In-depth: New opportunities as BI vendors look to SMEs

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In-depth: New opportunities as BI vendors look to SMEs

Cath Everett

Research group Gartner says business intelligence (BI) is once again the top spending priority for large enterprises as they attempt to exploit corporate information more effectively to reduce costs, boost sales and increase the efficiency of their workforce.

BI technology has traditionally been limited to the largest companies because of the expense and complexity involved in building large data warehouses, cleaning up corporate information and providing users with the necessary training, but things have started to change over the past 18 months. Although opportunities still exist in the enterprise space, vendors have started to realise that the growth potential here is limited.

Many large organisations are on their third generation of BI deployment, but they often have a haphazard mixture of different - or just old - products in different departments, which do not necessarily provide them with a single version of data.

The high management costs of having multiple offerings in place has started a trend toward vendor consolidation, rationalisation and optimisation in this area. This opens up consultancy opportunities for channel partners to help companies develop a coherent BI strategy based on business requirements.

But as the corporate sector has become increasingly saturated, BI vendors have turned their attention to small and medium-sized enterprises and adjusted their packaging, pricing and licensing strategies accordingly.

Pre-packaged applications

Simpler to use, pre-packaged analytical applications have begun to emerge that are aligned to vertical markets and require much less expenditure and technical effort to implement than previously.

Pre-configured appliances, which include hardware and software in the form of data marts, data extraction, transformation and loading tools, as well as query and reporting software, have also become more common.

Moreover, although it is still early days, vendors and channel partners have started to offer subscription-based software-as-a-service (SaaS) and managed BI services to enable customers to analyse commodity data sets without needing to purchase equipment upfront.

The adoption of open source software from developers such as Jaspersoft, Pentaho and Palo is also beginning to gain traction among SMEs and the departments of larger organisations.

The appeal here, says Glen Bremner-Stokes, managing director of open source reseller Open Business Associates, is that the total cost of ownership can be up to 40% less than traditional software models, not least because customers pay for subscription-based services rather than upfront licence fees.

Madan Sheina, a principal analyst at Ovum, says, "Because of the limited growth potential in the enterprise space, the next low-hanging fruit for vendors is small-to-medium businesses. So they are lowering the traditional cost barriers, reducing complexity and accelerating deployment speeds by coming out with new options."

Mid-market growth

Most new growth is coming from the higher end of the mid-market, particularly from companies with turnover of about £100m. At the moment, they often use simple tools from application vendors, which frequently bundle such offerings with their packages for free. Microsoft query and reporting tools, which come embedded in its SQL Server database, are also popular.

But such deployments are typically fairly basic in functionality and are controlled by the IT department rather than users, which means that it can take a long time for even basic reports to be generated. Deployments also tend to be focused at a departmental rather than an enterprise-wide level.

Mick Bull, sales and marketing director at Oracle reseller SolstonePlus, says, "Most mid-market companies have got pockets of one BI tool or another, so various departments will have a few licences that deliver some benefits. But the interesting information is often found where the different departments meet, and so tactical deployments do not necessarily give the bigger picture."

Adoption of more formal BI tools beyond the inevitable spreadsheets is ad hoc and sporadic among smaller companies, he adds.

But Ann Moynihan, solutions manager for BI at IT services provider Trustmarque, says the SME market is definitely growing, although departmental purchases on the enterprise side of things are also buoyant.

This is because in many instances funding is coming less from centralised IT budgets than was previously the case and more from the pots of business managers who are taking procurement into their own hands.

"Departmental buy-in is coming to the fore as many organisations put their corporate budgets on hold. But smaller budgets are getting signed off," Moynihan says.

The difficult economic climate has inevitably had an impact on the market. While Bull believes that BI is "fairly recession-proof", he points out that it is taking longer to close deals, with the average sales cycle increasing from three to nine months to between nine and 12 months, depending on the size of the project.

"We have not lost any business, but it is more like delay and defer. We are seeing some green shoots, but the IT industry has lagged behind the rest in the recession because, when it first bit, people had already set their budgets and often continued to spend on that basis," he says.

But this year's budgets, which were mainly set in March and April, have been pruned back sharply, which is counteracting the effects of any recovery. "In terms of closing business, it is plateauing now, but we are hoping it will pick up later this year if more green shoots appear," Bull says.

Money to be made

Nonetheless, there is still money to be made in the BI space, which Gartner says is worth about $618m a year in the UK. "Overall penetration levels are at about 28% and between 30% and 40% of the total market comprises SMEs. So there is definitely still plenty of opportunity there," Moynihan says.

