Vendor Ratings, VDR Alan H. Tiedrich, Howard J. Dresner

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1 Vendor Ratings, Alan H. Tiedrich, Howard J. Dresner Research Note 7 May 2003 Vendor Rating: arcplan s Growth Rate Masks Its Challenges arcplan s rapid revenue growth comes from impressive technology and leveraging internally generated cash flow. It will need external financing and an original equipment manufacturer strategy to keep growing as fast. arcplan Overall Rating: What You Need to Know: Although it s a small company, arcplan has attracted a number of large customers. Its technology for the rapid building of custom business intelligence applications features a code-free, component-based environment using a variety of popular data sources. The company has combined its engineering strength with U.S.-style marketing practices to achieve brisk annual revenue growth. To continue this rapid growth rate, arcplan needs to bring in outside investment and develop a program to attract a large base of third-party developers to use its technology. The greatest risk for customers is that, as a privately held, small company, arcplan does not have to make its financial details public. Analyst Comments: arcplan does not often compete with major business intelligence vendors. It has gained customers due to impressive technology, but its conservative financial management and no formal OEM program constrain its marketing effectiveness. Detailed Rating: Corporate Viability Strategy Financial Marketing Organization Product/Services/ Technologies Product/Service Technology Pricing Customer Service/ Product Support Sales/Distribution Support Services Initiative Rating Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Corporate Viability: A small, privately held German company, arcplan Information Services was founded in It is the majority owner of arcplan Inc., its U.S.-based subsidiary, founded in Gartner s promising vendor rating is for the overall company (arcplan). Although strategies for global accounts and products are coordinated, arcplan Inc. has a great deal of flexibility and operates independently with regard to marketing, sales and service in North and South America. arcplan began by offering a front-end for relational databases. Successful implementations prompted SAP to enter into a development partnership to extend the business intelligence capabilities of its R/3 EIS. arcplan has since diversified to support: Microsoft SQL Server 2000 Analysis Services Hyperion s Essbase, Enterprise and Financial Management Applix TM1 MicroStrategy, by way of Object Linking and Embedding (OLE) database (DB) for online analytical processing (OLAP) Other Open Database Connectivity-compliant or OLE DB for OLAP data sources Its own relational OLAP model SAP references arcplan as a preferred and certified supplier of business intelligence software technology. This continues to drive a significant amount of arcplan s business. arcplan also points to its strong emphasis on engineering and the adoption of U.S.-style marketing as important to its success. Strategy Although business intelligence is its most important market, arcplan does not restrict itself to this technology. Its strategy is to be a software vendor with multiple product lines that leverage its foundation technology and knowledge. Its product strategy featuring its flagship dynasight product is to establish a middle ground between buying packaged applications at a lower cost and developing custom applications by writing code at a higher cost. It rests its business plan largely on the premise that custom business intelligence applications are preferable to packaged ones. Another major tenet of arcplan s strategy is that by using its technology, enterprises gain the advantages of a custom approach, speed of development and lower total cost of ownership, as opposed to buying packaged applications from other vendors. From a technology aspect, arcplan s focus is on enterprises that want to use rapid application development and component-based technology to build (without programming) custom front-end business intelligence applications involving a variety of back-end databases. Longer term, arcplan intends to become more of a solutions vendor by supporting horizontally oriented application templates and providing business intelligence platforms to original equipment manufacturer (OEM) partners that sell vertically oriented solutions based on their relevant domain expertise. By supporting codeless custom development, arcplan correctly believes that enterprises using it can respond faster to the need to change systems as business environments change. The company calls its 7 May

3 approach assemble to order, relying on predefined data interfaces and components, as well as graphical script building. The first product in arcplan s diversification strategy was recently released in Europe and is expected to be available in the United States by late The new product dynasel is a Web-based product configurator for enterprises selling on the Web. Because arcplan has barely tapped the market for dynasight (arcplan s business intelligence platform), marketing an unrelated product like dynasel represents a diversion and dilution of the company s resources. The wisdom of the strategy to diversify is questionable. Financial Financially, Gartner rates arcplan with a caution because it s a small company and doesn t announce its financial results to the public. The information Gartner has is based mostly on what it has been told by arcplan. The company claims a 75 percent compound annual growth rate during the past 10 years, with continuous profitability since Average growth during the past three years is reportedly 43 percent, which is impressive considering the difficult economic conditions. Although arcplan will neither confirm nor deny it, Gartner believes that the company s annual global revenue is approximately $21 million, with new license revenue making up about 60 percent and services 40 percent. Almost all of its revenue comes from business intelligence products, primarily dynasight. The company says it spends approximately 16 percent, or $3 million, of revenue on R&D. arcplan uses internally generated cash flow to promote growth. Its one outside investor, the Germanbased Lindner Group, has less than 50 percent ownership in arcplan. Consequently, as a private company, arcplan is not subject to the whims of the stock market. However, Gartner believes that arcplan will need external funding to maintain a healthy annual growth rate of at least 30 percent to 40 percent for the next few years. Marketing and Pricing The company has a direct sales organization and also sells indirectly through channel partners, primarily outside of North and South America (see Table 1). It doesn t limit itself to specific vertical markets; it works with 135 partners in 30 countries in a broad range of industries, resulting in a very broad customer base. Table 1 Revenue by Region Region Revenue Contribution Direct Revenue Indirect Revenue (2002) Europe/Middle East Africa 48% 50% 50% North and South America Asia/Pacific Direct vs. Indirect not applicable Source: Gartner Research (April 2003) 7 May

