I have been a fan of the DataDistilleries technology for a long time and we have worked closely with with them in one of the companies I have founded. Their core products are an analytical tool and a real-time recommendation engine; the latter typically used to provide cross-sell and up-sell offers on inbound customer contacts through the call center, retail stores, web site and so on. My opinion has always been that the real-time engine was the jewel in the crown, and that seems to be the main reason for SPSS (who are of course strong in the offline analytical market already) buying the company.

“Our goal is to close the gap between customer data and business users by providing valuable analytic insights that are usable by front-line personnel” says Jack Noonan, SPSS Inc. president and chief executive officer.

Their press release says that SPSS acquired DataDistilleries for $1.0 million cash and stock valued at $5.4 million. This represents 1.4 times annual revenues of $4.5 million. Additionally, SPSS will pay $4.1 million over the next two years contingent on the achievement of certain growth targets.

The press release also hammers home the problem that DataDistilleries have had: 90% of revenues came from sales in their home market of the Netherlands even now, eight years after the company was founded. They got burned on their international expansion and was never successful in growing that business.

The Market for Real-Time Marketing

The two main competitors to DataDistilleries are Unica and E.piphany. Of these two, E.piphany looks like a reasonably solid company after some troubles in the past, while Unica must now surely be an acquisition candidate in this rapid consolidating market. SAP prefers to build rather than buy, and Oracle, when they go on the acquisition path again, would probably prefer E.piphany because Oracle is essentially trying to acquire a customer base. Possible buyers with cash would include Sybase and Amdocs. I was speaking to a DataDistilleries competitor about the SPSS acquisition and they were relieved: their worst fear was that Amdocs would purchase the company because the Mobile industry is currently the leader in the adoption of real-time marketing techniques and tools and Amdocs is very firmly established in those companies through their billing and CRM (Clarify) software.

The market for real-time recommendation engines is becoming very interesting. There are several business drivers that mean that companies are now seriously looking at these tools and techniques, including:

• Competition: Especially in mature and maturing industries (e.g. mobile telecommunications) increased competition in essentially a saturated market makes it imperative to sell more to existing customers. The benefits are twofold: increased revenue (obviously) but also usually increased customer loyalty (it is harder to change brands when you have many products with it).

• Commoditization: Most products are becoming commodities where it is increasingly difficult to obtain sustained market advantage solely on product features: it is simply too easy to copy innovation. This means that companies are increasingly differentiating on service and more broadly customer experience. Real-time recommendation tools are a key component in enabling this for any business with many customer contacts by providing the infrastructure to allow a continuous relationship with the customer (“we know what you like, when you like it, and how you like it, and we use that knowledge to treat you like a person, not a wallet waiting to be emptied”).

• Legislation: With increasing privacy legislation like the PECR (improbably pronounced “PEK-er”!), traditional outbound marketing efforts are becoming difficult to execute. That is not a big loss: they were never effective in building relationships; indeed they we effective mainly at devaluing the relationship between the customer and the company, treating the customer not as a person but as a wallet waiting to be emptied.

This is a market to watch, and it is a disruptive technology because it fundamentally tries to change the nature of the relationship between customers and companies; even, perhaps, to the extent of changing what we mean by “customer” and “company”. More on that another day.