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After a decade of growth and adoption, it’s not difficult to see that the software-as-a-service (SaaS) delivery model has staked a claim as a major force in the future of enterprise technology. Salesforce.com and others helped popularize the SaaS model, and with CRM at the core of Salesforce.com’s offering, it’s little surprise that CRM now leads the SaaS market with adoption ranging from 9 percent to 33 percent, depending on the CRM subsegment.
Over the years, business intelligence (BI) software followed a similar path, transforming from a high-end luxury offering to one now seen as a standard component for any company. As a combination of the two, the shining promise of SaaS BI seemed—well, if not inevitable, then at least a likely development.
Quentin Gallivan, chief executive officer of PivotLink, a provider of on-demand BI, says it wasn’t that simple. “Business intelligence was a very complicated business solution,” he says, which may explain why BI is seen as a laggard in the SaaS space, with Gartner estimating adoption at only between 2 percent and 3 percent.
However, after 10 years of growth in what Gallivan calls “SaaS 1.0,” on-demand software is maturing into “SaaS 2.0”—which will finally embrace BI. “Now that companies are getting more comfortable using SaaS services for applications,” he says, “we can bring more complexity, more data integration, more ecosystem management to the cloud.” As vendors raise awareness, he says, SaaS BI can achieve 7 percent to 8 percent market penetration by 2013—and more than $1 billion in revenue. “That’s a pretty special market to be in,” he adds.
Just how special, though, remains to be seen. In mid-June, one of SaaS BI’s pioneers, San Mateo, Calif.–based LucidEra, stunned the marketplace by announcing it was shutting its doors. It was an unfortunate turn of events for a company that by many accounts had finally found its groove under the leadership of some BI veterans.
Founded in 2005, LucidEra went from start-up to shut down in large part due to the tough economic climate. With customers as wary to spend as venture capitalists were wary to invest, LucidEra could simply no longer stay afloat. (See “LucidEra: The End of an Era?")
But did something else go wrong? Something that the remaining players in the SaaS BI marketplace (see “SIDEBAR: SaaS BI Vendors,” below) could just as easily fall victim to? Something that all SaaS BI users—not just LucidEra’s customers—need to be concerned about?
The Old Days
More than a decade ago, business intelligence promised to answer all questions, address all woes. Long-lost data would be found. Access to more information, integrated processes, and robust technology meant companies could at last make intelligent decisions. Finally, Gallivan says, “a business tool that could be pervasive throughout your organization.”
Unfortunately, the grand BI promise failed to materialize for many companies. “They bought all these features and functions and they weren’t using [them] regularly,” says Ken Rudin, who founded LucidEra and was its chief marketing officer at the time of its closing. “There just wasn’t much impact.”
Rudin claims that years of idle reports have “jaded” the business users. That’s what gives SaaS BI vendors the freedom to compete with their on-premises counterparts not in terms of bells and whistles, but in achieving business impact. If clear benefits aren’t forthcoming, on-demand solutions give consumers something legacy software never could—a way out. They just won’t renew their subscriptions.
Rudin was formerly at Siebel Systems, where he recalls having to significantly soft-pedal its CRM OnDemand offering. “We had to say that it was ‘a lightweight CRM,’” he says. On-demand offerings aren’t lightweight anymore, he says: “When it comes down to capabilities that people really care about, I don’t think there’s much difference at all [between on-demand and on-premises BI].”
Brad Wilson, general manager of Microsoft Dynamics CRM, says that his company is investing billions each year into Web-enabled services, confident that eventually “all the things you can do in an on-premise[s] environment, you should be able to do in the cloud environment, too.”
Just two years ago, Oracle, SAP, and IBM spent billions to acquire legacy BI systems Hyperion Solutions, BusinessObjects, and Cognos, respectively. In a recent interview with ZDNet’s Larry Dignan, Rob Ashe, the former Cognos CEO who is now general manager of business intelligence and performance management at IBM, was quoted as saying that “BI doesn’t lend itself to SaaS.”
Ashe went on to explain that “even if transaction systems are the same, the decision-making process is different. Unlike NetSuite or a CRM application where everyone does the same basic things, BI uses a different model [in] every company.” Nevertheless, even technology giants can’t ignore the effect of the economy and the demands of the consumer. They, too, are attempting to break into the online-software space.
