Andy on Enterprise Software

Informatica goes Christmas shopping

November 29, 2006

Informatica continues to broaden its offerings, in this case by acquisition.  Itemfield is a company selling software aimed at translating unstructured (or indeed structured) data into XML.  Its technical strength was smart algorithms that could deduce structure from samples of emails, Word documents etc.  It is fully built around SOA principles, allowing it to be embedded into other offerings fairly easily. 

Founded in 2000, the company had 50 or so employees, half of which were in Israel, where the R&D was based.  The company had achieved penetration into some good accounts including GE and American Airlines.  Its revenues are not public, but I believe that they were hoping for USD 10M sales in 2007.  Interestingly, their typical deal size of about USD 225k was higher than that of Informatica itself.  Informatica, which already had a partnership with Itemfield, has paid a quite full price for the company, USD 55M of cash meaning a price/sales ratio of 5.5 on projected future 2007 earnings.  A healthy result for the founders, and further demonstration that companies will pay a premium price for sufficiently differentiated technology.

 

Hot off the press

November 28, 2006

I am just back from the CBI (Confederation of British Industry) conference, the first time I have been invited.  It certainly had plenty of high profile attendees, with CEOs of many of the UK’s largest companies.  Moreover the speaker list was hard to top, with in-person attendance from Gordon Brown, Bertie Ahern (Taoiseach of Ireland), US Treasury Secretary Henry Paulsen and a certain Tony Blair.  David Cameron was supposed to be there but elected to head off for a photo-op in Iraq at the last minute (a rather curious piece of timing that presumably is supposed to signal that the new Tories are not in the pockets of business, or some such political gesture).  Business speakers included luminaries such as Lakshmi Mittal (the richest man in Britain) and the European head of Google, Nikesh Arora, along with assorted top CEOs. 

A major theme was the rise of China and India as global economic powers, and what this meant for British Industry.  In 1820 China and India accounted for 40% of the world’s economic output, and at the present rate they will do again by 2025. In case you thought China was all about low-cost manufacturing, China Mobile was revealed by Martin Sorrel to be the world’s fourth most powerful brand in a new WPP survey, with a little matter of 268 million subscribers.   The sheer scale of China can be hard to take in, as I discovered when I went to Shanghai earlier this year.  There are 184 cities in China with population of over 1 million people, and according to one panelist the premier of China reckons that there may be 1.5 billion people now in China instead of the conventionally quoted figure of 1.3 billion.  The notion of 200 million people popping in as a form of rounding error speaks volumes to the scale of the place.

As well as the China and India theme there was discussion on energy security and the changes of ownership of companies through globalisation.  In Tony Blair’s session he emphasised how important education was, revealing that 7 million adults in Britain have a reading age below that of an average 11 year old child.  I would like to point out that,  that, perhaps not by coincidence, this is also the exact audience figure for the X Factor.  Blair’s session was primarily Q&A, which he handled with his characteristic aplomb and good humour.  He even remembered my name when I asked him a question – a smooth operator. 

The conference itself was held in the slightly odd setting of the British Design Centre in Islington, which as a venue leaves quite a bit to be desired.  I felt a couple of drops of rain come through the roof, and there seem to be two small toilets for the entire place, which are reached down a maze of ill-lit corridors that look like the sort of ones you walk down when exiting a dodgy cinema into a dark alley.  Security was understandably tight, but less forgiveable were the grand total of four staff issuing badges at reception, resulting in long queues, while a crowd of other staff at a vastly over-manned nearby desk for press stood around chatting to each other and generally being as useful as a chocolate teapot. 

The lunch appeared to be arranged by someone from a Soviet-era canteen.  There were half a dozen identical areas with food, but instead of guests just forming a short queue at each we were shepherded to the end of a long corridor and then formed a single very, very long queue for one section while the other sections remained empty “until the first one runs out of food” as it was carefully explained by a manageress who perhaps was an Aeroflot stewardess in a previous job. 

It does seem odd that the CBI can attract the top political and industry leaders, up to and including the prime minister, but seems unable to address the most basic elements of conference organisation.  Perhaps they should outsource the conference organising to India. 

