Continuing Industry Consolidations Lead to BI Vendor Dichotomy

SAP’s acquisition of Business Objects underscores how BI vendors are splitting into two camps.

This week’s announcement that enterprise application giant SAP will acquire business intelligence leader Business Objects in a friendly takeover provides yet another example of the ongoing vendor consolidations in the BI industry. Neither company is a stranger to the acquisition game. Business Objects has made a score of acquisitions in recent years including Cartesis, FUZZY! Informatik, and Inxight in 2007 while SAP acquired OutlookSoft earlier this year.

Taking into account other 2007 acquisition events such as Oracle’s April acquisition of Hyperion Solutions and Cognos’ January acquisition of Celequest and its pending acquisition of Applix (which had acquired Temtec in June 2006), it serves to further demonstrate that the business intelligence market is not only consolidating but also evolving into a dichotomy of BI vendors. These are 1) the traditional business intelligence specialists that are expanding their BI platforms and 2) database and/or enterprise application vendors seeking to augment their product portfolio with BI technology. This has several ramifications for the business intelligence market.

From the user perspective, consolidations, while providing a source of capital to financially weak companies (certainly not the situation with Business Objects!) can lead to orphaned technology as a company that acquires another company doesn’t necessarily provide strong and continuing support for all of the acquired company’s products.

For example, I have previously speculated that, based on how Oracle aggressively markets its Oracle Database OLAP option over the Express multidimensional technology it acquired from Information Resources over a decade ago, Oracle’s continued support for Hyperion Essbase may ultimately suffer a similar fate. Even a company of Oracle’s size and presence can’t be expected to indefinitely support every product it obtains as a result of a company acquisition.

While at first it may appear that the acquisition of a BI specialist vendor might benefit other BI specialists that competed with the acquired vendor, it can also cause prospect organizations to question if the other BI specialist vendors will retain their independence and hurt the sales of those that may not be in the best financial health.

From a vendor perspective, it may cause independent BI specialists to expand their capabilities and augment their BI platforms to broaden their target audience and enhance their appeal. For example, a BI specialist may seek to offer its own data integration, data quality, performance management, and visualization technology rather than relying solely on partners. This allows the BI vendor to control the evolution of complementary technology while also appealing to user organizations that wish to deal with fewer vendors. It can, however, serve to derail some established partnerships especially when a vendor acquires a company whose products compete with one of the vendor’s existing partners.

After all, no matter how strong the relationship once was, a partner is unlikely to refer prospects to a company that now owns a competitor. Although SAP intends for Business Objects to operate as a standalone unit and thus continue to invest in its technology, the acquisition, which certainly enhances SAP’s BI and data integration capabilities, may ultimately be at the expense of some of SAP’s existing partners.

It should also be noted that acquisitions can sometimes serve as a defense against a hostile takeover. For example, when Cognos completes its acquisition of Applix, not only will it have acquired Applix’s powerful TM1 memory-based OLAP engine, it also will become a bigger fish for a potential suitor to swallow. (This was one of the tactics that PeopleSoft used when it acquired JD Edwards in PeopleSoft’s unsuccessful effort to try and prevent its hostile acquisition by Oracle.)

However, size alone may not be enough to thwart the acquisition attempts of major database and enterprise application vendors seeking to augment their BI portfolio and/or enlarge their installed customer base, especially if the acquisition target is not averse to being acquired. Rumors of the potential acquisition of major BI vendors including Business Objects and Cognos had resurfaced every six months or so and, with the Business Objects rumor now confirmed, it may not be long before its arch-rival Cognos becomes a target as well. Should this, too, come to fruition, it would further change the overall market dynamics and cast strong doubts about the future independence of other, less-established or less-successful BI specialists and the ultimate fate of some of their technologies.

When selecting a BI platform, prospects need to evaluate a vendor’s long-term viability and its ability to continue to invest in its technology as carefully as they evaluate the vendor’s products, services, and reputation.

About the Author

Michael A. Schiff is a principal consultant for MAS Strategies.