LucidEra's Failure: More Evidence that Marketers Won't Pay for Measurement

I’m just catching up with what happened while I was on vacation these past two weeks. One piece of news is the demise of LucidEra, which this blog profiled almost exactly one year ago. According to SearchDataManagement.com, the company said it shut down because it couldn’t raise new funds or find a buyer.

There has been some learned discussion of the causes of LucidEra’s collapse on Timo Elliot’s BI Questions Blog. Much seems to focus on the apparent operating costs. These must have been substantial, since the company raised $15.6 million in 2007 and, presumably, has since spent it all.

Still, I think the fundamental problem was a lack of customers. When I spoke with LucidEra in June 2008 they said they had about 40 paying clients. When I spoke with them again in October 2008, the number was 50 and it was still at 50 when we spoke in April 2009. In other words, LucidEra was making very few sales or, even worse, was able to make new sales but couldn’t retain its customers. [For more insight based on comments by LucidEra managers, see this post on the Datadoodle blog.]

With the benefit of 20/20 hindsight, LucidEra’s strategic decision to focus on building sales analysis applications primarily for Salesforce.com was a mistake. Bear in mind that there are about 60,000 Salesforce.com customers – selling to 50 of them is less than 0.1% penetration.

I suspect LucidEra’s price point, around $3,000 per month depending on the details, was too rich for many of its prospective clients. Not that they couldn’t actually afford it – but they didn’t want to spend that much money on sales analysis.

This is not surprising. I reluctantly concluded some time ago that marketers (and presumably sales managers) are not willing to spend money on measurement systems even though they consistently say in surveys that better measurement is a high priority. For recent evidence along these lines, see the 2009 Marketing ROI and Measurements Study published by Lenskold Group and sponsored by MarketSphere, which found that “6 in 10 firms (59%) indicate having an increased demand for marketing measurements, analysis and reporting in 2009 without the budget necessary for those measurement efforts.”

Many analysts and other on-demand business intelligence vendors have been quick to assert that LucidEra’s failure does not reflect a problem with the notion of on-demand BI in general. I agree, since I see the key to LucidEra's demise as its uniquely narrow focus on sales analysis. Indeed, competitors including Birst and GoodData have leapt to offer a new home to orphaned LucidEra clients.

Still, the apparently high costs to sustain a small client base suggests the economics of this business are not as attractive as they seem. LucidEra's Darren Cunningham did tell me that their costs were particularly high because they were not a multi-tenant solution and had to manage the entire BI stack to support a single application. Presumably other on-demand BI vendors can run more cheaply. Still there does seem to be a little more reason for caution in approaching on-demand BI vendors, even though there is not (yet) any cause for alarm.