Informatica announced an excellent set of quarterly results, demonstrating continuing rude health. Revenue of $94M was a spanking 17% up on the same time last year. License revenue was up 15% at $41M, so the improvement was more than just good services revenue. Eight deals over $1 million compared to nine last time, but deals over $300k were massively up with 35 compared to just 9 a year ago. There was also a major OEM deal, with SAP now going to OEM Informatica, a rare exception to their usual not invented here attitude. This is a good move for both parties.

The results were broad-based, with Informatica’s international operations doing particularly well. These results are a sign of continuing broad based good conditions n the broader BI market. When ETL prospers, data warehouses and BI tools are not far behind.

The forthcoming Netezza IPO will be closely watched by those interested in the health of the technology space, and the business intelligence market in particular. Netezza has been a great success story in the data warehouse market. From being founded in 2000 its revenues have risen dramatically. Its fiscal year ends in January. Revenues have climbed from $13M in 2004 to around $30M in 2005 to £54M in 2006, to $79.6M in fiscal year ending January 2007. Its revenues in the quarter ending April 2007 were $25M. Hardly any BI vendors can claim this kind of growth rate (other than Qliktech), especially at this scale. Its customer base is nicely spread amongst industries and is not restricted to the obvious retail, telco and retail banking. So, is this the next great software (actually partly hardware in this case) success story?

Before you get too excited, there are some things to ponder. Note that in 2006 Netezza lost $8M despite that steepling revenue rise. In the latest quarter it still lost $1.6M. This is interesting, since conventional wisdom has it that you can only IPO these days with a few quarters of solid profits, yet Netezza has yet to make a dime. Certainly, it would be fair to assume that if it can keep growing at this rate, profit will surely come (at least its losses are shrinking) but the past has showed that profits can be elusive in fast growing software companies. Also, the data warehouse market is certainly healthy, advancing at 9% or so according to IDC projections, but this is well below Netezza’s growth rate. More particularly, Netezza only attacks one slice of the data warehouse market, the high data volume one. If you have a small data warehouse then you don’t need Netezza, so only certain industries will really be happy hunting grounds for appliances like Netezza. This can be seen in the Teradata story, which is Netezza’s true competitor. Teradata has stalled at around $1 billion or so of revenue, growing just 6% last year (of course most of us wish we had this kind of problem). Certainly Netezza can attack Teradata’s installed base, but enterprise buyers are notoriously conservative, and will have to be dragged kicking and screaming to shift platforms once operational. So this to me suggests that there is a ceiling to the appliance market. If true, this means that you cannot just draw an extrapolation of Netezza’s current superb revenue growth. I have not seen this written about elsewhere, so perhaps it is just a figment of my imagination, and Netezza will prove me wrong. However you can look to Teradata to see that even it has entirely failed to enter certain industires, typically business to business industries where data is complex rather than high in volume. Fo example there is scarely a Teradata installation in the oil industry, which fits this category of complex but mostly low volume data (except for certain upstream data).

So, bearing this in mind, what would be a valuation? Well, solid companies like Datamirror are changing hands for 3x revenue or so, though these are companies with merely steady growth rather than the turbo-charged growth demonstrated by Netezza. So suppose we skip the pesky profitability question, accept this is a premium company and went for five times revenues? This would lead to a valuation of $400M on trailing revenues, maybe $500M on this year’s likely revenues. Yet the offer price of the shares implies a market cap of $621M, virtually eight time trailing revenues, and six times likely forward revenues.

This is scarcely a bargain then, though it is a multiple that will bring joy to the faces of other BI vendors, assuming that the IPO goes well. Of course such things are generally carefully judged, and no doubt the silver tongued investment bankers have gauged that they can sell shares at this price. However for me there seems a nagging doubt, based mainly on what I perceive to be this (in my view) effective cap on the market size that appliances can tackle, and to a lesser extent that lack of proven ability to generate profits. The markets will decide.

The performance of Netezza shares will be a very interesting indicator of the capital market’s view on BI vendors, and will show whether enterprise technology is coming in from the cold winter that started in 2001. Anyway, many congratulations to Netezza, who have succeeded in carving out a real success story in the furrow that for so long was owned by Teradata.

Postscript. On the first day of trading, no one seems troubled about any long term concerns.

I have been digging a little deeper into the Data Mirror purchase by IBM that I wrote about yesterday.

