Before creating the web analytics service application, ensure the services on server have the following services as stopped "Analytics Data Processing Service and Web Analytics Web Service.".
If the services are not stopped then the creation of the service application seems to fail.
Also before creating the web analytics service application the
Usage and Health Data Collection and the Session State Service Application have to be provisioned on the farm
1. Navigate to SharePoint 2010 Central Administration.
2. Select Manage service applications under Application Management.
3. Under the New option, select "Web Analytics Service Application"
4. A form is displayed which requests the user to enter a name for the service, an app pool account, the database server name and two databases, one for the reporting and one for the staging database.
5. Once this is entered, click ok and the service will be created
6. Navigate to the services on server page and start the Analytics Data Processing Service and Web Analytics Web Service. If you have a farm environment, then start it on the server where you want the services to run
7. Navigate to the Central Admin page and select - "Monitoring"
8. Click on "Configure usage and health data collection" and choose the logs that are required.
9. Test whether the reports are working by selecting Monitoring from SharePoint 2010 Central Administration and then select View Web Analytics reports under Reporting