Startup Targets Tableau IBM In $166B Business Intelligence Mart

There are plenty of startups going after the business of business intelligence. What companies want is to find a needle of insight in a haystack of data -- both structured in a database form and unstructured (video clips, tweets, texts, etc.). The quicker a company can get the insight and the lower the cost of doing that, the better.

In days of yore, companies paid millions of dollars to purchase hardware and license database software, they'd spend another 30% of that cost to hire consultants and their own data scientists to pore through the data to try to get useful answers to business questions.

But with the growing value of unstructured data, the emergence of the cloud and the widespread adoption of open source software, the technology provided in those days of yore costs too much and delivers too little value in the bargain.

This creates openings for the likes of ThoughtSpot and Looker about which I have written over the last year.

Business Intelligence is a pretty big market. Indeed in August 2018, IDC said that "Worldwide revenue for big data and business analytics (BDA) solutions was $166 billion, up 11.7% over 2017 and [would] reach $260 billion in 2022, with a compound annual growth rate (CAGR) of 11.9%."

If you want to invest in this market, you could do worse than Tableau Software, which is growing fast and its stock has risen 59% to a $9.1 billion market capitalization as of September 21. For the five years ending 2017, its revenue increased at a 47% annual rate to $877 million while its free cash flow soared at an 87% annual rate to $165 million.

What's more, Tableau's second quarter results -- revenue up 32% to $282 million and a $12 million net loss -- "superseded guidance and expectations, as customers embraced Tableau's term and subscription cloud offerings at a faster pace than anticipated. Tableau boosted revenue per customer and expanded its customer base despite pricing pressure," according to Morningstar.

Another rival has entered this fray and says it is growing very rapidly. San Mateo-based Arcadia Data says it grew revenues 500% and on October 2 announced that it had raised another $15 million -- bringing total capital to $27 million. As CEO Sushil Thomas explained in a September 21 interview, "With five of the top seven financial services companies among our customers and more than 2,500 companies using Arcadia Instant, we've enjoyed in eight-fold growth over the past 24 months."

Its customers have a blue chip ring about them. Bell Canada, Citibank, Cisco, HPE, Neustar -- which became a customer in 2014 and according to datanami said Arcadia sped up six-fold the time to get insight, Kaiser Permanente, Komatsu, NHL, Nokia, Nordea Bank, Procter & Gamble, Turner Broadcasting, Twilio, Pizza Hut, and the USDA are all customers, according to the company.

Underlying this growth is a technology platform that uses open source software -- both Apache Hadoop and the cloud and Apache Kafka for "native visual analytics."

But what seems to be behind this growth is what I called in my book, Hungry Start-up Strategy. a Quantum Value Leap -- meaning more bang for the customer's buck than what rivals are offering. As Thomas said,

We compete for the biggest use cases with 40 petabytes of data and 1,500 business users a day. We win 90% of the proofs of concept against Tableau, Tibco Spotfire, IBM Cognos, and SAP BusinessObjects. The hardware required to run these systems can cost between $50 million and $100 million, then companies must spend $2 million to $3 million to buy an Oracle data warehouse and Tableau software and to hire a database administrator and data analysts for each project. And after all that companies still can't get the kind of access to data we provide. It can take them five hours to produce a report we can do in 15 minutes via a Google-search-bar like user interface.

To be fair, Gartner found that Tableau (74) has a higher net promoter score than Arcadia (70). And while a positive review of Arcadia raved about its ability to "allow [users] to zoom in from a 10,000 feet view to a granular look into [their] data," a critical reviewer said the product was "very unstable."

Arcadia Data is growing its staff -- but not as quickly as its revenues. "We started with four people in 2012, had 35 people in 2016 and 65 in 2018. 40% of our people are in sales, 40% in $&D, and 20% in marketing," he said.

Arcadia Data has a rigorous process for planning and evaluating its business. As Thomas explained, "We want to be a data driven company. For the last few years, at the beginning of every year we do an annual revenue and headcount plan. Over the next 12 months, we plan revenue and headcount in sales, marketing and engineering in our four channels: inbound, outbound, partners, and upselling to existing customers."

The plans are based on benchmarks from previous years. "We know the average deal-size and the number of deals we need to close to make our revenue forecast. From there, we can estimate the number of leads in the pipeline we need to close the number of customers we need. All the numbers go in a spreadsheet and become part of each department's objectives. We track all the data on dashboards, analyze it compared to our budget, and know if things are going according to plan," he said.

It is more difficult to give specific metrics to engineering. As Thomas said, "We are in a competitive market so engineering must build visionary, next-generation products. Our engineers talk to customers and customer success lets engineers know what changes customers need and what bugs to fix. We track our bug-fix rate, the customer churn rate, and the upsell rate. And we introduce a new version every six to eight weeks."

The incumbents in business intelligence are growing -- though not as quickly as upstarts Looker, ThoughtSpot, and Arcadia. And though Arcadia lags these two in the fund-raising game, it seems to be doing a fine job of winning in accounts with huge volumes of data and users.

In the longer term, it remains to be seen whether each of the upstarts will go public or be acquired. And for now, it looks like Tableau is doing just fine.

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