Matt Leighton, chief BI architect at IT services provider Logicalis, concurs. He says that for every new enterprise customer, he is seeing two or three SMEs signing up to the technology.

"There is a lot of interest there and it is an easy conversation to open up," he says. "A lot of people want to look at buying patterns or are wondering how this or that sales guy is performing compared with last year, and they generally cannot get the answer quickly. But if they can't, they are not able to report that information to the board very easily and so it becomes a light-bulb moment for them."

Moreover, even though BI is already "sticking out as an area where people are spending money", Leighton believes that this trend is only set to increase. As customers start to understand how the technology has moved on and how much easier it is to gain a swift return on investment (ROI), the sector will continue to grow and is likely to remain lucrative for some time, he says.

The vertical markets that are showing most interest in the technology include retail, consumer manufacturing, charities, higher education and all types of public sector organisations due to the government's operational efficiency programme.

"There is a lot of interest in anything that can deliver bottom-line results or straightforward return on investment," says Leighton. "But all industries and projects have been hit by the recession. So we are not getting so many contracts that are 100-plus in terms of service days. It is now more about quick engagements of between five and 20 days."

The fact that the landscape has changed in this way means that, rather than winning between four and five large contracts a year, as was the case in the past, the vendor is more likely to be working on 20 smaller implementations.

As a result, rather than building big data warehouses, Logicalis' focus is on using tools that enable it to create a dashboard that sits over a number of federated databases. "We do the first phase as a proof-of-concept and say to the customer that if they do not like it, we will take it out. So from their point of view we are taking all of the risk, but once it is in it tends to stay there," says Leighton.

This means it is crucial to be more creative and inventive in the way you do things. "Even in a difficult economic climate, you can still sell these kinds of projects if you de-risk them and ensure people can see an ROI," says Leighton.

Return on investment

The ROI issue has traditionally been a sticking point with BI projects as organisations may be able to see the benefits of more effective decision making, but they find it difficult to justify the related expenditure. A faster project turnaround time makes such activity easier to justify, particularly if organisations have a compelling business problem to solve.

Leighton warns that BI will never become a business mainstay for channel partners unless they invest time to understand the market and put the right expertise in place.

Bull agrees. "If you have the right skills, there is money to be made, but it is a very skills-driven arena. It also tends to be a closed community and part of the reason is that BI operates on the boundary between the business and IT," he says. "So projects absolutely have to be business-justified, but they also have to comply with standards and good practice on the IT side of things."

This means that it is not enough for channel partners to sell a few licences and walk away. Instead, a consultative, professional services-based approach is required.

For example, business aims have to be defined clearly and a business sponsor found during the pre-sales process to ensure buy-in. Objectives must also be set to meet the goals laid out in business plans and metrics defined to measure success against established criteria.

Ian Stone, managing director at IBM reseller Inca Software, says, "You need to understand what the client is trying to do. So you have to have a business focus and understand the pain of your customers. The technology is just tools - they need to be used to address business issues."

Inca operates a two-pronged approach to project delivery. Customers can either pay for a full service offering, which includes scoping, implementation, support and helpdesk, or they can opt for a joint implementation. Knowledge transfer is a core element of a joint implementation in order to equip clients to look after the subsequent deployment themselves.

Nonetheless, the traditional channel partner landscape is changing. As vendors such as IBM have purchased independent players such as Cognos and the market has consolidated, a rationalisation of channel partners has occurred, exacerbated by the recession, as some have gone out of business.

But because the market is growing, there has also been increasing interest from resellers. "Many more partners are showing an interest, maybe because they are struggling to sell other stuff," says Bull. "The problem is that there is a barrier to entry to this sector and you have to know your stuff. This is not box-shifting at any level, and some people do not fully appreciate what they are getting themselves into."

Future trends

As to where the sector is likely to go over the next few years, Ovum's Sheina believes that uptake of open source software and SaaS will ­increase.

Although such offerings are only "entry-level" at the moment, their cost-effectiveness is making them increasingly attractive to customers wanting to dip their toe in the water. This is particularly true of SaaS, where a monthly subscription-based model makes it possible for customers to move investment on commodity services, such as analysing call centre agent productivity, from the capital to the operational budget.

Leighton expects social networking functionality to become increasingly important in the BI context and believes that it could even constitute "the next BI bubble".

He says, "It is about enabling people across geographically dispersed areas to collaborate quickly on information using dashboards which include functionality such as document sharing and version control. So you will see people bringing multiple elements of a dashboard together to create a mashup super-dashboard to enhance rapid decision making in collaboration with colleagues around the world."

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