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March 20, 2000

Companies See Gold In Outside Data Analysis
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Vendors and analysts say the outsourcing of data warehousing and data analysis is a trend that's likely to grow--and grow dramatically, analysts say--as more CRM application service providers start offering the services and implementing software developers' products. "This model will work well for new ASP entrants that lack the technological infrastructure to sell software on their own," Gartner's Nelson says.

Nelson, who's dubbed these suppliers "marketing application service providers," says they may be used by up to 15% of businesses by 2005. By definition, a marketing ASP is used to outsource any of a variety of marketing functions, from hosting software, such as campaign-management systems, to collecting data, creating offers, tracking customer data and results, and running a business Web site. The marketing ASP, in effect, becomes an integral part of a company's marketing department, assisting in-house marketing staff in any or all of the technological aspects of marketing analysis.

With the amount of information on Web-based customer interactions mushrooming and the growth of an entire industry to analyze clickstream data, there's a great need for experienced marketing analysis experts--people who know marketing and know how to analyze the data once it's gathered.

"The current batch of database, data mart building, or specialized data cleansing, middleware, and analysis tools are still part of a fragmented, immature bunch of development applications," says Michael Penney, executive VP of Internet professional services at Epsilon. It takes specialized data analysis training to implement and capitalize on the data mining capabilities of these tools, he says. And keeping up with best-of-breed products is also a full-time challenge that few E-businesses can afford. "The Web has changed customer relations, with the focus shifting to retaining customers. Our clients come to us to get help with marketing. They want to be able to leave the challenge of picking tools to us," Penney says.

But some observers say it's unlikely that many conventional data warehouses will move out of IT departments. "The problems with outsourcing a traditional data warehouse boil down to maintaining confidentiality and satisfying end users," says Intellor's Rist. The most successful in-house data warehouses to date have tightly knit relationships between the development team and users. "Handing data to an outside firm is only going to distance end users from the process and will lead to trouble," Rist says. It's not just about having an outsourcer spend time asking users what they want up front. It takes a continuous, almost day-to-day relationship between users and data warehouse builders to properly maintain an ongoing data warehouse.

Nancy Williams, principal consultant for Web Data Access, a data warehouse and E-commerce software and services provider, sees a contradiction in abdicating control over critical information. In her last job, Williams built a financial data warehouse as part of an outsourced team working for a federal agency.

While that project standardized simple processes such as payroll, she's convinced outsourcing may not work well when the data warehouse is used to support strategic business data. "It's a risky proposition," she says, "because you really don't want your company's business intelligence or even intelligence-gathering techniques to be passed on to potential competitors via an outsourcer."

Of course, that's not to say it never happens. The National Association of Securities Dealers outsourced its companywide financial data warehouse to EDS in 1997. But while most outsourcers would claim to have security measures in place that protect each business' valuable data, by nature they must resell the technologies and data analysis techniques used in order to continue building their own businesses.

Still, others see certain benefits to outsourcing even critical data stores. Frank Casale, president and founder of the Outsourcing Institute, says identifying ideal outsourcing candidates involves being able to judge the distance of an application from a company's core competencies, as well as its complexity.

"Applications that aren't central to a business' operations"--such as product development, manufacturing, or sales--"and are highly complex are really a no-brainer," he says. "And data warehousing tends to fall into this category."

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