Letter to Dr Michael Lynch of Autonomy

Dr Michael Lynch,

CEO, Autonomy Corporation,

Cambridge Business Park

Cowley Rd

Cambridge

CB4 0WZ

CC: Suranga Chandratillake, CEO, Blinkx

22^nd June 2009

Dear Dr Lynch.

I am writing to you as a fellow shareholder in Blinkx. I believe that you personally have approximately an 8% holding in the company and that Autonomy owns approximately another 8% of shares.

I have held shares in Blinkx for more than 18 months now, and over that time have become increasingly concerned at what I perceive to be the company’s lack of strategy and focus. It is true, of course, that the company has indexed more than 35 million hours of online video: and yet Blinkx seems incapable of striking deals with large media organisations (Yahoo springs immediately to mind, but there are many others) who have the user traffic and eyeballs to enable profitable monetisation of that index. It is also true that Blinkx has some highly innovative products (AdHoc, Transaction Hijacking), but again I don’t see any announcements of strategies to monetise these. Nor do I see any advertising strategies to promote the Blinkx brand and services to a wider and more general public. Of course the global economy has been in a very dire state during that time, but even so one would have expected the (self-proclaimed) “world’s largest and most advanced video search engine” to have made considerably more progress than it has. It seems very much as thought Blinkx is losing ground to other video players - Hulu, Joost, Truveo and the rest. I no longer see the clear lead which Blinkx used to have over such competitors.

What I do see is an endless succession of what I consider to be paltry RNSs about partnerships with mostly small, mostly obscure websites of which hardly anybody has ever heard – the latest example of which is BobVila.com (contemptuously referred to among many shareholders as the ‘Bob the Builder’ RNS).

As Blinkx shareholders, I think we should be asking ourselves the following questions about the company’s strategy and product line:

• Where is the Blinkx video search app for the Android OS app store? (There isn’t one – I have a Google phone)
• Where is the Blinkx video search app for the Apple OS app store? (New iPhone OS released last Thursday – not a trace of anything Blinkx-related)
• Does Blinkx have any relationship with the new Microsoft bing search engine for video search? (Certainly the bing search results bear a striking similarity to Blinkx video search results)
• What exactly was the nature of the Zango transaction? Why was it done if it will not have a material impact (because if it had, it would have warranted an RNS)?
• Why are there no prime-time TV ads to promote Blinkx? A small-scale TV ad campaign – perhaps just in the UK to start – would, in my view, reap huge rewards: increased traffic to the site and raised awareness of the brand among consumers; raised awareness among potential partners; increased interest from market analysts and commentators leading to an increasing share price and satisfied (as opposed to currently disatisfied) shareholders.

These are just the most immediate of a long list of questions. I’m sure other shareholders would be able to add their own questions and concerns.

I’m afraid I lay the blame for what I perceive to be a lack of execution firmly at the door of company management and especially with Suranga Chandratillake, the CEO. I have absolutely no doubt of Mr Chandratillake’s technical abilities, but he is, in my view, woefully lacking in the areas of effective management, marketing, PR and investor relations. Having floated the company and been more than happy to take shareholders’ money at the IPO, Mr Chandratillake now seems to have nothing but contempt for shareholders (especially small shareholders, although of course in principle all shareholders should be treated alike).

It is a curious fact that despite a reluctance to communicate with shareholders, Mr Chandratillake always seems more than happy to make statements in public. Early in 2008, for example, he said to Martin Sorrell of WPP – in public, on video, on the record [1] – that Blinkx was “very close to break-even”. There are of course many measures of break-even, but I believe I am correct in saying that since that time there has been no official announcement that Blinkx has achieved any of them. Again, Chandratillake has stated in public that Blinkx will be profitable next year[2], without offering any hard evidence to support that view. He seems to expect us to take him at his word, and I am afraid that I for one am no longer prepared to do so. If the share price was a multiple of the IPO price Chandratillake could say and do as he liked – but it isn’t, and he can’t.

And yet even whilst he was making such statements, the utter fiasco of the ‘bid’ for Miva was unfolding: a formal offer of 125c a share (rejected) followed by some bizarre ‘advisory’ offer of 55c a share, followed by five months or so of doubt and uncertainty over whether there was any offer at all (during which time the Blinkx share price fell as low as 8.5p – and this against an IPO price of 45p, and for the self-proclaimed world’s leading video search engine!). Indeed it was only at the last set of figures that shareholders were eventually and officially informed that the ‘bid’ for Miva was at and end.

A complete shambles, in my view, from start to finish, both in terms of bid strategy and shareholder communication: and final evidence, to my mind, of Chandratillake’s complete unsuitability for the CEO role.

It is, in my view, time for Chandratillake to consider his position. I think he should step down from the CEO role to that of CTO, where his undoubted technical skills can best serve the company and shareholders. He has had more than two years now to execute on his promises and vision and look where we are: a share price at only a third of IPO, a frankly pathetic newsflow, no big deals on the horizon (that I know of), a total lack of coverage by market and sector analysts – all the evidence of a moribund and floundering company.

I enclose, by the way, a posting from glassdoor.com which you may find interesting. It is of course impossible to verify, and may have been posted by a disgruntled ex-employee, or indeed by someone who has never been an employee at all but is seeking to affect the company and its share price. However, to my mind it has the ring of truth: the situation it describes inside the company chimes with my perception of Blinkx management as arrogant, defensive, insecure, incompetent. If true it paints a deeply worrying picture, and one at which all shareholders should be deeply alarmed.

There are several deeply worrying and disturbing questions around Blinkx, not least this: if the company has as bright a future as Chandratillake is forever predicting, why doesn’t the company’s management team buy shares in the company in the open market? Don’t they want to be wealthy men and women when Blinkx becomes the Google of video search? They were happy to sell shares to the investing public at 45p in the IPO, but won’t buy any themselves at 15p, or even at 8.5p. Buying shares would send the clearest possible signal of confidence in the company’s future profitability by the management team. But such a simple, obvious move seems to be beyond Chandratillake – from where I’m standing the guy seems utterly clueless about how to inspire confidence or build the Blinkx brand. As someone who either directly owns or indirectly controls such a large stake in Blinkx, Dr Lynch, it must surely have struck you that the company’s CEO is not prepared to put his money where his mouth is and buy shares? Certainly if talking got the job done Chandratillake’s efforts would have ensured that Blinkx would be wildly profitable by now; but as things stand the markets seem to have rather lost faith in the wunderkind, wouldn’t you say Dr Lynch?

I would urge you to use all your influence – both as Chandratillake’s mentor and as a major shareholder in Blinkx – to persuade him to stand down from the CEO role and make way for someone with a more appropriate skillset (ie PR, marketing, investor relations, as well as deal-making at the top table) who can grow Blinkx to where it should be. Because another two years like the last two and I worry for the future of all our investments in Blinkx.

I also intend to write to the company’s large institutional investors seeking their support for Chandratillake’s removal.

Yours sincerely,

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[1] http://criticaldistance.blogspot.com/2008/01/blinkx-business.html about 44 minutes and 20 seconds in

[2] http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=99728