In-Depth

BI Vendor Consolidation: A Necessary Evil

Analysts warn that this summer's wave of consolidation is just the beginning

• By Stephen Swoyer
• 09/03/2003

Analyst firms and other industry watchers have warned that the wave of consolidation that rocked the BI space this summer is a sign of things to come.

BI professionals—the ones with whom we spoke, anyway—seem stoically resigned to market consolidation, in spite of the risks posed by anti-competitive acquisitions and vendor bankruptcies. Many view it as a necessary evil of sorts.

Take Wayne Leishman, a technical architect on the EAI team with financial services firm Canada Life. “I think a certain amount of consolidation is inevitable and good. There are too many vendors doing the same things,” he suggests. “It is difficult for the "little guys" to survive against the big established players who … are already well known in the space, … have the cash to gobble up their competitors, and … can weather the downturns in the economy. It's a real survival of the fittest these days.”

Research firm Meta Group has speculated that competitive concerns will drive further consolidation in the BI market, as small or mid-size vendors look to shore up their positions relative to powerhouses such as Business Objects SA and Cognos Inc. (See http://info.101com.com/default.asp?id=2490 for details.) For struggling vendors, such as former extraction, transformation, and loading (ETL) specialist Sagent (acquired by Group1 in April) or Brio Software Inc. (Hyperion Solutions Corp. picked up the company in late July), this can be a blessing.

In such cases, BI professionals are inclined to be more generous about prospective acquisitions or mergers. “I would be lying if I didn’t say that I have had my share of doubts about [Brio], but this [acquisition by Hyperion] makes me feel better,” says a Brio report developer with a financial services firm. “Before I used to think that even [Brio] believed all of the rumors about their demise, but with Hyperion, I am confident that [Brio’s products have] a future and we will at least be supported.”

Canada Life’s Leishman agrees. “For many companies being acquired … can be a good thing, especially if they are struggling along trying to get noticed along with many other vendors,” he points out. “Many of these struggling companies have excellent products, and when they are acquired it gives their product a chance to survive and be noticed.”

For many users, Oracle Corp.’s recent hostile takeover bid for PeopleSoft Inc. has highlighted the dark side of the consolidation craze—the anti-competitive acquisition. Critics have charged Oracle with trying to disrupt PeopleSoft’s relationships with customers in an attempt to destroy the company as a viable competitor. In this respect, the professionals with whom we spoke are understandably wary of similar maneuvers in the BI market place.

“Well, it always comes down to, are they buying them for their products or their clients? I have been through acquisitions for both. [And it is] always interesting,” comments a Crystal report developer with a national payroll services vendor. When asked last month for his take on Business Object’s planned acquisition of Crystal Decisions, this developer expressed concern that the buyout was an anti-competitive action. “I am wondering if they will continue developing Crystal or if they are buying them to eliminate competition,” he conceded.

At least one analyst firm—Meta Group—has advised clients to prepare for the inevitable by standardizing on a platform from one of today’s BI market leaders. The idea, the firm says, is for companies to gradually grow their investments in a single vendor’s technology as that vendor enhances its product stack. The upshot, it speculates, is that after the trend of consolidation plays out, a handful of vendors will be able to address about 95 percent of customer requirements.

The BI professionals with whom we spoke don’t exactly endorse this proposition, however. Most feel that small or point vendors are an important alternative to their larger, pricier competitors. As the market consolidates around ever-larger companies, these professionals worry that small companies, with less cash to spend, will increasingly find that they have fewer options.

“My opinion will be different if I'm the decision-maker in a smaller company versus a large company with a lot of money,” points out Canada Life’s Leishmann. “If I'm with a smaller company, I may not have the money to toss around on name-brand products from the big vendors. … If I'm with a larger company with some cash, and where risk is more magnified, I'm more likely to look at financially sound vendors who are established and leaders in their space.”

The reporting professional with the financial services firm introduced above worries about the opposite phenomenon—small or medium-sized BI vendors trying to swim upstream, so to speak, to position themselves against the ascendant BI powerhouses. “My concern is that these companies will over-extend themselves because they believe that they have to make acquisitions or merge to protect themselves,” he observes. “They’re doing all right where they are, but what they’ll end up doing is getting in over their heads—and then they’ll get ‘rescued’ by a larger competitor.”

Ironically, Meta Group has suggested that mid-size vendors such as SPSS Inc. and Information Builders—and even $1.1 billion powerhouse SAS Institute Inc.—should be prepared to make major pushes if they’re to emerge as dominant players and, presumably, retain their autonomy.