 

A more lucid approach

November 25, 2006

I have wondered for some time why business intelligence has been so slow to come up with software as a service solutions.  Celequest has done so, and this week sees the launch of another, called LucidEra.  This company aims to offer a ciomplete BI suite including ETL, data quality, database schema, OLAP server and reporting.  Given that enterprises are prepared to trust their customer data to third parties e.g. salesforce.com, there is no reason I can see why they would not do the same with business intelligence. 

The advantages of a service offering is seem to me twofold,  First is the easier and more reliable deployment.  Many problems in software stem from environmental incompatibilities e.g. some weird combination of releases of Oracle and Tomcat and something else that cause obscure bugs which the vendor could never have tested for, and which are hard to reproduce.  This problem goes away with hosted solutions, where the web browser is just about the only software the client can screw around with.  Secondly, though this is a commercial rather than technical issue, the leasing that software as a service typically uses means an easier point of entry.  One mid-ranking customer can sign off on a few months of leasing in a way that they could not for a multi-hundred thousand dollar software purchase, which would end up in steering committees and a formal procurement process.  

Salesforce has shown what can be done with this approach if well executed.  It will be interesting to track the progress of LucidEra, Celequest and others that emerge into this space.

A failure of imagination

November 22, 2006

An article on “the future of Business intelligence” is always a bold undertaking, but I think the one just out by Brian Watson could be a lot bolder.  I don’t think that just making BI “more real time” or plugging a load of reports into Google is really going to change the world of BI, and indeed to some extent it is disappointing just how unimaginative the software community has been in recent years with respect to BI.  Although it is a large and growing market, there are many pretty fundamental issues that have barely improved in a decade.

Starting with data quality, everyone agrees that data quality it pretty horrible in most companies, yet what has really come on the market to address it?  No vendor is making more than USD 50 million in revenue (Trillium is about the largest) and yet every big company has a large, expensive, data quality problem.  I like the more automated discovery approach taking by US start-up Exeros, and indeed something similar can be seen (but is not articulated in its marketing) by Uk software vendor Datanomic, and yet these companies are still pretty small. Surely there is room for compelling innovation here?

Getting data out of source systems has become somewhat commoditised.  Products like Ab Initio have increased throughput, but in general the technology is slipping into the database (as with IBM buying Ascential and Oracle buying Sunopsis).

When it comes to the data warehouse itself, this is a cottage industry, with few true packages.  Most data warehouses are built by hand, which suits systems integrators just fine (all those yummy billable hours) but does not serve customers well.  TDWI reckon an average data warehouse takes 16 months to deploy, USD 3 million to build and costs 72% of its development costs in support every year.  This is a dismal state of affairs, yet other than one new design approach (Kalido) and adding ODS functionality to ERP (SAP BW) there has been little to move things forward here. 

On the database side of things there has been more activity, with Teradata carving out a proftable niche at the top end, and now Netezza biting at its ankles.  There are one or two software solutions in the works also e.g. Kognitio.  So here at least is some sign of life.

The reporting suites have mostly consolidated around a few vendors: Business Objects, Cognos and Hyperion, with a few smaller players like Microstrategy and Actuate. There are only so many ways you can display a report, so it is not surprising that this area is showing consolidation rather than a lot of innovation. 

Master data management is at least coming out of the closet as an issue, but here we see a flood of companies rebadging some tired old products as “MDM”, yet relatively few companies with genuinely new approaches.  At least here there seems to be some genuine customer interest, if not heavy spending so far.

Data visualisation tools still lurk in the shadows, with no vendors really breaking out of niches, though Spotfire is doing a good job, especially in pharmaceuticals.  Yet companies like Fractal Edge and others which have genuinely interesting user interfaces are still very small. 

I think there is an opportunity for a more hosted approach to BI, as is being taken by Celequest.  If people are prepared to trust their customer information to be stored outside their enterprise (salesforce.com) then why not their BI data?  I am surprised that more has not happened so far here.

All in all, I think that the BI industry has a lot of potential for improvement in innovation, yet is showing few signs of bold thinking right now. Customers should not have to live with the relatively poor status quo. Although venture capital is now scarce for enterprise software plays, a large multi-billion dollar market with 10% annual growth and a generally pretty low standard of solutions is a market crying out for innovation, rather than incremental improvement. 

