From the January 3, 2003 print edition

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Business intelligence becomes a hot commodity, especially for retailers

At some point in time, about 60 percent of the merchandise at Casual Male, the $300 million men's specialty store chain headquartered in Canton, gets marked down. And it wasn't too long ago that every little markdown was meticulously detailed in ponderously large paper volumes — nearly a foot thick, some of them.

"It took forever to go through all these reports, and once we did a markdown we never knew if it was the right one," said Steve Schwartz, senior vice president of planning and allocation. "It was an eyeball approach."

A year ago, Casual Male invested in a "markdown optimization" software product from ProfitLogic Inc. of Cambridge. Instead of sending its buyers 12-inch-thick paper reports, Casual Male now sends the information electronically to ProfitLogic, which hosts the software for Casual Male on a secure web site. ProfitLogic crunches the numbers and then recommends which products should be marked down in which stores in order to deplete inventory and maximize profit in the time frame specified by the store.

"Before, we had to take markdowns at all 475 stores," Schwartz said. "July 4 might be time to mark down swimsuits in the north, but not in Florida. Now we can make markdowns according to pricing zones in regional markets."

Business-intelligence products — software tools that help companies make sense of all of the data they are collecting — make for a hot industry these days. In a survey earlier this year by Forrester Research Inc. of Cambridge, 286 IT executives at North American companies with at least $1 billion in sales said business intelligence will be their second-largest investment, after web portals.

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"Companies still have a hangover from all of their equipment investments from the late 1990s," said Nate Root, an analyst at Forrester who follows the business-intelligence industry. "Both of these two categories of software, portals and business intelligence, are tools to help companies get more value out of all of this investment."

Sunil Dhaliwal, a senior associate at Battery Ventures in Wellesley, which has invested heavily in the business intelligence market, said surveys he has seen predict the entire data-warehousing market, including business intelligence, will grow from $30 billion in 2000 to $75 billion by 2005.

"And that's just North America," Dhaliwal said. "There has been a tremendous investment in infrastructure the last five to 10 years. Companies now are asking, 'What do we do with all this information? How do we take all this raw data and figure out some meaningful trend or information that lets us run our business more effectively?' "

At least two local companies claim to have an answer. One is ProfitLogic, a former boutique consulting company to the retail industry. When more and more of its clients kept asking for advice on pricing and how to make better markdown decisions, the consulting company decided to change its name and focus and become a software company.

Customers for its markdown software system include Casual Male, J.C. Penney Inc., Meijer Stores (a Midwest superstore chain) and Northern Group Retail in Canada.

"Markdowns are a huge issue for retailers," said Jakki Glivicky, marketing manager at ProfitLogic. "In the '70s, only about 8 percent of merchandise got marked down. Now 78 percent gets marked down. Retailers are doing $2 billion a year in markdowns."

Another local company, Framingham-based Netezza Corp., has raised about $29 million in venture funding so far for its business intelligence platform, a combination of software and hardware aimed at the world's largest companies.

"These are the 800-pound gorillas in data warehousing," Root said. "The airlines, Federal Express, Wal-Mart. They run some of the biggest data warehouses in the world."

Netezza was founded by Jit Saxena, founder, former CEO and now chairman of Applix, a software company Saxena took public in 1994.

"The word, 'Netezza' comes from one of the Asian languages and means 'results.' That is our hope and vision — that with our technology, companies can get results on large databases at the speed of thinking," said Saxena, a native of India.

Netezza's server sits on a company's network and supports all of its business intelligence applications. The server includes storage, database software and processing power.

"A lot of business-intelligence solutions are just a piece of analytical software," said Dhaliwal of Battery Ventures, which led Netezza's $20 million second round of financing earlier this year. "Companies still need a database vendor, a service vendor and a storage vendor. Netezza has collapsed all three of those."

Root said "the jury is still out" on Netezza's system, but called it "neat stuff."

"Traditional software solutions like Oracle that run on top of generic hardware fundamentally can't scale to be as quick as a solution that, from day one, was designed just to do data warehousing," Root said. "It's a unique approach."

To date, there are no clear dominant players in the business intelligence market.

"Infrastructure players like Oracle, Microsoft and IBM are starting to build analytical tools, and even embedding some analytical features right into their databases so customers get some number crunching whether they want it or not," Root said.

At the other end of the market are the "niche" players.

"A lot of people are driving toward underserved niches," Dhaliwal said. "There are still a lot of opportunities to solve customer problems; still a lot of niches out there yet to be filled."

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