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Tuesday, Sept. 2, 2008 | Within three months of implementing a program by San Diego-based company DriveCam in 2007, the Ireland-based transport company Iggy Madden Transport reduced its vehicle accidents by 80 percent.

The solution wasn’t better trucks or new drivers — instead, cameras installed on the trucks’ dashboards would detect risky behavior like swerves or collisions, and then recorded the events 30 seconds before and after. DriveCam would download the video footage and analyze the accidents for Iggy Madden, which then went over the incidents with its drivers.

The cameras were smart enough to detect potential accidents in the first place because of analytics — the use of mathematical models to analyze data, detect patterns and predict behavior.

Companies have always used complex mathematical formulas to minimize losses and track customer preferences. But as more and more companies struggle to evaluate heaps and heaps of data ushered in by the information age, industry experts say San Diego could very well claim analytics as its third major technology bragging right, after biotechnology and telecommunications.

San Diego has a long history with successful analytics companies and is home to a growing cluster of them. But most people have yet to hear about an analytics boom in San Diego, industry insiders said, because many firms in the region have yet to explicitly market themselves as analytics companies.

“In the last two years, analytics has really become the hottest area of software, and the reason is very simple: every mouse click is a data point,” San Diego Software Industry Council President Bob Slapin said. “And so businesses are overwhelmed with the amount of information they have to deal with. Number crunching is no longer enough to make sense of the data. “

Companies use analytics in two different ways.

Some come up with the mathematics and software to perform data analyses for their clients. ID Analytics of San Diego, for example, aggregates fraud reports, consumer transactions and information, and then compares the information for suspicious identity theft patterns. The company’s software will pick up on credit card numbers that are used by more than one person, for example, allowing retail companies to avoid accepting fraudulent purchases.

Other companies take the analytics data and advise clients how to change their business practices. San Diego’s Red Door Interactive uses this method to track website visitors. It has counseled clients like Rubio’s and Souplantation on how to better design their websites and provide perks to retain customers.

ProQuo Chairman and CEO Steven Gal differentiates the two analytics types as “scientific” versus “end-user” — the latter being companies that use analytics but do not invent algorithms.

Gal, who moved to San Diego from San Francisco seven years ago, said San Diego particularly excels in the scientific analytics domain because the University of California, San Diego commands one of the top engineering schools in the country and graduates many Ph.D candidates who come to design new revolutionary algorithms.

UCSD’s Joan and Irwin Jacobs School of Engineering ranks 4th in the nation in research expenditures per faculty member, with $141 million in federal, state and industry research support.

“I think San Diego has many more, very senior, very experienced analytics scientists that live and work here, even compared to San Francisco,” he said. “There’s certain levels of analytics which any junior analyst can do … but when you’re talking about scientists who change the way an industry works, those kind of people are hard to get outside of San Diego.”

Furthermore, Slapin said, analytics has been a mainstay in San Diego for decades. The creation of SAIC in 1969 and HNC Software in 1986 attracted talent pools which eventually generated spin-off companies.

In addition to creating other scientific and technological applications, the government-contracted SAIC has designed software to conduct sophisticated searches of millions of documents per second, while HNC innovated an application now used by many banks, retail firms and healthcare providers which cross-references many databases to detect credit card, Medicare or Medicaid fraud.

SAIC’s annual revenues now amount to $8.9 billion, while HNC ultimately merged with Fair Isaac for about $810 million in 2002.

Gal, who co-founded ID Analytics after serving as an HNC vice president, said dozens of seasoned managers and scientists from HNC have since gone on to start new companies like ID Analytics, BasePoint Analytics, SEMDirector, Global Analytics, Veoh Networks — to name a few.

Since the late 1990s, San Diego has also witnessed the success of web analytics firms — companies that engineer software to track users on websites or advise clients using this tracking data. Google bought San Diego-based Urchin Software Corporation in 2005 and converted it to Google Analytics, while Yahoo! inherited San Diego’s Keylime Software through its 2003 acquisition of Overture.

But while San Diego has “always kind of been an analytics capital of North America,” Red Door Interactive President and CEO Reid Carr said the incorporation of local analytics companies into broader technology firms has somewhat decreased San Diego’s analytics stature, since the local firms are often uprooted. Google Analytics, for example, has no office in San Diego.

