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The Rise of Analytic Service Providers

Published
  • July 15 2004, 1:00am EDT
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In striving to achieve customer intimacy, the idea that someone else can know your customers better than you do seems somewhat oxymoronic. Can someone else know your customers better than you? For years, the answer to this has always been "no." Your organization's analytic needs have always been thought of as proprietary and best handled internally within your organization. Now, however, this premise of propriety is being challenged. A new breed of outsourcing vendors, analytic service providers (Analytic SPs), is stepping up to the challenge of aiding organizations in achieving customer intimacy, improving fraud detection and facilitating campaign management.

Analytic SPs offer a spectrum of services. While these companies may host your applications on their hardware and software, they are most significantly, managing and securing your data. These Analytic SPs provide the range of BI-type services that one would typically find in any internal IT department; from data management, loading and cleansing to facilitating the reporting and analysis of your data. Their real value, however, lies in their ability to augment your data and analysis with their vertical domain knowledge and analytics expertise.

Why Consider an Analytic Service Provider?

The rise of Analytic SPs is being driven from both ends. Corporations are beginning to look for alternatives to building BI solutions internally and data providers are expanding and evolving their offerings. From whichever end you look at it, the rise of Analytic SPs is being driven by five key factors:

  • BI Competency
  • Statistical Rigor
  • Data Augmentation
  • Domain Expertise
  • Ubiquitous Access

BI Competency

First, data warehousing isn't easy. Many companies have found out the hard way that data warehousing is both a difficult and expensive proposition. The investment in hardware and software is significant and the resource skills required are difficult to obtain. While some large companies have begun to address this problem through establishing a common enterprise data architecture and centralizing some of the core BI skills in a BI competency center; others, however, are beginning to look outside their walls for assistance.

Even a relatively small BI application or data warehouse requires a mix of hardware and software with the associated technical expertise that some organizations simply don't have. For these organizations, the barriers to entry of building a BI capability internally have been too high. An Analytic SP alternative, however, has a much lower cost of entry and allows the organization to sidestep the creation of their own BI infrastructure. No disk farms for gigabytes of storage need to be implemented, no database needs to be tuned, and no software licenses need to be purchased. In the Analytic SP model, all of this is taken care of by your Analytic SP vendor.

Statistical Rigor

Even if an organization has the technical aspects of data warehousing down pat, making sense of data requires a depth of statistical skill that many organizations simply don't have. Remember, once your data warehouse is built and fully populated, the work is really just beginning. A data warehouse is merely an enabler of processes and decision making. In order to make sense out of the data within, your organization needs to have the analytic and statistical capability to interpret the data at hand.

Data Augmentation

Speaking of statistically valid data, what if your organization has insufficient data to produce a statistically valid sampling? Another benefit of the Analytic SP is the potential for pooling your customer, product or sales data with other companies (even your competitors in your market) to produce a statistically valid sample. This approach has been used successfully in the healthcare industry by pooling data from multiple providers and searching for previously undetectable patterns for fraud, drug utilization and unnecessary or inefficient medical services.

Even if you're not ready to pool your data in with others, chances are your marketing department is looking to augment your existing customer data with external customer segmentation and demographic information. This data augmentation has been occurring for years with this information being provided by data service providers such as D&B and Harte-Hanks. Now, many of these same data service providers have realized that they have developed the BI competency and domain expertise to do much, much more than just be providers of customer demographic information.

Domain Expertise

The first Analytic SPs to appear were focused on customer analytics and Web site traffic analysis. However, many new Analytic SPs have arisen focusing on very specific areas where they can leverage their domain expertise. The premise here is not only can they effectively manage your data, but they will provide you the analysis of your data based on their experience in the field. This model currently seems most prevalent in the healthcare and insurance industries, but examples can be found in many industries from banking to bio-tech.

Ubiquitous Access

The ubiquitous nature of the Internet and the establishment of a Web UI standard for nearly all BI software have enabled the Analytic SPs to begin to proliferate. With the rise of the Web, it becomes irrelevant where the data resides. With a Web browser UI, it really doesn't matter if the data being displayed is from the data center on the floor below or a service provider half a world away.

The Web UI is the most important standard, but not the only standard driving the rise of the Analytic SP. In general, the proprietary nature of data processing and the data itself is changing. Standards have been set and adopted for many types of transactions from Healthcare HL7 transactions, through cXML for commerce to EDI for a host of industries and transaction types. The use of these standards facilitates the ease with which a third-party ASP can begin to load and interpret your data.

Where to Find an Analytic Service Provider

The concept is new enough that finding an analytic service provider is not always easy. Unfortunately, the term Analytic SP hasn't really stuck and even searching for them proves difficult as they are often labeled under ASPs, analytic service providers, ASPs for data warehousing or business intelligence service providers. Once you begin to look for them though, you'll be surprised how many you'll find. Many major BI vendors such as IBM, SAS and SPSS, all now have an Analytic SP offering. There are also some interesting Analytic SP pureplays such as Netezza and Interelate as well as a plethora of niche industry-specific players.

The Analytic SP market is really just in its infancy. However, even at this stage, an organization looking for a lower cost of entry into BI or a mechanism to deliver BI capabilities in a shorter period of time may find evaluating an Analytic SP well worth the effort.

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