Friday, November 11, 2005

A big industry, but still a cottage industry

IDC today announced their annual survey results of the size of the data warehousing market. IDC sizes the overall market in 2004 at 8.8 billion. The "access" part of market e.g. Business Objects, Cognos, was USD 3.3 billion,"data warehouse management tools" (which includes databases like Teradata, and data warehouse appliances) was USD 4.5 billion Data warehouse generation software (which includes data quality) was sized at USD 1 billion. This was 12% growth over 2003, the fastest for years, and IDC expect to see compound annual growth of 9% for the next five years.

One feature of this analysis is how small the "data warehouse generation" part of the market is relative to databases and data access tools. It is in some ways curious how much emphasis has been on displaying data in pretty ways (the access market) and the storage mechanism (data warehouse management market) rather than how to actual construct the source of the data that feeds these tools. This is because today that central piece is still in the cottage industry stage of custom-build. Indeed with an overall market size of USD 35 billion (Ovum) it can be seen that the bulk of spending in this large market is still with systems integrators. Only a few products live in the "data warehouse generation" space e.g. SAP BW and Kalido (data quality tools should really be considered a separate sub-market). Hence the bulk of the industry is still locked in a "build" mentality, worrying about religious design wars (Inmon v Kimball) when one would have expected them to move into a "buy" mentality. This inevitably will happen, as it did to financial applications. Twenty or so years ago it was entirely normal to design and build a general ledger system, and who would do that today? As large markets mature, applications will gradually replace custom-build, but it is a slow process, as can be seen from these figures.

The average data warehouse costs USD 3 million to build (according to Gartner) and only a small fraction of this is the cost of software and hardware, the majority being people costs. It also takes 16 months to deliver (a TDWI survey) which is an awful long time for projects which are supposedly delivering critical management information. To take the example of Kalido, the same size project takes less than 6 months instead of 16 months, so for that reason alone people will eventually come around to buying rather than building warehouses. Custom data warehouses also have very high maintenance costs, which is another reason for considering buy rather than build.

The rapid growth in the market should not be surprising. As companies have bedded down their ERP, supply chain and CRM investments it was surely inevitable that they started to pay attention to exploiting the data captured within those core transaction systems. The diversity of those systems means that most large companies today still have great difficulty answering even simple questions ("who is my most profitable customer", "what is the gross margin on product X in France v Canada") which causes senior management frustration. Indeed a conversation I had at the CEFI conference this week with a gentleman from McKinsey was revealing. In recent conversation with CEOs he explained that McKinsey were struck by how intensely frustrated CEOs were at the speed of response of their IT departments to business needs, above all in the area of management reporting. 16 month projects will not do any longer, but IT departments have are still stuck in old delivery models that are not satisfying their business customers - the ones who actually pay their salaries.

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