In May, I took a group of undergraduates to Paris to learn more about its startup scene. During our visit, only one company we visited was in a hurry to hire talent from around the world. The company is Algolia, a provider of enterprise search services, with then-new offices on the penthouse floors behind Paris-Saint-Lazare station.
I was a bit surprised because I thought that Google had the search market sewn up. But there is one segment of the market that Google has abandoned — the business of helping consumers search through a company’s online product catalog.
Indeed, as the Economist pointed out, Google is good at bringing users to a website but once there, customers rely on the websites’ own search functions to find products. Some companies “build their own engines; others use open-source software, such as Elasticsearch, and [Algolia is rapidly take a piece of that pie by supplying a service that] “hunts the client’s website and swiftly offers consumers relevant results.”
To be fair, Google used to offer a Google Search Appliance, but the search giant is sunsetting it. And that leaves a gaping hole in its search offerings — a business opportunity that’s being rapidly captured by San Francisco-based Algolia which charges clients for its service, rather than selling ads and collecting user data.
Algolia — which was founded in 2012 in Paris and has raised a total of $74 million — is growing fast. According to my October 4 interview with co-founders, CEO Nicolas Dessaigne and CTO Julien Lemoine, by September 2018, its customer count had grown 38% to 5,700 businesses since the start of the year; annual recurring revenue was expected to more than double to between $4o million and $50 million by year-end — up from $1 million in 2014, $10 million in 2016 and $20 million in 2017; and headcount is expected to soar 33% to 300 by year end — from 200 in 2017 and 60 the year before.
Algolia is targeting a large market. Enterprise Search is expected to reach $8.9 billion by 2024, according to Grandview Research. And Dessaigne said that this number excludes a significant segment — marketplaces and other business to consumer search.
One reason that Algolia is growing so fast is that its cofounders have been exposed to the Silicon Valley approach to startups via their participation in Y Combinator. As we saw in May, Algolia uses English in all its offices and sought U.S. clients from the beginning.
Dessaigne and Lemoine are in their first time as startup leaders and they are learning some important lessons about how to scale. As Dessaigne said,
We would view an IPO as a funding event. We want to keep the company independent so it can achieve its full potential. It is not about the money, it’s about learning. And one thing we are focused on is finding the right talent in functions like sales, customer success, marketing, and engineering. As you grow bigger, the roles become more specific. For example, we hire account executives for small and medium-sized businesses, middle-market with industry specializations, and enterprise. When we feel the pain, we hire. It’s very humbling — What do we need to learn? Who do we need to hire? We learn from other companies at our stage of development.
The reason talent would want to work at Algolia is not the same today as it was in its early days. As Lemoine explained, “We tell candidates to join us for the adventure. The market has unrealized potential — we’ve only tapped 1% of it so far. The entrepreneurial talent we hired in the early days would not join us today. Now we are hiring for a more narrow scope. We need experienced people now who have seen this before.”
Algolia is not profitable. As Dessaigne said, “Like many fast SaaS companies our stage, we invest in growth over short term profit. That growth is sustainable and will lead to higher profits in the future.”
Algolia is keeping a close eye on the IPO another company in the business search industry — Elastic — which commercializes open-source software for search and data analytics. Elastic enjoyed 79% revenue growth in the July-ending quarter to $56.6 million and a net loss of $18.6 million. But that did not stop its stock from soaring 94.4% on its first day of trade, October 5, according to Investors Business Daily.
Adweek thinks that Algolia is one of a dozen French companies “[that] will soon pass the $1 billion threshold.”
At its current growth rate, Algolia could reach Elastic’s current scale by 2020. But since it’s unprofitable, can Algolia get there without raising more capital?