It’s a good deal for IBM, and not only because the price was quite fair. With its Ascential acquisition IBM positioned itself directly against Informatica, yet Ascential’s technology did not have the serious real-time replication that is important for the future of ETL, and this is what Data Mirror does have. DataMirror gives IBM a working product with heterogeneous data source support in real time, giving IBM an important piece in the puzzle to achieve their vision for real-time operational BI and event-awareness.

A bigger question is whether IBM fully understands what it has bought and whether it will properly exploit it. Data Mirror’s strengths were modest pricing, low-impact installation, neutrality of sources it supports and performance doing this (via its log-scraping abilities and speed of applying changes). IBM must keep their eye on the development ball to ensure these aspects of the DataMirror technology are continued if it is to really exploit its purchase. For example, on the last point, the partnerships DataMirror has with Teradata and Netezza and Oracle should be continued, despite the obviously temptation to snub rivals Oracle and Teradata.

Any acquisition creates uncertainty amongst staff, and IBM needs to move beyond motherhood reassurance to show staff that it understands the DataMirror technology and business and wants to see it thrive and grow. It needs to explain how the DataMirror technology fits within a broader vision for real-time integration in combination with traditional batch oriented ETL, business intelligence and enterprise service bus (not just MQSeries) integration or else the critical technical and visionary people will dust off their resumes and start looking elsewhere.

I gather that IBM has already announced an internal town hall meeting next week, at which it needs to convince key technical staff that they have a bright future within the IBM family. I also hear that no hiring freeze has been imposed, which implies they are making the decision of growing the business, which should reassure people. IBM is an experienced company which will recognise that the true IP of a company is not in libraries of code but in the heads of a limited number of individuals, and no doubt will recognise the need to retain and motivate critical staff. It used to be poor at this (think about the brilliant technology it acquired when it bought Metaphor many years ago, but bungled the follow-up) but has got smarter in recent years e.g. I hear from DWL people that they have been treated well.

Hopefully IBM’s more recent and happier acquisition experiences will be the case here.

on Monday IBM announced it would buy DataMirror, a Canadian software company. Data Mirror made its living by selling software that detects change in data sources and then managing replication. It differed from other ETL technology in being designed from the ground up to work in real-time rather than batch, which made it well suited to some customer situations, and the software was modestly priced. The technology was also used by some customers for backup and business continuity reasons. It had a large customer base (well over 2,000).

For IBM the acquisition adds some solid technology to its data warehouse offering and its “on demand” strategy, in this case replacing Powerpoint promises with something that actually works. Datamirror was publicly traded on the Toronto stock exchange. It did $46.5 million in revenue last year and was hoping for $55 million in fiscal year 2008, so this was a company that was delivering solid though unspectacular growth, though its share price had doubled in the last twelve months. IBM’s price of $162 million is over three times trailing revenues and so is a healthy valuation for the company, and a small premium to its stock market valuation of last week.

SAP scored an own goal this week when it admitted to hacking into an Oracle website and stealing code. This is pretty bizarre behaviour in plenty of ways, but I like the way that their PR guys, desperate to find some way of spinning this, described the theft of software as “inappropriate downloads”, making it sound as if this act was in a similar category to a rogue employee downloading a favourite music track to his laptop.

I am always impressed (and sometimes amused) by the software industry’s creative marketing ability, but usually this happens when a software product’s features are exaggerated a tad, and I feel this is taking PR spin to a new level. What next? Using the same logic, defendants in murder trials should perhaps get their defence lawyers to rename them trials of “inappropriate demise”?

Cognos’ latest quarterly results were rather a flat affair. Licence revenue is just 3% up year over year, while quarterly revenue was respectable at USD 237M, but what growth there was came mainly from product support fees (up 13%) and services (up 10%) which is less than an ideal mix for a software vendor. On the positive side, an operating margin of 12.6% is quite good, and up significantly from the 9.6% of last year.

Less good was that there were 7 deals over USD 1 million, down from 13 the same time last year. Europe and Asia did better than the US. It seems that the financial applications business is doing better than the traditional core BI tools business, which is rumoured to be shrinking.

Overall these are certainly not bad results, but in a fairly healthy BI market they are hardly sparkling, which seems to be reflected by a dip in the share price.

For sometime I had been wondering which company Microsoft would buy to enter the MDM market. This is a key area in the broader business intelligence arena that they aspire to progress in, and was a major gap in their offering. Stratature was their choice, and it was a smart choice. Stratature plays in the analytical MDM area rather than being an operation transaction hub (like Siperian, say). It had built up a good reputation for flexible hierarchy management, an important feature of most MDM applications. They competed directly with Razza (an excellent tool which Hyperion purchased but Oracle seems to have now buried) and Kalido.

