Enterprise software vendors are enjoying a buoyant market as companies turn to business intelligence to negotiate the downturn. But consolidation in the market may stifle innovation
Last autumn, Financial Director interviewed Chris Liddell, CFO of
Microsoft, during a particularly frenzied period of industry consolidation. The
news at the time was that German software giant SAP had just agreed to buy
Business Objects, a business intelligence (BI) software company. That news came
hot on the heels of Oracle’s agreed purchase of Hyperion, another business
intelligence software company.
During the interview, Liddell gave a “no comment” response when asked whether
Microsoft would snap up Cognos, one of the last remaining independent business
intelligence players. As it turns out, Microsoft didn’t. But that didn’t really
matter, because IBM duly obliged.
While all those deals from the second half of 2007 were not in the same
league as Microsoft’s recent $45bn courting of Yahoo, they were substantial
nonetheless. Business Objects went for almost $7bn, Cognos for almost $5bn and
Hyperion $3.3bn. As a result, the big four software vendors Oracle, SAP, IBM
and Microsoft now boast a huge proportion of the business intelligence market.
“Mega-vendors are beginning to dominate the business information market,”
explains Gartner analyst James Richardson. “In less than one year, Microsoft,
Oracle, SAP and IBM will have gone from accounting for one-quarter of the market
to owning more than two-thirds of it.”
Muscling in
So how has this seismic shift in the enterprise software market affected life
for finance directors? In the short term, at least, probably not a great deal.
But, in the long term, Oracle sees the Hyperion acquisition as a real
opportunity to muscle in on its fierce competitor, SAP.
“Hyperion is the latest move in our strategy to expand Oracle’s offerings to
SAP customers,” Oracle’s president Charles Phillips said at the time of the
acquisition. “Thousands of SAP customers rely on Hyperion as their financial
consolidation, analysis and reporting system. Oracle already has PeopleSoft HR,
Siebel CRM, G-Log, Demantra, i-flex, Oracle Retail and Oracle Fusion Middleware
installed at SAP’s largest enterprise research planning customers. Now Oracle’s
Hyperion software will be the lens through which SAP’s most important customers
view and analyse their underlying SAP ERP data.”
The statement was one of intent: Oracle, and in particular its aggressive
chief executive Larry Ellison, has the German software company firmly in its
sights.
Stifling innovation
Following IBM’s acquisition of Cognos in November 2007, the spate of
consolidation quietened down. And for good reason: there were not many BI
businesses left to buy and not many buyers to pick them up. The choice runs to
Microsoft, Oracle, SAP or IBM. One of the biggest concerns about this is that
innovation may well suffer as a result. Corporates that are now locked into
buying software previously bought from relatively small, nimble providers,
suddenly find themselves buying from companies with market caps that rival many
east European countries, with extremely powerful shareholders to boot.
A rare exception is the SAS Institute – one of the largest independent
enterprise software companies in the world. SAS enjoys annual revenues in the
region of $2bn and is still a wholly-owned private company. As a result, the
founders are able to run the company exactly as they see fit, without pressure
from institutional shareholders. Consequently, the company dedicates up to
one-quarter of its revenues to research and development – a figure well above
the industry average and the reason many industry commentators offer for its
success.
Spending one-quarter of revenues on product development is unlikely to be the
type of approach that the SAPs, Oracles, Microsofts and IBMs of this world take
to their recently acquired technologies. Integration overheads and a focus on
getting the best out of corporate synergies are likely to be their first co
ncern.
And these are also likely to impact on how reactive they are to customer
requests for improved features, performance and support of their products. In
spite of this,
Gartner
believes the BI sector will still go from strength to strength, reaching
compound annual growth rates of 8.6% until 2011.
There are several explanations as to why enterprise software vendors are
enjoying a buoyant market, despite the slowdown. The first is that an economic
slowdown plays into the hands of business intelligence having a better
understanding of how profitable (or not) certain parts of a business are is
crucial for companies to successfully negotiate an economic downturn.
Competitive co-operation
Another reason is that the sector has adopted a certain zeal for “co-opetition”,
a rather clumsy name for when participants in a market co-operate with each
other despite being fiercely competitive. Don Welker, a manager in the business
intelligence and analytics practice of consultancy company
Clarkston,
explained the consolidation craze in a recent white paper.
