Bad economics are difficult to shake off

Terry Pratchett once wrote that “Gravity is a habit that is hard to shake off”. We could make a similar comment about the financials of SaaS BI companies. As much as startups in this field would like to shake off their bad economics, reality always catches up. We’re seeing one after another SaaS BI startup to go out of business. Back in June it was LucidEra and earlier this week Blink Logic ceased operations. But anybody who only briefly looked at Blink Logic’s finances (it was a public company) shouldn’t be surprised by this event.

Why do so many of the attempts to marry BI and SaaS fail? The problem is that Saas BI sounds simple … simple enough to take an existing BI asset (integration engine, open source analytical engine, columnar database, dashboarding, even domain expertise & consulting) and just host it! All it takes is VMware or an AWS account, web server and Flash or JavaScript. Some people call this a paradigm shift, I call it window dressing. LucidEra was essentially restarted Broadbase, BlinkLogic was once called DataJungle, PivotLink recently changed their name from SeaTab, Cloud9 Analytics has a secret history as Certive, Success Metrics morphed into Birst. I could go on…

Why do SaaS BI companies have bad economics? It’s an attractive market – one of the last few open spaces in software. BI requires dealing with lots of data, lots of compute power and many users. SaaS + BI seems obvious. But truthfully, it’s such a difficult opportunity that it requires a new approach, yet everybody is taking shortcuts. SaaS BI isn’t just hosted BI just as email is not just better faxing, wikis are not just simplified Microsoft Word. Some time ago I wrote a case study on how my former company, NetBeans, was able to successfully compete against giants like Symantec, Borland or IBM, this case study is very relevant to our SaaS BI discussion.

The SaaS BI paradigm shift needs to be truly transformational in order to be successful – something that will get BI above the 9% adoption flatline it’s been at for years. Not everybody gets this. One of the best analysts in this space Boris Evelson wrote a blog post earlier this week where he focuses on differentiation of SaaS BI startups. His first question is: VC backing. Is the firm backed by a VC with good track record in information management space? But LucidEra was very well funded by leading VCs. The correct question that Boris should have asked is: Are the backers of the company funding innovation? Do they understand that it takes three years to become an overnight success?

At the end of the day, it’s about economics. At Good Data, our economics are simple – cloud computing, multitenancy and adherence to customer development. We’ve spent two years investing in innovation. That is what I tell my investors every day. And that is how we are going to avoid the startup death spiral.

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