Two large deals in the web analytics sector were announced Monday as Google bought San Diego-based Urchin,and NetIQ sold WebTrends to its management for more than $90 million. Google did not disclose the purchase price but industry analysts estimated the deal at about $30m.

[We had the tip that the Google/Urchin deal was in the works but couldn't confirm it in time...]

Eric Peterson, who watches the web analytics sector for Jupiter Research, said that the deals show how hot this space has suddenly become. Peterson noted that tag-based analytics -- in which JavaScript page tags are used to capture information about user behavior -- "are very much in vogue." Venture capital has been flowing into web analytics startups. "There is intense interest in tag-based analytics," he added.

While Peterson hasn't heard any specifics from either Google or Urchin, he believes there are several possible scenarios for how Google might proceed.

"My gut is that Google will do some version of giving Urchin away to marketers -- it may be just to AdWords customers, it may be to the entire world like Picasa, and they may go even further than that and give away hosted analytics to the world a la Blogger.

--The rest of the web analytics companies have to accept that Google has entered the web analytics market; and that will create pressure.

--Urchin in Google is much, much stronger than Urchin alone; and Urchin alone was not a bad little company.

--It is not completely unimaginable that Google would do this: they would say to their AdWords customers, or anybody in the world, 'We’ll give you tag-based analytics for free; and we’ll let you collect up to a million pageviews per month, and really improve the quality of your online marketing if you are underinvested in web analytics.' "

Google already provides some basic web traffic analytics tools and by providing sophisticated user behaviour information would help defend against Yahoo, Microsoft and other competing ad networks.

This would also likely create pressure on independent web analytics companies Peterson said:

"Our estimate is that web analytics is only 15% penetrated today. That creates tremendous upside; but most businesses aren't going to pay tens of thousands, or hundreds of thousands, of dollars for analytics. They may not even pay $500 for nominal analytics; but free is a great price, it is an absolutely great price. If Google were to do this, and I think this is the least likely of the scenarios, it would create tremendous pressure on the other players (such as ClickTracks, SaneSolutions and WebTrends). Some part of the market would say, 'I could get this for free from Google; and you’re telling me $12,000.' The difference between free and $12,000 is a big difference."

So where Google goes, can Microsoft and Yahoo be far behind?

"That's a really good question. With the flurry of activity in web analytics space ... after yesterday, honestly I wouldn't be surprised. I was pretty surprised, even as an industry analyst, I was pretty surprised by both of those events happening on a single day. So if someone called me tomorrow, and said Microsoft bought company X, I would probably just shrug and say, 'Of course they did.' "

While Google's entry into this space will be tough on some of the existing companies, Peterson said that, overall, "This is great for web analytics as an industry."

"It shines a bright light on the fact that marketers need to use web analytics to improve the quality of their pay-per-click marketing, their algorithmic search results, the quality of the web site, and their checkout processes. Analytics is fundamental to running an online business. Anytime Google does anything, the whole world sits up and takes notice; and now the whole world is going to sit up and take notice of web analytics.

The question of how it impacts the whole market, and how do software sales go in the market, is something we won't know until the end of 2005."

"Don't forget about the WebTrends deal," that's actually a "fairly significant announcement," Peterson said.

"In the Jupiter Research constellation from October 2004, they were very strong from a market suitability standpoint; but needed to do more to show the business value. We believe that one of the things that was holding WebTrends back from demonstrating that value was corporate control from NetIQ, particularly in expanding the size of the services organization and doing more to help analytics customers. In talking to Greg Drew (WebTrends' GM under NetIQ, and president and CEO of the new company), I believe they now have the opportunity to make the decisions that are best for WebTrends customers and their organization; and that is something their competitors will have to take a long, close look at.

"In a space where every deal is so closely contested, autonomy will allow them to be more aggressive, and to make different decisions. They’re a fairly aggressive bunch; and I think this autonomy will allow them to take advantage of that."

Eric Peterson is the author of the book Web Analytics Demystified. The full interview will be available shortly as a podcast.

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