadon was the latest brand applied to a US-based business developed through a series of mergers: BluelineOnline and e-Bricks merged in January 2000 to form Cephren; Bidcom absorbed Cubus in June 2000; then Cephren and Bidcom merged in March 2001 to become Citadon.

While Cephren and Bidcom both had collaboration products (including Bidcom’s venerable ProjectNet – see 30 September 2005 post: ProjectNet: old technology?), the merged business developed a new product, Citadon CW (Collaboration Workspace) targeting the enterprise collaboration market (including oil and gas companies, owner/operators of process plants, power companies, and transportation organizations) rather than being project-oriented (like Constructware and Autodesk in the US, and BuildOnline, BIW and others in the UK). Citadon CW is not widely used in Europe – it’s last UK announcement concerned a deal with EC Harris in October 2005 (EC Harris stays with Citadon), but it does have significant traction in north America (22 December 2006 update: the Insight Venture Partners website says Citadon has “more than 60,000 subscribers in over 60 countries”). However, and as with BuildOnline, I am sure other vendors would contest its ‘market leadership position in the US’ – not least the formidable combined Autodesk/Constructware business. At the time of that merger back in February, the combined total was over 150,000 users; in September Autodesk claimed 185,000 users).

The merger rationale

The geographic fit between the two businesses is good, with only limited overlap in Europe and north America where, respectively, Citadon and BuildOnline each had small footprints. But whether the combined operation is “truly global” is debatable – being pedantic, I would say there are several markets which are, as yet, untapped. I am not aware, for example, of major inroads being made in South America, and there are a few projects using collaboration in Africa. And CTSpace hasn’t declared any presence in Australasia – whereas Australian vendor Aconex has borrowed heavily to establish a string of offices there, across the Asia Pacific Rim, through the Middle East and into Europe, with the US said to be next target.

So far as the main products are concerned, the fit is also logical. As already mentioned, the main Citadon product, Citadon CW is aimed at large enterprises engaged in long-term programmes of major, complex projects, whereas the vast majority of BuildOnline relationships are with more project-oriented customers. I suspect Citadon’s ProjectNet will probably be replaced by the BuildOnline system for the latter target market, while Citadon CW salesman will probably be sizing up some of BuildOnline’s infrastructure, utilities and transportation users as potential enterprise customers.

Track record and experience count for a lot in the AEC market, so, like the Autodesk/Constructware deal, this merger immediately gives a boost in terms of the numbers of customers and end-users that the combined business can claim. Of course, “size isn’t everything”. Potential customers of the extended business should ask about the take-up of the application in their specific market and for their type of use.

Basing the company in the US also provides a minor benefit so far as BuildOnline’s former UK operation is concerned: depending on its company structure, it may no longer have to publish its accounts to Companies House, making its financial performance public. As a privately-held US company, its financial health may no longer be as easy for us to ascertain.

Issues

The release says: “The merged company will continue to support customers using current versions of products from both Citadon and BuildOnline”, but it says nothing about the long-term future of these products (and of the staff developing, supporting and selling them). However, there is a possible clue in a later sentence:

“By combining their significant research and development investment, CTSpace will offer clients a standardized software platform that is zero-risk and can be rapidly deployed on a global scale.”

From this it would appear that CTSpace plans to combine its R&D functions to offer a single platform. Customers would be well advised to establish f
rom CTSpace what exactly the long term roadmap is for its products and how the business intends to migrate its customes to this “single standardized software platform”.

Coming back to the financial issues, I have not seen any details of the terms of the merger or of the impact on investors backing the two parties.

• BuildOnline had substantial equity funding, raising £34 million from at least seven major institutions (Goldman Sachs, Vivendi, Sal Oppenheim, Bank Boston, GRP Partners, ETF and Delta Partners); the MyBau deal brought in German construction firms Bilfinger Berger and Strabag, plus software provider Nemetschek AG, as minority shareholders.
• Citadon raised £11 million funding soon after its formation in 2001, and announced a $15 million (£8m) funding infusion in September 2003 from an investment group led by Insight Venture Partners.

So, the two businesses raised a combined total of over £50 million (and this ignores any funding raised by earlier merger partners – for instance, Bidcom alone raised $63 million in venture capital before its merger with Cephren to form Citadon). The new CTSpace website only lists four investors: Insight Venture Partners, Bank of America and two of the original seven BO group: GRP Partners and Sal Oppenheim.