 

Are British software companies a bit too shy?

November 21, 2006

Small software companies sometimes struggle to get a clear message of their value proposition into the market.  It is certainly hard when you have some revolutionary product that is not quite like anything else, but this can also happen through one part of the company not knowing what the other is doing. 

This isn’t meant to pick on a particular company, but it is illustrative.  A small, recently founded British software company called Grid-tools recently put out a reasonably smart piece of stealth marketing.  They did a press release on Newswire quoting some figures about how much time and effort data quality problems were costing.  This was a good strategy – they don’t actually talk about the survey very much, but by leading in this way it looks less like a direct product plug and hints at potential return on investment. 

Unfortunately, their marketing department (and how big can this be in a start up estabished in 2004?) doesn’t seem quite joined up, since if you find their web site (which oddly is not directly referenced in the press release) you discover that they don’t sell data quality tools at all, but software to create and manage test data, and also archiving of data (”information lifecyle management”).  All fair enough, but why go to the trouble of a press release about data quality if you don’t sell a data quality product?

I have recently been looking at a number of start-up companies and have observed that they often have interesting technology but rarely manage to coherently describe what their value proposition is.  This seems particularly a British disease – software execs in the UK seem almost proud of their lack of marketing prowess, disdaining this as all a bit “American”.  While it is certainly good to have an emphasis on product engineering, you also need to be able to sell software, and that is hard if people don’t understand what you do or indeed if they have no really way of finding out that you exist.   

This is one area where  British software firms have a lot to learn from the Americans.  I recall looking at a software company once which had produced a beautifully written and quite convincing whitepaper about a “new” approach to business intelligence (essentially EII).  Although it was not really that new, the paper was well written, slightly controversial and seemed thorough – just the kind of thing that would make you want to find out more.  It was only after some digging that I discovered that they did not have one single live customer for this revolutionary approach (this was not a British company, in case you haven’t guessed).  I’m not suggesting that British software companies adopt any dubious marketing practices, but sometimes we need to stop hiding our light under a bushel.  Or at least manage to illuminate the right bushel. 

 

The BI market keeps on growing

November 15, 2006

In IDC’s latest annual report, it gives the size of the “data analysis” market, which includes data warehousing, business intelligence and generally anything analytic, as being worth a chunky USD 16.5 billion in software (systems integration related to this would be greater than this), up 11% from last year.  They also reckon that this market will grow at a healthy clip of 10% a year for the next five years, based on the fact that “analysis” is now one of the top two spending items for IT executives.

Recently I pointed out that the specialist players in what is more commonly called the business intelligence market grew revenues at 23% in calendar 2005 over 2004, though the IDC figures include the BI offerings of the industry giants Oracle, SAP, IBM and Microsoft, as well as a broad set of other companies and categories e.g. data mining offerings. 

A large and growing market not only causes the behemoths to want to gobble up smaller players with good technology, as Oracle recently did with Sunopsis, but in principle should interest venture capital firms to back innovative start-ups in the area.  However VCs seem too starry-eyed at the moment over social networking web sites to want to return to anything as tedious as enterprise software, with all its long sales cycles, costly software development and grumpy and conservative enterprise buyers.  Still, fashions change, and who in 2002 (when venture firms turned firmly against the internet in the wake of the crash) would have been betting that a web site company set up in 2005 for consumers, with no obvious mechanism for making money, would be snapped up just over a year later for USD 1.65 billion?  Perhaps it is time to get ahead of the curve and look ahead to when enterprise software will be fashionable again.  Any VCs feeling brave?

 

The Joy of Call Centres

November 14, 2006

It seems to be the trend these days to move your technical support call centre from the US or Europe to India.  While the staff are no doubt cheaper there can be problems, as Dell found out and I personally experienced when they shifted their previously award-winning centre from Ireland to India. While hardly a scientific analysis, let me offer you the following real-life example of how such a move can go wrong.  I would like to preface this by saying that I love India and go there most years on my holiday.  Let me now begin the saga. 