Stratature is the kind of bite-sized (16 employees) acquisition that Microsoft likes. It prefers to catch a company when it is small so that it can easily absorb the technical staff and mould them into the Microsoft way of doing things. When it has deviated from this rule (Great Plains, Navision) it has discovered why this was a good rule in the first place.

Congratulations to Ian Ahern, who impressed me on the several occasions I met with him. He also supports my (possibly biased) thesis that all the best MDM people are Brits. The terms of the deal are not public, and it would have been interesting to see what valuation a good MDM vendor achieved; I am sure it worked out well for Stratature’s shareholders. This now leaves Kalido as the main remaining independent analytic MDM vendor. This is not necessarily a bad thing for Kalido. Informatica has shown how you can thrive once your competitors get swallowed by the behemoths. Being stack-neutral in data management carries advantages.

Business Objects continues to broaden its offerings, in this case into the area of text search by buying Inxight , a company that was founded in 1997 based on research at Xerox Parc, and steadly built up an impressive customer list, partly through OEM arrangements. Its technology competes with Autonomy, Clear Forest and Stratify, and is strong in the area of multi-language support. The company had struggled somewhat in terms of market momentum, especially given the very hefty venture capital financing that it received (it was up to a $22M Series D round by 2002, following $29M of funds in 2001). Although its numbers are not public (and the purchase price is unclear at this point), it seems unlikely that it was yet profitable. Business Objects strong balance sheet provides a sensible home for the technology, and Business Objects’ very capable sales and marketing is a good match for a company with strong technology which has not executed that well in these areas. Text search is certainly an important and growing area in these days of increased regulation, and this adds a useful additional arrow to the Business Objects technology quiver.

I wondered what Foster Hinshaw would get up to after he left Netezza, and now we know. He has set up the rather awkwardly named Dataupia, a data warehouse appliance with a difference. It is an important difference, as his appliance runs on Oracle rather than on a proprietary database like Netezza. It will also run on DB2 or SQL Server, for that matter. You just plug in MPP capable hardware to take advantage of the appliance. This is important, since having a proprietary database brings with it not only a certain amount of cost and new skills required, but also makes conservative corporate buyers nervous. If you are a Telco with really vast amounts of transaction data then this trade off may be worthwhile, as indeed can be seen in Netezza’s considerable success, but if you could get much of the benefit (and this is unclear since at this stage there are no comparative performance figures) while still running on your existing mainstream database, this would sooth the nerves of corporate CIO types who might otherwise try and block the introduction of a new database. Just as importantly, it allows existing data warehouse applications to be able to claim appliance like performance boosts. While the vast bulk of data warehouses today are custom built, this ought to be of interest to true data warehouse applications such as Kalido, which could presumably easily run on top of Dataupia’s appliance.

I think this is a very interesting development, assuming that the new product delivers on its promise. The market for an appliance capable of running on a mainstream database platform ought to be much broader than the set of applications that currently addressed by hardware appliances (or even software-based ones with their own database like Kognitio).

Tibco has made a serious foray into the business intelligence area via its announced acquisition of Spotfire this week. Spotfire has built up an excellent position in the visualisation space, starting in the pharmaceutical industry and then expanding into areas like upstream oil services. Based in Stockholm, it has successfully penetrated the US market, and its CEO Chriotopher Ahlberg has always impressed me. In a sea of failed visualisation vendors which never seem to catch on properly, Spotfire has a been a rare commercial success.

Spotfire’s revenues are not public, but are likely to be around USD 50M, so the USD 195M cash price paid for the company is a healthy one, reflecting Spotfire’s excellent momentum and differentiated technology. What will be interesting is to see whether Tibco is really the company that is best placed to exploit Spotfire’s technology. Tibco’s strong position in financial services will give Spotfire access to an attractive market. and while the companies’ technologies are broadly complementary, visualisation is a different animal than EAI, so it is less clear to me that the Tibco salesforce will be ideally placed to understand and successfully explain the benefits of Spotfire. The stock market seemed a little unconvinced as well, Tibco’s share price dipping on the announcement. Sensibly, Tibco is retaining the Spotfire brand and keeping the company as a separate division under Christopher Ahlberg.

Given the scale of the acquisition, this signals a serious move by Tibco into the broader BI market.