Prominent Business Intelligence Start-ups Struggle to Stay Afloat
Experts see LucidEra's demise as a reflection of a brutal economic climate. The economy is also taking a toll on DW appliance specialist Dataupia, which is enduring a venture capital famine of its own.
- By Stephen Swoyer
- June 24, 2009
Two prominent business intelligence (BI) start-ups are casualties of what experts characterize as a brutal economic climate -- particularly when it comes to venture capital (VC) funding.
Software-as-a-service (SaaS) specialist LucidEra this week confirmed that it is effectively ceasing operation. Its competitors claim that it is actively shopping for an interested buyer. Meanwhile, data warehouse (DW) appliance player Dataupia – which named a new CEO in March and, just last month, laid off nearly two-thirds of its workforce – struggles to attract fresh capital.
Capital is the crux: sources familiar with both vendors cite VC funding as a common culprit, the result of a brutal economic climate in which venture capitalists have grown wary of start-up investments.
Dataupia's plight first came to the fore back in March, when founder Foster Hinshaw -- an esteemed technologist and a veteran of DW appliance pioneer Netezza -- stepped down as CEO. Dataupia tapped Cognos veteran Tony Sirianni to replace him. Then, last month, it made deep cuts to its workforce – whittling its employee base from 60 down to just over 20 -- even as insiders confirmed that it was struggling to attract fresh VC funding. Dataupia suffered still another blow earlier this month when CTO -- and respected BI and DW industry technologist -- John O’Brien left. At this point, officials say, Dataupia is still a going concern: vice president of marketing Samantha Stone concedes that "we have hit some hard times" but stresses that Dataupia is "in operation and making good progress towards securing new funding."
For LucidEra, the end came quickly -- starting last weekend, in fact, when company founder and CEO Ken Rudin disclosed that his e-mail contact information would be reverting to a previous address. That in itself was significant -- tantamount, in a sense, to the departure of a prime mover such as Bill Gates from Microsoft or Steve Jobs from Apple.
Rudin himself didn’t issue an explanatory statement, but in a brief e-mail interview he did concede that times are tough for start-up BI firms such as LucidEra. “We've got happy customers and a good pipeline. It's just really, really bad timing to have to be raising your next round of funding in this economic climate,” said Rudin in an e-mail message. “Right now, we're exploring various options in the best interest of our creditors, customers, employees, and shareholders. We expect resolution for everyone involved soon so there is an orderly transition.”
On Monday, SaaS BI player Good Data issued a press release which claimed that LucidEra was "offering to sell its intellectual property after almost four years of operations." Sam Boonin, vice-president of marketing with Good Data, cited an e-mail that he says LucidEra sent out to its customers late last week, informing them of its impending liquidation. (BI This Week contacted several LucidEra customers for corroboration, but had not heard back from them at press time.) Boonin said that Good Data had launched a "safe harbor" program for orphaned LucidEra customers. SaaS competitor PivotLink likewise responded, indicating that it, too, is ready and willing to address the needs of LucidEra customers.
LucidEra, for its part, hasn’t yet gone dark. As of press time, the company still hadn’t posted an official announcement on its Web site. When reached via his cell phone, however, director of marketing -- and industry veteran -- Darren Cunningham confirmed the rumor, to a degree.
"I can't really say at this time other than that operations have ceased [and] that we're actively looking for some potential outcomes for the technology," Cunningham told BI This Week. Prior to landing at LucidEra, Cunningham helped take Business Objects' ETL practice (i.e., Data Integrator) mainstream, growing its capabilities (while recasting it as more than just an SAP connectivity tool) and expanding its market share.
SaaS not the Issue
Cunningham is adamant that LucidEra's demise has nothing to do with the viability of the SaaS model. "It's primarily an issue of timing. No, it's not a reflection on the [soundness] of the model. I think the model itself is great. The market is moving in that direction, it's happening," Cunningham says, conceding that the harsh economic climate was also a factor.