Last Thursday my BT broadband internet access stopped working.  I called the technical support number and was put through to a call centre in Mumbai. I explained what I thought might be the problem but the support engineer insisted this was irrelevant and that I work though the scripted set of things in front of him.  This included deleting a surprising number of files (some utterly unrelated to BT broadband) and existing connections.  When I asked whether it would not be wise to take a backup of these first the engineer said “no, no, we’ll restore them from the original CD later.  You do have that – right?”.  Well, squirrel that I am, I did indeed have the original CD from four years ago, but maybe checking before instructing the customer to go on a delete spree would have been prudent?  Anyway, we get to the stage of reloading drivers from the BT CD, and guess what – the necessary drivers seem not to be there.  “Oh” he said.  Oh indeed.  “I will despatch a CD to you – it will take up to 5 days”.  5 days. Have BT discovered the UK postal service yet?  Apparently not.

“But surely it may be a line fault?” I protested. ”After all the status icon of the broadband software showed the drivers were all clear until you insisted that I deleted them?”. 

“I cannot test for a line fault until I eliminate all other possibilities”.

“Well, the last four times that the broadband stopped working it turned out to be a line fault; does that not indicate it might be worth at least a look?”.

“No.  We have to follow the procedure.”

After going round in circles for some time I gave up and decided to call back and maybe get someone more useful. I was away until Sunday (no CD yet) and so the next conversation began.  After going through much the same process this engineer was at least able to find some drivers on the original CD that I had (in an entirely different directory to the one the previous guy had told me to look for).  Any temporary illusions of hope were shattered when, after nearly an hour of software configuration, unplugging cables, trying alternative filters etc, he said “Well, everything is correctly installed now”. 

“Er, but the status indicator says “modem not responding”. 

“Nonetheless, it is fine.  It must be a line problem.  I will now authorise a line test; someone will call you back within 5 days”.  After a long debate he promised to “escalate” this and would call back shortly.  A couple of hours later he did and said “Ah – it is indeed a line problem; someone from another team will call you tomorrow”.

So Monday, comes and no call from BT.  I do get a peculiar message while I popped out for a sandwich saying “we noticed that you have no BT email account with us; we recommend that you set one up.  To do so call…..”

I thought this was a bit cheeky, to put it mildly, but decided to ignore the provocation.  Finally I called back and gave the problem number. 

“Ah, the case has been closed”.

“What?”

“The notes show that someone spoke to you, asked you to set up a BT email account and closed down the problem as fixed”.

I will skip the precise words I used at this point but suffice it to say that the engineer did acknowledge that it was perhaps a tad premature for the problem to be closed by his colleague.  “indeed, we have a zero tolerance policy of bad customer behaviour”.  Uh huh.  So, what was the result of the line test?

“Well, we haven’t run one.”  Where was the CD with the drives supposedly originally requested on Thursday? 

“We have no such request”. 

A lengthy conversation ensued.  The engineer actually said “You are very calm.  If I was you I would be screaming at me by now”.  I guess this was a compliment, at least; no internet access, but at least I had avoided an insane rant.  So, we did the usual dance: deleted some more files, reinstalled some files, unplugged some cables, plugged them back in again etc.  At the end of it the status light was still showing no connection to the modem.  “That must be the problem; it must be the drivers”.

“But your colleague reckoned the drivers were fine”.   

“He was wrong.  It might be the line, but I can’t run a line test until we have tried some more things.” 

Autumn turned to winter and finally we reached the stage where the advice was “I need you to find where the BT main line enters your house, take a screwdriver, remove the face plate and see what the wiring looks like”.  I suggested that this seemed a pointless and generally bad idea, as well as possibly unsafe.

“There aren’t that many volts running through it – you’ll be fine” was the priceless response, but by now my faith in the technical savvy of the Mumbai BT helpdesk was a tad lower than at the beginning, so I declined to start poking around with a screwdriver into some wiring somewhere in the dark outside the house, however few volts were running through it.

“Ah, then I cannot escalate the problem.”

“I just want you to send someone round and fix this”.

“We cannot do that.  You are not prepared to check the wiring so I cannot do anything more; I can pass a message on, but they won’t look at it.” 