Despite the effort, critics say, the large vendors have yet to deliver a true SaaS solution. “They haven’t changed the economy—i.e., time to value, cost, and implementation time—of software delivery,” says Brad Peters, chief executive officer of SaaS BI provider Birst. “They’ve just changed who hosts it. Hosting is a low-margin business. It’s a very different business from software.”
PivotLink provides what market intelligence firm IDC refers to as “core BI”—retrieving, aggregating, and presenting data—which PivotLink claims is the current focus of the largest contingent of active BI users. As a result, PivotLink doesn’t invest in extract, transform, and load (ETL) tools that have what the company calls “advanced fuzzy-logic matching,” nor has it developed a complete data mining workbench like that of software vendor SAS Institute. None of which, according to PivotLink executives, damages SaaS BI’s value proposition. In fact, says Jeffrey Kaplan, managing director of consultancy ThinkStrategies, “sometimes the complexity can be counterproductive.”
Peters says that, when he worked at Siebel Systems years ago, the company would ship 5,000 reports to customers, and he can’t think of a customer actually using a single report. “It was a dirty little secret,” he says. Even if a company does run reports, it often turns out no one’s looking at them. Charles Nicholls, founder and chief strategy officer of on-demand Web analytics company SeeWhy Software, claims to have worked with people who’ve tested this notion, turning off reports just to see if anyone noticed. No one did. “It’s scary,” Nicholls says.
Microsoft Excel is perhaps the oldest BI tool, but spreadsheet-based processes and static reporting inevitably led to multiple data versions. With data flowing in by the second, the manual process of updating spreadsheets quickly became untenable.
Consider the case of Application Security, a provider of database security services. Founded in 2001, the company relied on a single list of contacts, the contents of which, according to Mike Bushinski, Application Security’s manager of sales operations, were gradually transferred onto Salesforce.com. The company’s analyses, however, still ran primarily on Excel—until on-demand BI provider LucidEra came along. Excel was soon out of the picture—and reports and analytics that previously took a day to generate were delivered in just an hour.
The ideal prospect for a SaaS BI vendor seems to be a company that hasn’t yet bought into BI at all, let alone purchased a solution. “We’re starting with the unserved and underserved,” Peters says.
Vendors may still need to educate prospective subscribers that BI can be delivered as a service, but Balaji Ramanujam, senior manager at consultancy Customer Value Partners, argues that SaaS BI adoption is actually customer-driven.
ThinkStrategies’ Kaplan notes that, even when a BI solution is fully deployed, a specialist is required to make sense of the information. As a result, sales managers, for instance, are unable to conveniently tap into the system and access the information needed to make quick judgments about their sales performance.
SaaS has opened up business intelligence to the front-line workers. Ultimately, in a more self-service–oriented BI environment, Kaplan says, the goal is to get the solution in the hands of employees who can benefit the most from the solution.
Dashboards make BI extremely easy to use, just from a visualization perspective. Executives at Distribution Market Advantage (DMA), a national foodservice distribution service provider, use iGoogle as their homepages. To ease BI into DMA’s business processes, PivotLink enabled the executives to integrate important dashboards directly into iGoogle. “The personalization quality will make it that much easier to use, more attractive to use, more productive to use,” Kaplan says. “That’s the bottom line to all this.”
Birst’s Peters, however, doesn’t believe that the roles of the business and of the specialist can necessarily be one and the same. “You have to distinguish the person who’s the administrator of the BI solution [from] the consumer,” he says. “Assuming they’re the same is false.” While Birst’s mission is to provide a more user-friendly solution, the vendor emphasizes that SaaS BI must avoid the “lightweight” stereotype. He warns that vendors that promote “accessibility”—which he claims LucidEra did—risk becoming functionally compromised, and inhibiting the discovery of more-complex questions.
DMA consists of 12 food-distributor shareholder members. DMA’s clients are multiunit restaurant and institutional operators (e.g., Chili’s) who use the system to negotiate with food-product manufacturers (e.g., Heinz). Clients can log into PivotLink on their own to customize the solution and run reports, instead of submitting requests to DMA—shaving a process that once took days down to just minutes. “You’re not managing your business by looking in the rear-view mirror,” says Jim Szatkowski, DMA’s vice president of program and data services. Moreover, DMA is able to save what would have been three full-time employees constantly filling report requests.
It’s DMA’s responsibility to train its clients to use the BI system and help them be more efficient. In one case, DMA helped a client cut back from 16 extra deliveries per week to just one—and in food distribution, extra deliveries are a costly inconvenience.