Founded in 2005, LucidEra focused on CRM and ERP analytics, using its custom-built SaaS BI platform to develop and support industry-specific offerings. Unlike many general-purpose BI or analytic platforms (and very much like SaaS competitor Oco Inc.), the company focused on sales and pipeline analysis, more along the lines of what one industry watcher (who spoke on condition of anonymity) describes as "an analytic application than [a] general purpose" BI platform.
Like Cunningham, Cindi Howson, a principal with BIScorecard.com, rejects the suggestion that LucidEra's closing amounts to an indictment of the SaaS model. She points to a recent survey SaaS by DW luminaries Claudia Imhoff and Colin White, which found that SaaS BI adoption could soon crack the 50 percent mark -- with a majority of respondents saying that they've already implemented, are currently implementing, or plan to implement SaaS BI tools. Fewer than 45 percent of shops said that they had "no plans" to adopt SaaS BI, according to Imhoff and White, who conducted the survey for the BeyeNetwork.
"I would say that any failure of a SaaS firm is not an indication that SaaS is not of interest. One of the biggest barriers to SaaS continues to be IT, and if you ask IT people if they want SaaS, many will say 'no' because it threatens their jobs and gives control of the BI platform away," Howson observes.
"However, if you ask business users if they want faster deployment options for extranet applications, you will get a resounding 'yes.' This is why many of the successes in SaaS have been those in which an individual business unit was the buyer."
If anything, Howson says, LucidEra is a victim of a brutal economic climate. "LucidEra, like many SaaS firms, is a startup, so any failure in today's economy is not necessarily an indictment of the product or of the market segment but more often in the company's ability to weather the economic down turn," she stresses.
Wayne Eckerson, director of research with The Data Warehousing Institute (TDWI), says LucidEra and Dataupia aren't strictly casualties of the ongoing recession; instead, he suggests, they're the first victims of a potential VC famine.
"This past week, I learned that two BI startups -- Dataupia and LucidEra -- lost their funding," Eckerson wrote on his TDWI blog. "In normal times, investors would have considered both companies good bets to achieve an IPO or major acquisition," he continued, noting that "both had gained traction in the marketplace: Dataupia, a data warehouse appliance, had five customers and many prospects in a hot market, while LucidEra, a first mover in the BI software-as-a-service market, had a strong pipeline of customers." More to the point, Eckerson pondered, "how many other startups are teetering on the edge of extinction?"
Eckerson notes the special situation SaaS vendors are in, telling BI This Week, "From a vendor perspective, SaaS requires a lot of upfront capital because you have to host a data center (you are paying for the HW users don't want to manage themselves). Then, you string out revenues over a much longer period of time instead of getting most of your revenues at the initial transaction."
Although users may express interest in SaaS, actual adoption of the technology is another matter. Eckerson points to two problems with SaaS: "1) you need to move data to the SaaS application, which, if your data is voluminous and is generated in your own data center, is not ideal, and 2) the application needs to conform to your requirements closely otherwise you enter into the endless and unprofitable cycle of customizing the app instead of just configuring it.
"SaaS BI makes a lot of sense if your data sources already exist in the cloud and the appilcations conform exactly to your needs, or if you are a small company that doesn't have IT resources or capital. Packaged applications as a whole have had difficulty getting traction until they address a wide swath of the company. Only Oracle with its BI application suite is getting traction. (It's not SaaS. They can't make enough profit on it.)"
Author and veteran data warehouse architect Mark Madsen, a principal with BI consultancy Third Nature, echoes Eckerson's assessment.
"It sounds like [LucidEra] had a cash crunch [and] went for [an] orderly shutdown. Too bad, but this is a bad time to be a small BI vendor," he comments. Competition -- from proprietary, open source, and even homegrown alternatives -- is particularly fractious in the SaaS BI segment, Madsen points out.
"Multiple SaaS options are available, [along with] several good open source offerings -- including ones with Salesforce.com support [such as Jaspersoft]," Madsen continues. Madsen cites another factor: a recession-fueled return to do-it-yourself BI. "[T]he do-it-yourself crowd is building solid internal BI using Flash, AJAX or whatever rocks they happen to find nearby," he comments. "[If you] combine that with the fact that bigger organizations almost all have tools from the majors as a company standard, it's tough going."