With the software dating game once again at the boil, some investors are beginning to focus on

MicroStrategy

(MSTR) - Get Report

, a software vendor with a volatile trading history, a package of highly regarded technology, and a penchant for ignoring Wall Street.

Not everyone likes this stock -- and a February downgrade by Deutsche Bank took a bite out of its market cap -- but MicroStrategy is easily outperforming the competition. Since mid-August, MicroStrategy has appreciated by 126%, while rivals

Business Objects

( BOBJ),

Cognos

( COGN) and

Hyperion Solutions

( HYSL) have gained 49%, 48% and 41%, respectively.

A note this week by First Albany analyst Mark Murphy, written after MicroStrategy announced a $3 million deal, sums up much of the bull case. "This large win exemplifies many of MicroStrategy's recent large deal wins: a competitive win with a new customer; a win based upon technological superiority under intense testing scrutiny; and a win partly based upon new technology features (reporting) that MicroStrategy lacked 18 months ago."

Murphy also noted that MicroStrategy scored the big win despite its product's higher price tag, an interesting departure in an age of brutal price slashing. (First Albany doesn't have an investment banking relationship with MicroStrategy.)

At a time when more and more software is becoming commoditized, having a strong differentiator is all the more important. MicroStrategy's business intelligence software offers a large number of users the ability to sift through massive amounts of corporate data and receive answers to extremely complex queries. "Once you decide that your problem needs that type of solution, there's really no competition," said Rob Tholemeier, an independent strategist who has followed the business intelligence market for years.

The core market for business intelligence products grew by about 4.5% to roughly $3.5 billion in 2004, and is expected to grow by another 7.5% this year, said Dan Vesset, an analyst for market research company IDC. Although detailed numbers are not yet available, MicroStrategy likely ranks among the top 10 vendors, but is probably not in the top five.

Still, the company grew smartly last year, boosting revenue by 32%, license revenue by 26% and earnings per share by 142%. Of its major competitors, only Business Objects grew license revenue faster -- 72%.

Meanwhile, M&A is once again high on the agenda in the software sector, where companies tend to have large hordes of cash, and customers have tired of dealing with multiple vendors. Just this week,

Oracle

(ORCL) - Get Report

and

SAP

(SAP) - Get Report

fired the

first shots in a bidding war to acquire

Retek

( RETK), a leader in the market for retail management software.

Now that business intelligence has become a mainstream corporate tool, software vendors like

Siebel Systems

( SEBL), as well as Oracle and SAP, are adding to their larger offerings, or suites. Vesset thinks that Siebel or SAP are the companies most likely to bid for MicroStrategy. Less likely are Oracle and the pure-play business intelligence companies, all of whom may have too much overlap with MicroStrategy.

It's important to note that MicroStrategy CEO and founder Michael J. Saylor holds a significant percentage of the company's 16 million outstanding shares, and it would be difficult, and maybe impossible, for MicroStrategy to be the subject of a hostile takeover, analysts say. According to filings with the

Securities and Exchange Commission

, he owns nearly 6 million shares of Class A and convertible Class B stock. (The company last reported about 16.2 million shares outstanding.)

But for all of its technological prowess and surging revenue growth, the company's reputation for arrogance has turned off customers and partners -- a dynamic not lost on Wall Street. In downgrading MicroStrategy to sell in February, analyst Thomas Ernst of Deutsche Bank said he surveyed numerous key customers who were either upset about price increases, or in the case of at least one integrator, were receiving poor feedback from their customers about MicroStrategy.

A senior industry analyst, who asked not to be named, said many customers are furious over recent increases in maintenance fees, "which were very low when the company hit a trough a few years ago and it needed to pull customers in. You have to wonder how IT executives can bring those enormous hikes to their boss," he said.

Why did the industry analyst prefer to remain anonymous? "MicroStrategy punishes

industry analysts who say negative things," he said. Since financial analysts are somewhat harder to control, Saylor has taken a different tack -- deny them as much information as possible under the law.

Guidance is a thing of the past, and so are numerous other bits of data that securities law does not mandate for disclosure. The silent treatment seems to extend to the financial press as well. MicroStrategy this week ignored numerous requests by

TheStreet.com

to explain its disclosure policy.

"Saylor is a man on a mission and he just sees Wall Street

and the press as something that slows him down," the industry analyst said.

Deutsche Bank's Ernst also fretted that too much of the company's license revenue was likely to be nonrecurring, since much of the upside was derived from a license audit of existing customers.

Ernst apparently has some anxious company; short interest in MicroStrategy has increased for two straight months, including a 21% rise in February, and now stands at 10.8% of the float. (Deutsche Bank does not have an investment banking relationship with MicroStrategy.)

Also of concern: the stock's high volatility. "It can lose 20 points at the drop of a hat," said First Albany's Murphy. Indeed, according to Thomson First Call, the stock has a beta -- its measure of volatility compared with the market -- of 2.53, compared to 1.8 for Cognos, 2.23 for Business Objects and 1.74 for Hyperion.

MicroStrategy is not the easiest company to like, and it has plenty of warts. It's also far from clear if it will be bought out.

But it's proven a resiliency. A lot of companies would have disappeared after a fall as precipitous as MicroStrategy's in 2002, when it lost billions of dollars in market capitalization. And it appears to be in the right market at the right time.