On the Inxight and ClearForest Text Analytics Deals

Buying Inxight is a smart move for Business Objects. Business Objects has strong analytics and is well positioned in the BI marketplace. Folding the capability to extract information from text into their technology stack is a natural next step for the company.

This acquisition affirms the text-BI/integrated-analytics strategy being pursued by other vendors, notably Attensity, Clarabridge, Intelligent Results, SAS and SPSS. It also follows the precedent of data-integrator Informatica's late 2006 purchase of text-analytics vendor Itemfield. While the Itemfield deal closed less than six months ago, a demo I saw at last week's TDWI World Conference showed that Informatica has made quick work of seamless integration of text-extraction into their flagship PowerCenter ETL product. Given that Business Objects has been an original equipment manufacturing (OEM) licensee of Inxight technology for several years - which provides at least one reason they didn't go after fellow French company TEMIS - I expect similarly quick inclusion of Inxight text analytics into Business Objects' Data Integrator product.Hurwitz Analyst Fern Halper tells me that integration and solution plans are all off limits to discuss until July. The companies are not releasing terms of the agreement, and many other questions remain, for instance, plans for Inxight's innovative data-exploration tools: TableLens, StarTree and TimeWall.

One can make a guess at terms. In buying Itemfield, Informatica paid $55 million for a 60-employee company that claimed 150 customers. Inxight's headcount is around 120 with a claim of 450 customers and far greater visibility than Itemfield ever achieved. Take this into account along with its 2006 revenue figure of over $25 million. Also consider the ten-times revenue that some estimated SAP recently paid for performance management vendor Outlooksoft, a company in a field that is here-and-now; text analytics has the bulk of its potential ahead of it. Exclude the value of the non-text-analytics products and you get a deal value in the $150 million range +/- $25 million.

The previously undisclosed Inxight revenue figure, coupled with an estimate of their market share, also supports the estimate of a global $200 million text analytics market that I published earlier this spring.

But how could Inxight sell for six times (if I'm right) the $25 million that Reuters is paying for ClearForest, a text-analytics pioneer that is pushing "unified BI," which Business Objects is now aspiring to provide? Look at staffing and sales figures. ClearForest headcount reportedly dropped from the low 70s to the 30s in the last two to three years, surely reflecting sales issues in significant part connected to difficulties selling to US government agencies. Government regulations can make it difficult to buy from a foreign company, Israeli in this case, especially for sensitive intelligence and military applications. Inxight reportedly benefits from defense-related contracts for a large proportion of its revenues. Denied this market, ClearForest was obviously playing at a competitive disadvantage. The company burned through $32 million in venture capital and delivered a net loss to investors.

Inxight, Itemfield and ClearForest reinforce a hard lesson we've been taught many times before. Compelling technology is not enough. A balance of strong technology and positioning and favorable conditions is essential to market success.

Seth Grimes is a principal of Alta Plana Corp., a Washington, D.C.-based consultancy specializing in large-scale analytic computing systems. Write to him at [email protected].Buying Inxight is a smart move for Business Objects. Folding the capability to extract information from text into their technology stack is a natural next step for the company. This acquisition affirms the text-BI/integrated-analytics strategy being pursued by other vendors, notable Attensity, Clarabridge, Intelligent Results, SAS and SPSS. It also follows the precedent of data-integrator Informatica's late 2006 purchase of text-analytics vendor Itemfield.