On July 29, 2008, we profiled Datawatch Corporation (NASDAQ: DWCH, Stock Forum) for subscribers of PeterLeeds.com. After passing this company through Leeds Analysis, we found that DWCH is in a great fundamental position with proven management and tremendous upside potential.

To provide an even deeper look into the company, we've contacted DWCH, which generously provided us with the following elaborations.

1. Competitive landscape:
(Who else is going for the same customers, and where does your company fit in?)

“Datawatch competes in two merging markets, Business Intelligence (BI) and Enterprise Content Management (ECM).  These markets exist in response to every organization’s need to create, store, retrieve and analyze information and data necessary to make decisions and operate effectively. Because of the disparate types, formats and locations of enterprise information and data, the number of vendors and solutions that address either of these markets is large, ranging from small entrepreneurs creating customized solutions to Fortune 100 vendors selling very large, complex enterprise software products.

Historically, BI has focused on utilizing structured data sources, notably databases, while ECM focuses on storage and delivery of unstructured or semi-structured data.  Datawatch uniquely bridges these two critical technologies with its Report Mining technology, which transforms existing reports and other business documents into actionable BI without programming. Without Report Mining, vitally critical business information and data can remain ‘hidden in plain sight’ within an organization, in the form of existing reports and other printed documents and output from enterprise applications and systems. 

Our Report Mining technology enables on demand, intelligent parsing, transformation and customization of the ‘static’ information that resides within existing reports, statements, invoices and other business documents into actionable data. By parsing and transforming such existing enterprise content into live, customized BI, Datawatch is ushering in a new holistic approach to enterprise BI, which fits squarely into the growing Enterprise Information Management (EIM) market.”

2. Competitive advantages:
(What factors give you a leg up on your competition?)

“Dissatisfaction with traditional BI solutions is not hard to find.  BI expert Neil Raden recently estimated that as much as one third of all BI software licenses worldwide are unused ‘shelfware.’ (“Business Intelligence 2.0: Simple, More Accessible, Inevitable,” Intelligent Enterprise, February 1, 2007).   BI writer Colin White observed, ‘Disillusionment with existing BI software is already beginning, and some companies…are instead looking for easier and cheaper approaches…There is no question that customers are looking for easier and less costly BI approaches, and this will open up the marketplace to new BI vendors, and to new and disruptive BI technologies.’ (“The Need for Easier and Lower Cost Business Intelligence,” Business Intelligence Network, September 19, 2007).”

Datawatch is delivering what customers are asking for. We're differentiated in the marketplace because we're offering solutions that provide the value of BI but are easy to use, cost-effective and don't require any programming. Our partnerships with companies like IBM, Hyland and Microsoft also demonstrate the value of Report Mining; these companies are coming to us to integrate with their solutions because their customers need something they're not getting now.

Specifically, Datawatch solutions are unique and differentiated in the marketplace for the following reasons:

Leverage existing business source data – reports, statements, PDFs and business documents
Easy to use – minimal training by end users is required
Effortlessly integrates business source data with Excel
Integrates business source data with powerful, yet easy to develop and implement business process models
No requirement for development of complex datamarts or database programming query tools to access source data
Easy to install – systems up and running in days, resulting in immediate ROI
Desktop and Web-based server solutions”

3. Barriers to entry: 
(What makes is difficult for new competition to emerge in your space?)

“The general Business Intelligence software market is dominated by large competitors, many of which have been acquired by even larger enterprise software vendors (SAP/Business Objects, IBM/Cognos, etc.).  Any organization considering entry into the BI market must offer a truly unique, differentiated technology solution or find itself dismissed as a ‘me too’ solution.  Datawatch has thrived as a smaller provider for nearly 20 years because we do offer a unique, differentiated technology with Report Mining. More than 35,000 organizations worldwide rely on Report Mining to glean critical intelligence out of the vast amounts of data within their organizations, at a small fraction of the cost, time and complexity of traditional BI solutions.”

4. Threats to success:
(What are the most concerning issues, and how are you addressing them?)

“If traditional BI solutions were to deliver on long-standing promises of trouble-free, true self-service BI for rank and file managers and workers across the enterprise, alternate solutions would become less relevant.  As noted above, this concern has failed to materialize.  Complexity inherent within the business environment—resulting from diverse and disparate types and locations of data—as well as the complexity of installing and using traditional BI solutions, will continue to help ensure that more cost effective, easier to use and implement solutions will be available.  Additionally, traditional BI solutions often seek to replace Excel as an enterprise analytical tool, which is a mistake; market analysis has shown that while Excel is not officially positioned as a BI tool, it is actually the primary vehicle organizations use for business analytics. Unlike other vendors, Datawatch solutions effectively embrace and leverage Excel by providing programming-free enterprise data, sourced from trusted existing reports and other data sources, on demand across the enterprise.”

5. Industry outlook:
(What are the expectations for your industry over the next five years?)

“Globally, the Business Intelligence and Enterprise Content Management software markets are expected to grow at an annual rate of 6.5% and 12.8% respectively, through 2010, with combined forecasted 2010 revenues to exceed $7.0 Billion. (Enterprise Content Management Software, World Wide, March 2006, Gartner, Inc.; and Enterprise Business Intelligence Software, Worldwide, May 2006, Gartner, Inc.)”

6. Company outlook:
(What do you expect your company to look like five years from now?)

“For the past several years, Datawatch has innovated its products and structured its organization specifically to take advantage of the impending convergence of the BI and ECM markets.  This convergence is accelerating, and Datawatch is uniquely positioned as a vendor that bridges the existing gap between the two markets.  

Going forward, Datawatch has a focus on realizing profitable, sustainable growth by expanding features in its unique Information Made Easy™ software technologies, as well as expanding its market access beyond current desktop and enterprise customers into the vast and untapped small-to-medium sized businesses (SMB) market. To date, BI vendors have delivered effective solutions to Fortune 1000 companies, but the big challenge for these vendors is being able to give BI access to SMB customers with significant budget and resource limitations. This is exactly what Datawatch is already delivering today.

Finally, we are extending our capabilities to enhance, integrate with and add additional value to other technologies including but not limited to Microsoft SharePoint, IBM Content Manager OnDemand (CMOD) and Hyland OnBase content management solutions.  Datawatch is totally committed to its own successful performance for its customers and its shareholders.”

Disclosure: Author holds no position in DWCH, nor do employees of PeterLeeds.com.

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