“The future of the industry will largely be driven by how these companies
with such strong partnerships are able to co-operate, yet still compete,” Welker
says. “Co-opetition is a model where the winner-take-all mentality is
substituted with the notion that a network of stakeholders co-operate and
compete in order to create maximum value. It is not uncommon today to have an
SAP ERP implementation that is hosted on IBM hardware with an Oracle database,
an SAP BW Enterprise Data Warehouse (EDW) with Cognos for analysis and reporting
and Hyperion for financial consolidation.”
But for how long? Following SAP’s acquisition of Business Objects, which
followed hot on the heels of its acquisition of Pilot Software, both of which
marked a major shift in corporate strategy, the CEO of the former Business
Objects, John Schwarz, sent an open letter to his customers to try and allay any
fears about product continuation or innovation. He heralded how Business Objects
would operate independently within SAP and that the software would be based on
open standards so that Business Objects customers who were not also customers of
SAP wouldn’t suffer. How long this remains true, however, is debatable. All
software acquisitions, at some point, are integrated into the acquiring
company’s technology.
In its Magic Quadrant for Business Intelligence Platforms 2008, Gartner says
this year reflects the tipping point for when the business intelligence market
moves away from being led by independent software companies such as Business
Objects, Hyperion and Cognos to a market led by super-vendors such as SAP and
Oracle. “Future BI investment decisions will be tethered much more closely to
strategic sourcing and will be more influenced by organisational relationships
with application and infrastructure vendors,” is the view from Gartner.
Into the fold
While the rampant consolidation of 2007 has left the business intelligence
sector almost unrecognisable from its previous state, there are mixed beliefs on
what it means for corporates. Some claim SAP was simply buying customers when it
acquired Business Objects and would soon incorporate those customers into the
fold; Oracle has long pursued a strategy of buying customers.
But while independent software companies, such as the SAS Institute, still
exist and new and improved technologies are developed by smaller start-up
companies, the so-called mega-vendors of SAP, Oracle, IBM and Microsoft won’t be
able to rest on their laurels.
As a result, corporate customers could get the best of both worlds – access
to new and better technology through their existing relationships while, at the
same time, cost reductions thanks to the economies of scale and synergies these
deals could bring.
BI’s continued growth
There are several reasons why business intelligence will continue to grow:
STRENGTHS AND WEAKNESSES OF THE MAJOR PLAYERS
arcplan – Independent BI vendor, which is strong in corporate
environments that have lots of heterogeneous technologies. Its CFO cockpit
product – an analytic and dashboard suite designed for finance users – is well
regarded.
Actuate – Open-source (the building blocks of the software
are available for scrutiny and development by anyone) software which is powerful
and scalable. Very well thought of in financial services and the public sector.
Board International – European business intelligence
company, which is particularly strong in the food and pharmaceutical sectors.
Business Objects – Before being bought by SAP, Business
Objects was the largest business intelligence software company in the world. It
has a full suite of BI tools and is particularly strong in the ‘on-demand’
sector.
Cognos – Acquired by IBM, it has long been a leader in the
BI world and enjoys a particularly strong enterprise level deployment. Despite
this, Gartner views its predictive analytics as weak.
Information Builders – Extremely scalable software (10,000+
user implementations) which is also sold through IBM as DB2 Web Query.
Microsoft – While PerformancePoint Server 2007 benefits from
tight integration with office products and SQL Server, its integration within
heterogeneous environments is not as well developed.
Microstrategy – Seen as a potential acquisition target of
Microsoft, Microstrategy is a well-regarded
BI company, which is particularly strong in the governance sector.
Oracle – Oracle can boast its own well-regarded BI platform,
as well as that of Hyperion, which it bought last year. The software can also be
deployed in non-Oracle environments.
SAP – Combined with Business Objects, SAP is the largest BI
vendor, more than twice the size of its nearest competitor. However,
implementation difficulties exist, according to Gartner’s research.
SAS – Particularly strong in advanced analytic and
predictive software, with offerings such as fraud detection and prevention –
recently announced a collaboration deal with Teradata.
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