FOCUS -- WHERE WILL IT COME FROM?
by John K. Thompson

Off on another trip this week. This time to listen to and talk with the analysts and attendees at the META Group event in Orlando. One of the most telling comments I heard was from Rob Tholemeier. Mr. Tholemeier is an analyst with First Albany. Rob follows a number of stocks or companies in the technology sector. The stocks are primarily concentrated in the data warehousing/business intelligence area. I listen and follow the activities in this area because I believe that this sector contains the data mining segment, and the more mature segments (if you can call data warehousing, and business intelligence mature) are indicative of actions that will be occurring in the data mining and data mining enabled application spaces in the near future.

Rob said during his dinner address that firms like; Information Advantage, an OLAP vendor, and Brio Technology, a vendor of business intelligence tools were perfect acquisition candidates. Nothing surprising in that statement. Both firms have recently completed their IPOs and are trading above their respective initial offering price. Both firms are reasonably priced and have good outlooks for the near future. Better than some of the most recent offerings that have hit the market.

The surprise, at least for me, was in whom Rob mentioned as most suitable suitors. Rob felt that Oracle or IBM might be interested in these firms. Upon reflection, I guess that's not even the surprising part. The surprising part was that the acquiring firms would gobble up one of these firms in order to drive license revenue for core businesses such as DB2 or Oracle's RDBMS. Again, you might say, "Well, I don't find that surprising at all."

This next comment exposes why I am in marketing and not in sales. I have always believed that we, as software firms, are providing software tools and solutions to clients to solve their business problems, not to drive the revenue of the firm. Yes, yes, my incentive plan includes revenue attainment, but if we are not providing tools and solutions that solves problems for clients, we are not going to achieve our goals; monetary, growth based or otherwise.

Which brings me around to the question of focus and where it will come from. I used to wonder why people who ran small innovative companies didn't jump each time a larger company waved the big check in front of their faces. Now I know. It's because as managers and owners of small companies we feel that we can deliver value to our clients, prospects, shareholders, including ourselves at a much higher rate than a large corporation can.

The big question for the data mining segment is: Can the firms playing in this space focus on delivering value to clients before or without being chewed up by the larger players? Vendors like Sun, Sequent, EMC, and other hardware manufacturers love data mining. Quite obvious why. Data mining tools and applications eat up an incredible amount of hardware. Processors, memory, disk spindles, and other assorted physical facilities, the more the better.

Back to focus. Data mining firms have a high percentage of personnel who are steeped in mathematical knowledge. Personnel ranging from theoretical physicists to agricultural economists. Referring back to the column of last week, I like to hang out with these kinds of people. Being a simple MBA, I can learn quite a lot from simply sitting in on conversations. But one of the drawbacks that I am seeing occur in many firms is that the quant heads are driving the direction of the firms. This is not good. Being enamored with algorithms and high performance issues are good as long as those effort are kept in line with delivering value to the prospects and clients.

I see too many data-mining firms focusing on core technology, which is needed, but giving lip service or superficial marketing treatment to the construction of industry- and application-specific functionality that will solve issues that businesses face today. In a past role with another firm, I was charged with ensuring that what the market requested, we built. I see a disconnect here and it concerns me. If we, data mining software vendors, don't start to deliver on the business value side of the equation, there will be significant issues to face.

There are many ways that this situation can go. I will only discuss two bipolar opposite cases.

In the first scenario, the firms in the data mining market focus on business problems/issues. Senior management channels the development efforts into simultaneously building scalable robust infrastructure including data management and algorithm libraries, along with comprehensive industry/application logic layers. The data mining tools are subsumed into applications that are increasingly more complete and address more and more of the business requirements. Clients purchase and install the applications and the next round of requirements are gathered and considered for the next improvement cycle.

In this scenario, a significant number of data mining vendors succeed and grow into independent companies focused on delivering value to their expanding client bases. A segment of the industry specializes in embedded systems and the base level technology grows stronger over time.

In the second scenario, data mining firms continue to consider algorithms, scalability, and underlying technological issues as their main concern. Revenue growth is limited due to the small number of technologically proficient firms that can implement and use the highly sophisticated software. Data mining software remain centered around tools with a secondary effort around building thin layers of business logic on top of the tools. Vendors need to consider acquisition by larger firms to sustain operations. Data mining becomes another software function in the library of tools that are offered for little or no cost to entice clients to purchase hardware or database platforms.

In the end, where will the focus come from?
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John Thompson, Vice President - Marketing, Magnify, Inc. I'd like to hear your thoughts. You can reach me at jkt@magnify.com