Microsoft offers to buy FAST for $1.2 billion; Likely to trigger enterprise search consolidation

Microsoft said Tuesday that it will offer $1.2 billion in cash for Fast Search and Transfer (FAST), a big player in the enterprise search market.

The move is sure to shake up the enterprise search market, which thus far has been dominated by a series of smaller players like FAST, Autonomy and Vivisimo. Google has made some inroads, but for the most part the market is the realm of niche players. Microsoft is about to change that with FAST. You can expect Google to make a purchase in enterprise search along with traditional enterprise players like HP, IBM and the usual suspects.

In a statement, Microsoft said its offer is a 42 percent premium to where FAST shares trade in Norway. FAST's board of directors has recommended that shareholders take the offer and the company's two largest shareholders--Orkla ASA and Hermes Focus Asset Management Europe--are on board with the deal. The transaction should be completed in the second quarter.

FAST counts Comcast, Disney, Microsoft, Pfizer, UBS and others as customers. In its most recent third quarter, FAST had revenue of $35.6 million, up 4 percent from the second quarter. Third quarter recurring revenue was up 65 percent from a year ago. Fiscal 2006 revenue topped $162 million, according to FAST's annual report. The company is profitable and had $137.9 million in cash at the end of its third quarter.

Microsoft is likely to raise a ruckus in enterprise search and force consolidation among FAST's rivals. Microsoft can bundle FAST with its Microsoft Office SharePoint Server and probably poach some features for its consumer search if warranted. And Microsoft will gladly take FAST's search engineering talent. I did an overview of enterprise search last year and highlighted how long it takes to deploy. In a nutshell, enterprise search is more complicated than slapping in a search appliance because you have unstructured data.

In a statement, Jeff Raikes, president of Microsoft's Business Division, said:

"Until now organizations have been forced to choose between powerful, high-end search technologies or more mainstream, infrastructure solutions. The combination of Microsoft and FAST gives customers a new choice: a single vendor with solutions that span the full range of customer needs."

Translation: The rest of this industry is going to consolidate fast.

Update: The area to watch going forward is how FAST integrates with SharePoint Server. Mary Jo Foley has more on that angle and it's one we'll be following throughout the day.