An
unexpected niche
Nashville Business Journal, March 2004 By By Sarah Lacy
Venture capitalists have the hots for an unexpected niche: business analytics.
This subset of enterprise software had lost its buzz, but now VCs like Tim Connors
see huge opportunities.
While the earlier
generation of companies
just delivered
data, dozens of
startups are now
telling executives
what the data means.
That's
why Mr. Connors,
general partner
at U.S. Venture
Partners, invested
in eight new companies
he considers the
next generation
of business analytics.
The
sector comprises
80 percent of USVP's
software deals
at a time when
many firms have
flooded the market
with anti-spam
and security offerings.
Older
business analytics
companies gathered
data now available
through enterprise
software databases,
presenting it to
executives to develop
a business strategy.
The newer companies
that Mr. Connors
and other Silicon
Valley venture
capitalists are
excited about take
the process a step
further. The companies
crunch the data
using complex algorithms
and draw conclusions
for the CEO.
"Traditional
analytics vendors
put out a report,
and getting a report
is great, but you
have to know what
you're looking
for," Mr. Connors says. "What we're funding is different. This is not just a report to give executives
to make decisions;
it delivers the
decisions just
by dropping in
the software."
As
one of USVP's portfolio
company CEOs explains
it to her mom:
It's like the evolution
of the map.
"You
had street addresses
and then maps and
now you have systems
in the car that
tell you how to
get places and
avoid problems," says Daphne Carmeli, CEO of Metreo Inc. "The next level may be giving recommendations based on where you've been and what
you like. Real
analytics isn't
about data; it's
about predicting
behavior."
The
most promising
companies, including
several that are
doubling revenue
year-over-year,
are the ones targeting
a specific vertical
or division within
big companies.
It may be too niche-focused
for many incumbents
and too early for
some analysts to
track, but it's
a rare wide-open
opportunity in
the crowded world
of enterprise software,
VCs like Mr. Connors
say.
Estimated
to be a $9 billion
industry in 2004,
business analytics
is not new, but
it hasn't yet fulfilled
the original promise
of using data to
cut costs and grow
revenues, says
Laura Preslan,
analyst at AMR
Research. Although
the data is good,
without predictive
indicators, 85
percent of customer
analytics do not
deliver a meaningful
return on investment,
according to AMR.
That's
exactly what these
start-ups are seeking
to do. Examples
include:
- Valley-based
Metreo and Vendavo
Inc. are both
in the price
management
space. Each company's
technology analyzes
buying patterns
of customers,
giving companies
insight
into how much
they should charge
a
given customer
based on a variety of factors and
whether salespeople
should walk away
from a given
deal. Vendavo
has raised
$44 million from
DCM-Doll Capital
Management, Sigma
Partners and
InterWest Partners
and others
and sold twice
as much software
in 2003 as it
expected. Metreo has raised
$40 million from
USVP, Redpoint
Ventures and
Sequoia Capital
and saw
revenue growth
of 400 percent
each of the last
two years.
- San Mateo-based
Biz360 tracks
how often a company
is being cited
in the press
and
analyst reports
and how it is
being cited versus
competitors.
It boils down
the data to give
the
company an idea
of how it's perceived in
the market and
how well its
public relations
department
is doing. The
company has received
$20
million in venture
capital from
B A Venture Partners,
Foundation Capital,
Granite Ventures
and has grown
revenue
200 percent last
year, adding
30 new customers.
- PerformanceRetail
Inc. targets
the highly-distributed
convenience-store
industry, largely
controlled by
large
oil and chemical
companies. Its
product tracks
inventory at
the stores and
compiles
reports for buyers
on what's
selling. It also
does pro-active
alerts for store
managers, telling
them, for instance,
if a certain
cashier's
drawer is short
$40 every day.
Funded by Granite
Global Ventures,
USVP and Venrock
Associates, it
has raised $40 million. Based
in Austin, Texas,
it's close to
being profitable,
says
Katy Roth, PerformanceRetail
spokeswoman.
- Object Reservoir
Inc. targets
the oil industry,
helping
companies make
$5 million to
$20 million dollar
decisions on
where
to drill, based
on the makeup
of the reservoir
and
seismic data.
Funded by USVP
and others,
it's
raised $14 million,
and has
been around for
more than eight
years. Mr. Connors
expects it to
be profitable
soon.
- Many of these companies
are gaining traction
with increasing
numbers of deals
from $500,000 to
several million
dollars. For Mr.
Connors, the furthest along are Object Reservoir and Metreo.
"In 2002 it was
a pretty evangelistic
sale," he
says of Metreo. "For the latter half of 2003 and 2004, quite a few companies have price management
built into their
budgets."
Biz360,
too, is spending
less time having
to evangelize its
technology.
"The
last three years
have been all around
investing in technology
to reduce costs," says Bud Michael, president and CEO of Biz360. "Business analytics is terribly relevant right now because these corporations
have to find a
way to continue
to grow and grow
profitably. The
only way is by
fine-tuning and
understanding your
business."
The
down economy has
actually been better
for these businesses,
Metreo's Ms. Carmeli
says. Before, CEOs
weren't worried
about things like
fine-tuning pricing,
but rather how
to get product
out the door fast
enough to meet
demand. In a market
collapse, the first
priority is cutting
costs. The second
is boosting the
top line with that
trimmed staff,
she says.
Biz360
investor BA Ventures
hasn't done as
many of these deals
as USVP has, but
has taken a meeting
with every one
of them that's
come calling, says
Sharon Weinbar,
director. Those
they haven't funded
have had too vague
of a tool or too
steep of a price,
she says. The successful
companies are staking
out a part of the
business and attacking
it with some domain
expertise.
Of
course, companies
with a more limited
scope run the risk
of being too narrow
to build a big
standalone company.
But even those
could be acquisition
targets. If the
market continues
to grow as venture
investors and some
analysts expect,
several of these
startups will be
ripe for consolidation
once the markets
reach the $300
million or so size.
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