Paul Botto, who worked with Urchin and is now Google’s head of analytics sales, said other large firms like Microsoft and Omniture have also acquired analytics firms in the last few years, driving up the overall popularity of analytics.

“I’ve noticed there’s pretty massive consolidation — it’s gotten to the point where analytics companies are commanding top dollar,” he said. “When you see big powerful companies investing significant amounts of money in something, it’s obviously an important thing.”

If anything, local industry experts said, the creation of the nation’s first-ever analytics-specific conference in San Diego last year is an indication that the industry claims a local importance. This year’s Nov. 12 will include more than 300 analytics industrialists spanning three continents, Slapin said.

The buzz surrounding analytics locally and nationally is an illustration of how technologies start from being merely popular ideas to area-defining industrial powerhouses, and how geographical promotion is important to companies who want to attract competition and brilliant minds, even if the companies themselves are working in the virtual internet world half the time.

“I’m an entrepreneur and a start-up guy, so I start with the prospect that if we can convince ourselves — executives around the table — that San Diego is an analytics hub, that’s the start,” Gal said. “If we can get enough people to fly in and listen at a conference about analytics here, that’s a sign that we’re some kind of a hub.”

Nationally, the analytics software industry also has a lot of room to grow. In 2007 The Data Warehousing Institute reported that 21 percent of companies have fully or partially implemented predictive analytics, while 61 percent are exploring the option or have made “no plans.”

Companies working in analytics also say they have expanded considerably. Red Door Interactive has grown from four employees to 50 in six years and just acquired a Denver agency, while ID Analytics has raised $45 million in venture capital investment since its 2002 founding. ProQuo started out that same year and currently hosts over a million active users.

Phoenix-based Webshare President David Booth said the recent economic downturn has also been a “catalyst” for increased analytics demand.

“In a recessionary period, it becomes extremely important for companies to understand where their spending is going,” he said. “We’ve seen a lot of people who would like to make sure they’re getting a return on their investments. People weren’t aware that this level and depth of information was available before.”

Meanwhile, the investment returns can be hefty. From a survey of 37 firms, TDWI calculated that companies that invest more than a million dollars in predictive analytics receive a payback within 11.2 months. According to an International Data Corporation report, the business analytics software market valued $19.3 billion in 2006 and will have a compound annual growth rate of 10.3 percent through 2011.

Recently, Webshare configured Google Analytics for a travel sector client in order to isolate unprofitable strategies. Within a month, the client’s investment returns grew by 600 percent, Booth said.

The latest industry numbers are impressive, Gal said, but it will take years for more statistics to solidify the value of analytics.

For that reason, he said, the analytics surge in San Diego has made few headlines outside of the industry. Many companies do not immediately call themselves “analytics” companies because the term may not be meaningful to clients, he said.

ProQuo allows its users to reject junk mail, catalogs and credit card offers by removing their names off national marketing databases, but its customers do not know it as an alaytics site, Gal said. Users on average save themselves 30 to 40 pounds of paper annually with the website, he said, and receive credit card offers tailored to their preferences by an analytics algorithm.

“I think as we start to get those statistics out there about analytics, people will want to market themselves as analytics companies,” Gal said.

Slapin estimates that about 40 to 50 companies in San Diego engineer analytics software. On the research side, institutions like the UCSD-affiliated California Institute for Telecommunications and Information Technology — Calit2 for short — hope to accelerate technology product development.

Using algorithms to evaluate media, Calit2 Software Studies Initiative Director and UCSD Visual Arts Professor Lev Manovich is seeking to create software which will graph and predict cultural shifts. Cultural data sets have exploded, Manovich said, with websites like Flickr hosting over two billion user-submitted photos.

One could observe how the portrayal of Jesus’ face changed in paintings varied geographically in the 15th century, he said, or map how cultural consumption has changed as a result of globalization.

Innovative ideas like Manovich’s are moving even faster through the product pipelines these days, local industry leaders said, because San Diego in recent years has acquired enough business management resources, venture capital and legal services to compete with Silicon Valley.

“I think all the pieces are in place in San Diego right now, so I’m very excited,” Gal said. “In the next decade, people will see San Diego as an analytics hub. You need another HNC-like success to cement that, and I don’t know if we can have a Qualcomm in analytics…but I don’t see why not.”

Please contact Lea Yu directly at lea.yu@voiceofsandiego.org with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.

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