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LucidEra's failure puts pressure on other SaaS BI start-ups

Helena Schwenk

LucidEra's failure puts pressure on other SaaS BI start-ups

Software-as-a-service (SaaS) business intelligence (BI) provider LucidEra has announced it will cease operations and has pledged to help customers wind down their relationship with the company. LucidEra's failure is partly a result of a more stringent and tough VC funding environment and partly a result of the company's resolute focus on prepackaged applications and BI content. We do not believe that LucidEra's closure marks the end of SaaS BI, but it will inevitably intensify pressure on other BI start-ups as they battle to both raise funds and stave off competition from their larger and more financially stable BI competitors.

LucidEra, unlike other BI start-ups, fell foul of a harsh VC funding environment

Funding was obviously an issue for LucidEra. It managed to raise $15.6 million back in August 2007, bringing the total raised to around $23 million since its inception in 2005, but in recent months the company had been unsuccessful in raising the lifeline of funding it needed to keep afloat.

This is not surprising in the current economic climate, given that VC firms are continuing to place more stringent performance criteria on start-ups when considering new rounds of funding. However, this must have been a bitter blow for the company considering that other BI start-ups - notably JasperSoft, Talend and Birst - had recently been successful in securing further rounds of funding.

The company's unwavering approach to SaaS BI constrained growth

While the economic downturn - and the slower sales cycles this inevitably fosters - has been a contributor to the company's downfall, it is unlikely to be the only factor. The company was also not growing its customer base fast enough. Its customer numbers - currently believed to be around 40 - appeared to have almost stagnated in recent months, having reached around 30 in February of this year. This is perhaps another reason why VC firms were unwilling to provide fresh funding.

Part of the blame for the company's demise also has to lie with its product offering and pricing strategy. LucidEra was predominately focused on selling prepackaged BI applications based around Salesforce.com data and the company's 55,000-plus customer base. The company hoped that its prepackaged cookie-cutter approach to BI would not only satisfy customer demands for CRM analytics but would also help the company provide a more scalable and truly multi-tenant platform. However, restricting the sources of data that LucidEra's prepackaged BI applications could access inevitably restricted its customer appeal, especially for those organisations that wanted more reporting and analysis flexibility. Likewise, the company pricing strategy was deemed too high for some small to medium-sized businesses (SMBs).

SaaS BI is still viable - but some smaller SaaS BI start-ups may not be

The failure of the LucidEra business has inevitably raised questions about the viability of the SaaS BI delivery model and whether this is the start of a trend. We believe SaaS BI is still a viable delivery model. Although it is still a small, nascent market where most of the early adoption has been among cost-conscious SMBs or departments of large organisations, it still provides a viable option for those companies that want to kick-start a BI solution without some of the pain of conventional BI deployment approaches. However, the real test for SaaS BI has yet to come. When SaaS starts to uproot complex enterprise-scale applications, including BI, it will truly have broken into the mainstream.

However, we believe the biggest impact that LucidEra's demise will have will be on the viability of smaller SaaS BI start-ups. The spotlight is now likely to shine very brightly on other SaaS BI company's such as Birst, Blink Logic, Good Data and PivotLink. Not only has the economic environment made it increasingly hard to raise additional funding for some of these start-ups but it is also likely to trigger risk-averse behaviour from IT decision-makers - many of which will choose to stick with larger, more financially stable strategic suppliers rather than take a risk on smaller niche vendors such as a SaaS BI start-up. While LucidEra's collapse doesn't necessarily mark the end of SaaS BI as we know it, it could mark the start of a SaaS shift towards larger BI players whose brand and broad portfolios continue to dominate the market.

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