Advantages of SaaS BI
SaaS BI vendors claim—as many of their SaaS brethren do—that they can get clients up and running in less than 30 days versus on-premises installations that can take 12 months to 15 months and cost 10 times as much.
Barriers have certainly come down. Software technology, Peters says, “has moved light years” beyond where the behind-the-firewall vendors were in the 1980s and mid-1990s. Companies starting today can leverage cloud-based capabilities and computing power from vendors such as Salesforce.com and Amazon.com, greatly reducing costly upfront capital investments and ongoing operational expenses. These leaner vendors are, in turn, able to offer a solution that’s far more economical than was ever possible before.
Four years ago, when LucidEra was founded, there was no Amazon.com cloud to build upon, says Darren Cunningham, who was LucidEra’s vice president of marketing when it shut down. “We had a lot of technology and as a result a fairly large development team to build and maintain the service,” he says—all of which weighed the company down.
Peters argues that security or cultural excuses made to skip on-demand are just that—excuses. “What’s driving on-demand isn’t whether your data is in or out, not at this point,” he says. “What’s driving it is economics. SaaS has to be economically superior—dramatically.” SaaS, he emphasizes, “will only succeed if there’s an economic justification.” Even if licensing costs are removed from on-premises installations, he says, the costs of building, deploying, and maintaining the application will dwarf what it takes to accomplish the project in SaaS.
Even so, there’s a flipside to the economics—namely, the economics of the SaaS vendor itself. Vendor viability should be a heavily weighted factor with SaaS BI—just as it should when making any software investment. Even when LucidEra’s technology and vision passed muster, Cunningham says, “some companies did look at our financials and didn’t move ahead with us.” That’s essentially what happened with LucidEra itself: Despite a healthy second round of venture-capital (VC) funding in 2007, LucidEra folded after failing to secure a third round.
Dyke Hensen, chief marketing officer at PivotLink, says that his company’s chief financial officer speaks directly with the CFOs of prospective clients to share as much financial information as appropriate. The moral of the story is no different than any other tale of technology: Do your due diligence. Look at the company’s board of directors, talk to its customers, and really understand its vision.
Even though LucidEra went under, at least one of its customers says her preference for a VC-funded SaaS BI start-up isn’t shaken—though her reasoning may be a bit more cynical. “You never learn the total financial truth during the sales cycle,” says Cathy Otocka, vice president of sales operations at career resource software provider Salary.com. Therefore, she adds, “if you’re committed to operating in [the SaaS] space, you don’t have much choice.”
Benjamin Doyle, director of information technology applications at Enterasys Secure Networks, admits that when he signed up with LucidEra in August 2008, he was seduced by the solution’s affordability. “We felt like it wasn’t necessary to do a deep analysis,” he recalls. Luckily, LucidEra’s collapse didn’t hurt Enterasys financially, as its subscription was expiring soon. Other customers may not have been as fortunate. Learning from this experience, Doyle plans to conduct a much more rigorous vendor bake-off.
When LucidEra went under, there was suddenly a spark of doubt around whether SaaS BI—and perhaps, for a moment, SaaS itself—stood a chance.
Jim Fowler, chief executive officer of on-demand business directory Jigsaw Data—understandably biased given his own company’s SaaS set-up—still plans on getting his BI from the cloud. “There’s good and bad to SaaS,” he says. “If you want absolute stability, you go and write a huge check and put it in escrow…. The way it works is: If a service goes away, it goes away. If you don’t want it that way, go do it the old-school way.”
Cunningham says that, even with on-premises BI, stability is never guaranteed. “I don’t think any company can promise stability,” he says. “Historically, in BI in particular, there are a lot of risks, huge failures in warehouse projects, huge upfront [costs] for business intelligence on-premises software that end up sitting on the shelf or are too complicated for people to use.”
Not So Fast
Even though earlier BI projects were behemoths, there are still plenty of organizations that prefer to keep everything on-site. “Either they view it as too important to reside outside their firewall or they are simply not willing to relinquish control of it,” says Michael Lock, a research analyst at Aberdeen Group.
The disconnect, according to Microsoft’s Wilson, is that even when the data is on-premises, most people don’t even know where their servers are anyway. In an attempt to assuage prospect concerns, PivotLink is a certified provider of the SAS 70 Type II auditing standard, the top designation of security and internal control for SaaS solutions. The issue isn’t the location of your data—in-house or outside the firewall—but having a model for actively employing sound security measures.