At this point I decided to give up and drink a lot of alcohol.  By Tuesday it had been six days with no internet access and I decided on a fresh approach.  I called BT sales and asked if I could buy broadband.  “Certainly – what is your phone number?” which was followed by “Oh, but you already have broadband”.  I explained that I may well be paying for broadband, but certainly did not actually have use of it, nor was I ever likely to in the future at this rate.  At this point the sales girl took pity and passed me on to a UK technical guy.  A very nice man from Newcastle called Jaz talked me through the situation, got me to reconfigure some files and in 15 minutes I had broadband up and running again.

So, Newcastle helpdesk 15 minutes; sorted (mostly fixing the problems caused by the previous “support”).  Mumbai helpdesk over 3 hours on the phone, five days elapsed and something close to a nervous breakdown for the caller.  It was so comforting when I switched on the news and saw that BT’s profits were up and were “investing in 6,000 new jobs in India”.  At the productivity rate of 12:1 that I had found that would be equivalent to 500 people in Newcastle.  I hope they are really, really cheap in that Mumbai call centre, Mr Verwaayen.  I do know a man called Jaz who could perhaps usefully do some training over there….

 

The Software 500 Rankings

November 7, 2006

The Software 500 is a very useful annual listing from Software Magazine.  It is the one place where you can find a ranking in revenue terms of software companies, many of which are privately held and are can therefore be awkward to find out information about.  The list does have its flaws: it looks back at 2005 calendar revenues, and so is somewhat out of date.  It also bizarrely includes companies that are clearly not software companies but systems integrators, such as Accenture and Logica.  However, it is what it is, and is reportedly used by some CIOs as a “checklist” when evaluating software companies, so it is somewhere that even shy privately held companies want to be listed. 

In Business Intelligence we have the following picture: 

Company
Revenue
Growth
Web Site
SAS
$1,680.00
10%
www.sas.com
Business Objects
$1,077.20
16%
www.businessobjects.com
Cognos, Inc.
$877.50
28%
www.cognos.com
Information Builders, Inc. Pvt
$300.00
0%
www.informationbuilders.com
MicroStrategy, Inc.
$268.70
16%
www.microstrategy.com
MapInfo Corporation
$149.40
20%
www.mapinfo.com
Actuate Corporation
$106.40
2%
www.actuate.com
Callidus Software Inc.
$61.50
5%
www.callidussoftware.com
Insightful Corporation
$22.30
18%
www.insightful.com
Inxight Software
$21.30
42%
www.inxight.com
Kalido
$18.10
68%
www.kalido.com
Global Software Inc
$11.50
77%
www.glbsoft.com
Infoglide Software Corporation Pvt
$7.60
10%
www.infoglidesoftware.com
Bitam
$6.80
36%
www.bitam.com
SAND Technology
$5.50
n/a
www.sandtechnology.com
IRM Corporation
$4.30
16%
www.irmcorporation.com
Tableau Softare
$4.00
n/a
n/a

From a macro perspective, average growth of the BI vendors was a healthy 23% in 2005 over 2004.  Companies that did particularly well were Global Software Inc with 77% growth, Kalido with 68% growth and Insight Software with 42% growth.  Even the giants did well in terms of growth, though some of this was from acquisitions as well as organic growth.  This is a useful piece of data when looking at the generally quoted industry growth rates, which are based on analyst estimates of spend.  Here you have the actual revenue growth of all the significant companies that operate in the space, which may be a more real measure. This would suggest that the business intelllgence space had a more healthy year than was generally credited by industry analysts.

 

 

Microstrategy results

November 3, 2006

After a poor Q2 Microstrategy followed Business Objects in achieving a good Q3 set of results.  The critical measure of software revenue was up 8% this quarter though 1% down year over year, while overall revenue at just under USD 78M was up 18% year over year.  The company still has USD 52 million in cash, and its operations generated free cash flow of about USD 18M. 

Investors have responded well, as can be seen from the share price chart below.

 Chart Graphic

This is further evidence of a quite good market sentiment particularly in the US.  However it must be remembered that software sales are actually down year over year, and the company has added 30% headcount since a year ago.  For a software company, you really want to see increases in software licence revenue, not just services. This seems to be increasingly a struggle for BI vendors, and not just Microstrategy.