Data mining 2.0

Gordy Meyer didn't need software to make this decision.

In 2000, the former Fingerhut executive went to work for LexisNexis after selling his start-up, RiskWise, to the online database giant. But Meyer was getting antsy: demand for predictive analytics -- super-smart software that could quickly help companies make decisions by crunching vast amounts of data -- was soaring. But the existing technology, including RiskWise, wasn't up to snuff, he says.

So Meyer founded eBureau in 2003, which has developed a real-time, all-in-one software and data warehouse system for online marketers to quickly collect and analyze data such as credit scores, shopping histories, income and real estate records in a day. Earlier systems rely on data that are months or years old. The resulting "eScores" allow companies to pursue consumers who are more likely to buy a product or service.

"More data always wins," Meyer said. "But what we do with the data is what makes it interesting. Bringing it all together is the differentiator."

Think of it as data-mining 2.0. The St. Cloud-based start-up didn't disclose specific figures but said sales have quadrupled over the past two years and jumped 70 percent year over year.

Customers include credit rating agency Experian, Education Connection, an online services company, and Restoration Media, an interactive marketing firm.

With gross margins hovering at 85 percent, Meyer expects eBureau to turn a profit in the first half of 2010. The company has raised $43 million from investors, including Split Rock Partners of Eden Prairie and two prominent Silicon Valley venture capital firms -- Tenaya Capital, the former venture capital unit of Lehman Brothers, and Redpoint Ventures.

"There is a lot to like" about eBureau, said Ben Boyer, managing director of Tenaya Capital in Menlo Park, Calif., which oversees a $365 million venture fund. "I initially thought the value was that eBureau had better data. But now, I believe the data is good but also publicly available. What they do with it is unique. They're taking predictive analytics to online marketing, a growth engine."

Minnesota expertise

Predictive analytics, a key component of an emerging industry known as business intelligence, is nothing new. And Minnesota companies have played important roles in advancing the science. For example, catalog retailer Fingerhut, now based in Eden Prairie, helped pioneer the science by predicting which customers would pay their bills on time, often by focusing on seemingly trivial information such as whether the customer used a pencil or pen to fill out a credit application.

"Culturally, they were really ahead -- way ahead -- of any other company in using data to predict outcomes," said Meyer, who spent 10 years overseeing Fingerhut's debt and collection policies.

Fair Isaac Corp. of Minneapolis developed complex mathematical equations, called algorithms, to create its dominant FICO system -- a credit score based on facts such as a consumer's payment history and debt ratios. Banks and mortgage companies use FICO scores to set interest rates and to determine what, if any, loan a consumer should get. IDeaS Revenue Optimization Inc. of Bloomington also uses advanced math to continuously calculate hotel room prices based on shifting demand and occupancy. Last year, SAS Institute Inc., the world's largest private software maker, acquired IDeaS for an undisclosed sum.

"Business leaders expect to make smarter or more timely decisions based on better information than the competition in order to increase their market share, increase the effectiveness of marketing campaigns, enter new markets and ultimately deliver more products and services to more customers," Boris Evelson, an analyst with Forrester Research in Cambridge, Mass, wrote in a recent report. "Business intelligence is the key to providing the right information to the right business stakeholders."

According to a Forrester survey, 40 percent of information technology executives in North America and Europe plan to implement or expand their use of business intelligence software over the next 12 months while 28 percent said they were thinking about it.

But the market remains highly fragmented. For companies to fully benefit from the technology, they must think holistically about business intelligence, Evelson said. In other words, it's not just the predictive software that makes business intelligence valuable but also how you collect, store, retrieve, shape and present the data.

EBureau's technology is not simply one product but rather a system, or "architecture," that can expand quickly to serve multiple industries, including retail, financial services and higher education, in a cost-efficient way, Boyer of Tenaya Capital said. For example, the company built and operates its own data warehouse, whereas most companies rent such services from companies like Oracle.

"We needed something really robust, to get data out of [the warehouse] really fast," Meyer said.

EBureau also developed software to integrate and manage data from 3 billion new consumer records it collects each month stored in thousands of databases across the country. The company obtains a wide swath of information including credit reports, property records, dates of birth, telephone numbers, addresses, household demographic data, Internet purchases and bankruptcy filings.

From this data, eBureau compiles its eScores based on a statistical modeling technology that identifies customers most likely to buy a given product. Companies can then pursue customers worth chasing, instead of wasting time and money on dead ends.

Such a service would be especially useful to online marketers. Over the past few years, companies blindly shifted advertising from television and newspapers to the Internet without knowing which ads work or whether the ads lead to real sales. The next generation of online ads will be "performance-based," Boyer said.

"EBureau is able to sort through huge volumes of information to help their customers predict which potential customers are the most attractive prospects," said Michael Gorman, managing director of Split Rock Partners. "More importantly, their technology platform enables them to perform this analysis instantly, which is critical for online commerce applications. As billions of marketing dollars migrate from traditional channels to the Internet, the ability to optimize marketing spending is in high demand."

Meyer said money from Tenaya and Redpoint boosted eBureau's profile in tech circles.

"To make a statement, we needed bona fide Silicon Valley VCs to back us," he said.

Thomas Lee • 612-673-7744