Data also becomes a limitation in SaaS when there’s too much and it’s too messy. For one thing, prices for SaaS BI are often based on the amount of data involved. And any attempt to hand off a massive amount of data for someone else to comb through can be complicated and rather unrealistic. Christopher Dziekan, product strategy executive for BI and performance management at IBM, warns that “transporting a large amount of data through the cloud on a potentially shared platform is a maturing concept and a big risk at this point.”
Beyond the technical barriers, organizations struggle with cultural ones as well. “The whole notion of pervasive BI sounds great,” Lock says, “but the fact is, it’s not always easy to get people to use solutions like this.”
Targeting this “unserved and underserved” market may indeed represent an opportunity, but the market may not be ready for what a vendor has to offer. LucidEra, for example, was targeting the sales operations of midsize technology firms. “We were trying to sell to the VPs of sales, who are trying to hang on for dear life,” says LucidEra’s Cunningham. “They’re going through massive cuts.”
As much as BI can provide a competitive advantage—especially in a down economy—many organizations still view the technology as merely a “nice to have.” Jigsaw Data’s Fowler has a theory that the further away a solution is from “the fax machine” (or whatever tool is seen as the one delivering the hot leads), the less likely it will be adopted. “Salespeople are inherently lazy,” Fowler says, including himself in the category. “[They] want to get the most with the least amount of effort. They avoid doing things like research and analytics. It’s really interesting and elegant stuff…but people start cutting off the things they can live without.”
The economy is certainly helping force companies to focus more on the right metrics as they try to run their companies by the numbers. “That’s why I’m absolutely bullish about business intelligence in an economic downturn,” Fowler says, “if not at all times.”
The Cloudy Future
For the on-demand BI vendors, the next challenge isn’t really around the technology. They’ve got that path paved. What they need to do is get the market to walk down this road less traveled. “We have to get the word out,” LucidEra’s Rudin says. “There’s a better alternative [to on-premises] because of the collaborative nature of SaaS BI.”
After LucidEra’s shutdown was confirmed, other SaaS BI vendors scrambled to claim its “abandoned” customers. When CRM spoke with Cunningham in the days following the announcement, he said that he and Rudin were laying low, not responding to the harsh words from competitors trying to differentiate themselves. “There’s no point in trying to get into any arguments with people who are out there trying to be successful,” he says. Still, he feels that a few vendors went “too far,” taking some “unfair” shots.
Cunningham says that the best piece of advice he can offer his former compatriots in SaaS BI is that they should focus on getting their customers to tell the story. Get the customer to be your champion, he says, and you’ll be able to back any claims with actual customer success. A lot of vendors that suddenly popped up to feed on LucidEra customers, he says, don’t have any reviews on Salesforce.com’s AppExchange, or any case studies that even mention success with Salesforce.com customers—which is what the bulk of LucidEra customers are.
Business intelligence, though, is more than just software, whether it’s hosted in-house or off-site. “This market has been in place for as long as [technology] has been,” says Merv Adrian, founder of consultancy IT Market Strategy. “As soon as we started using computers to do things, we needed computers to report on how things were getting done. There’s always been BI, always will be, and it will never reach a finished stage.” There will perpetually be more data points to measure, new analytical methods, and improved user interfaces.
From a user’s perspective, business intelligence is as much a tool for discovery as it is a method for answering questions. “Users have difficulty expressing what they want,” SeeWhy’s Nicholls says. “They don’t know how to describe [what they need] in terms of data. It’s complex.” Therefore, vendors have the added responsibility of not only promoting awareness of BI, but conveying its actual business benefits as well.
In his six years at BusinessObjects, prior to joining LucidEra, Cunningham says he “had never seen the kind of impact for customers [SaaS BI has shown].” LucidEra may have failed, but Cunningham says he’s confident SaaS BI will endure. “The trend is going to continue,” he says, “because the value is just there.”
SIDEBAR: SaaS BI Vendors
- 1010data (founded 2000)
- Adaptive Planning (2003)
- Birst (2004)
- Blink Logic (2000)
- Cloud9 Analytics (2007)
- Good Data (2007)
- Kognitio (2005)
- LongJump (2003)
- LucidEra (2005–2009)
- Oco (1999)
- PivotLink (1998)
- SRC (1997)
Source: Boris Evelson, Forrester Research, “BI Belt-Tightening in a Tough Economic Climate,” February 20, 2009
Associate Editor Jessica Tsai can be reached at jtsai@destinationCRM.com.
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