Has WebFilings jumped the shark?

It may yet be premature to proclaim RR Donnelley (RRD) and Merrill Corporation have withstood WebFilings’ best shot, but the Ames, IA self-provisioning SEC filing software darling may have peaked in terms of disruption created to the overall financial reporting services sector.
Many, including this reporter, took serious notice when WebFilings began generating tidal waves of change in the industry. RRD and Merrill quickly scampered to come up with their own self-provisioning software to stem the tide of WebFilings’ advancement—which was considerable, rapid and yes, impressive.
While some say the juggernaut is still rolling, as we enter into annual report (Form 10-K) season in the financial printing business, with the exception of the continued evaporation of the inhouse model, both RRD and Merrill seem to have contained the bleeding. Both of these companies now offer their own versions of self-filing software. Some may say their respective versions are not as good as WebFilings’, yet that was not the reason for creating them in the first place. Their introduction was intended to provide a competing product in that business reporting segment, but only if the software afforded them the ability to maintain their “soup to nuts” model first and foremost. And after a somewhat rocky start, many industry analysts are agreeing it has.
Most of our readers who understand the financial reporting space in the least appreciate the copycat nature of the business, especially by the oldest competitors still remaining in the business—Merrill and Donnelley.
Appearances are everything
Good sales people comprehend that once a product is online, up and running, it doesn’t sell itself. What sell it are the people tasked with doing so. Merrill and RRD’s problems back in 2011-2012 largely consisted of finding competing software to WebFilings. Since their teams didn’t have anything to answer WebFilings right off the bat, sales forces naturally panicked. It was about appearances back then and it remains so to this day. Once WebFilings’ competitors had their own self-filing software versions they could sell them as alternatives, or better yet, as supplements to their more traditional, “do-everything” models of service. The feeling of newness, superiority and yes, the element of surprise was entirely WebFilings’ in the beginning, though, as the two financial printing powers struggled to answer.

The rate of market penetration that WebFilings enjoyed over an 18-month period put a real dent in the business landscape. WebFilings surprised itself with its own rapid growth, however, and the ranks of its employee files swelled to just fewer than 1,000 in number in just a few years’ time. As it looks to create more growth it seeks to make even greater inroads in market share. With the majority of filers now using their software, however, could further gains be harder to come by?
Merrill and RRD for sure experienced some failure as a result of WebFilings’ emergence. They lost a lot of customers to self-filing but they seem to have withstood the siege on their overall business. Both of these veteran companies are still standing. Financial markets have experienced tremendous buoyance that permit both RRD and Merrill to maintain core groups of customers representing a foundation for growth as they go about the process of expanding client bases anew.
The first of its kind self-filing software that revolutionized the industry is largely responsible for the bulk of revenues produced at WebFilings. RRD and Merrill sell their self-filing software as an augment to their traditional service model—its bread and butter. The general well-being of capital markets even in an uncertain economic climate has afforded WebFilings’ competitors both time and space to make their new business models viable, and in the process, make these companies relevant once more.
In a previous column I opined on how RRD and Merrill should give away their self-provisioning software in order to better compete with WebFilings. They of course will not do so, but if they discount or undercut WebFilings in the least it still serves the same purpose. By virtue of the fact they do not offer anything but one product of significance (and no longer have a monopoly on the concept), WebFilings has suddenly become vulnerable to financial printers. The window of opportunity for WebFilings could be slamming shut as you read here. The same pundits who were originally impressed with WebFilings, including myself, are now the same people cautiously optimistic about the company’s future in an unprecedented, more aggressive than ever before, financial reporting space.
As successful as WebFilings has been, they still have allowed their competitors to make a comeback, or at least survive. Many are wondering what’s next for the company. Perhaps they will be satisfied to rest on their laurels and maintain their market share lead of SEC filers. I worry about the perceptions of companies who can afford to go the traditional initial public offering route and use financial printers. The view here is that WebFilings has made its living principally by saving clients’ money. That is a good thing until that philosophy is manipulated by those who would harken a service or product that saves money over another way of providing the same offering, as something that is inexpensive, or worse, somehow inferior or cheap overall. Cheap is a good way to deliver value until someone does it for even less. So, even though the company is perceived as successfully filling a space never occupied before, the pressure that a Merrill or RRD can exert upon them because that is all they do, is immense and exploitable. Growth can be accomplished by serving up something that fills a niche, but if you don’t pin your opponents or allow them to stick around and come back, your own survival eventually comes into play.

Henry Winkler as Arthur “Fonzi” Fonzarelli in the popular 70’s TV sitcom Happy Days helped coin the phrase “jumping the shark.” Fonzi was a cool guy who did cool things. When an episode of Happy Days featured him literally water-skiing and jumping over a shark, it marked the beginning of the decline of the show. WebFilings may have not jumped the shark, but they have allowed Donnelley and Merrill to hang around. And that’s a problem.