4 Pricing is based on a model of perpetual licensing for three main components: servers, interfaces and users. A distinction is made between application developers and end users, allowing customers to scale their investments in accordance with the scope of the implementation and product use. Price per developer seat is a little less than one-half the price for an end-user seat. arcplan also offers an enterprisewide license, which enables global companies to license the software once and make it available to all their divisions without further license fees. Revenue is recognized by the office that makes the deal. A local office then provides service and technical support. Revenue from enterprisewide licenses is less than 35 percent of total license revenue. As a result of its long-standing partner strategy, arcplan has an active partner community. Its mostsignificant partners include SAP, Microsoft, IBM, Hyperion Solutions, MicroStrategy, Oracle, Applix, Frango, MIK and MIS, the latter three being known mainly in Europe. SAP-related license revenue, less than 25 percent of total license revenue, has declined, while license revenue related to Hyperion has grown by a similar amount. In the past year, license revenue related to Microsoft has grown sharply. A major requirement for success in the business intelligence platform market is that the vendor must provide strong support to OEMs that use its platform to develop applications for their customers. OEMs are a minor component of arcplan s revenue. Although it has a number of OEM accounts that have developed horizontal and vertical applications, the company does not have a proactive program to develop this business. However, arcplan has expressed interest in pursuing OEMs as an avenue of growth. Some of the vendors that market the data sources used by dynasight applications are, or could become, arcplan s competitors. However, few of these vendors support the breadth of data sources or the ability to create applications without programming. Thus, many of these vendors are arcplan s partners. Organization The management team at arcplan includes four founders who are the majority shareholders and are actively involved in the management of the company. The staff is just less than 100 approximately 40 percent based in the United States, and 60 percent in Germany. R&D and service and support make up almost half the staff. Products/Services/Technologies: arcplan s technology approach is to complement third-party, backend databases and leverage their infrastructure and server functionality, enabling the development of Web-based interactive analytical applications that use these data sources. This approach is also focused on reusing prebuilt components and applying a rapid application development without programming paradigm. It offers enterprises an alternative to packaged applications and traditional custom development, which requires programming or scripting. The dynasight product features insight, an object/component-based, graphical (no programming required) rapid application development environment. insight s component-based approach provides reusability of tested components to build multitier distributed Web applications rapidly. The dynasight Server can access the most-popular data sources, including relational database management systems, multidimensional (OLAP) data structures, and enterprise and business intelligence application data sources. Customer Service/Product Support: There are three levels of support: 7 May

5 First-line support is provided by approximately half of arcplan s 135 partners on their own valueadded solutions, as first point of contact in a geographic location or in a language area where arcplan has no direct representation. Second-line support is provided through two global support hubs: one based in the United States (Philadelphia area) and the other in Dusseldorf, Germany. Third-line support, in the form of code maintenance and fixes, is provided primarily through arcplan s development group. Standard support is charged at 15 percent of the listed, annual software license cost and covers technical support during office hours (customer local time), as well as a subscription to new releases of the licensed software. Additional support options exist for higher service levels, especially for 24-hour support for critical incidents and on-site support. Related Research and Ratings: BI Magic Quadrants: Excitement in a Flat Market Arcplan dynasight Business Intelligence Rating Definition: Strong Solid provider of strategic products, services or solutions. Customers: Continue investments. Potential customers: Consider this vendor a strong strategic choice. Demonstrates strength in specific areas, but is largely opportunistic. Customers: Continue incremental investments. Potential customers: Put this vendor on a short list of tactical alternatives. Shows potential in specific areas; however, initiative or vendor has not fully evolved or matured. Customers: Watch for a change in status and consider scenarios for short- and long-term impact. Potential customers: Plan for and be aware of issues and opportunities related to the evolution and maturity of this initiative or vendor. Faces challenges in one or more areas. Customers: Understand challenges in relevant areas; assess short and long term benefit/risk to determine if contingency plans are needed. Potential customers: Note the vendor s challenges as part of due diligence. 7 May

6 Strong Negative Difficulty responding to problems in multiple areas. Customers: Exit immediately. Potential customers: Consider this vendor only if there are no alternatives. Acronym Key DB OEM OLAP OLE Database Original equipment manufacturer Online analytical processing Object Linking and Embedding Core Topics Business Intelligence and Data Warehousing Markets and Technologies ~ Business Intelligence and Data Warehousing Business Intelligence Applications ~ Business Intelligence and Data Warehousing arcplan Headquarters: Dusseldorf, Germany Web Location: 7 May