IBM to Acquire Cognos for $5 Billion

IBM’s bid marks the third acquisition this year of a prominent BI and PM pure-play vendor.

IBM Corp.’s $5 billion acquisition this week of Cognos Inc. is a watershed event. It marks the third acquisition this year of a best-of-breed business intelligence (BI) and performance management (PM) vendor.

More to the point, Big Blue’s move effectively eliminates the last of the big BI pure-play vendors. Along with competitors Hyperion Solutions Corp. (acquired by Oracle Corp. earlier this year) and Business Objects SA (acquired by SAP AG last month), Cognos was among the largest and most visible of BI and PM players. Its acquisition by IBM means that a private giant—SAS Institute Inc., which started out primarily as a purveyor of data mining and statistical analysis tools—is now the largest independent BI and PM player.

The move raises a number of questions—starting with the fate of Cognos’ client tools, from ReportNet to PowerPlay to inherited technologies such as the former Celequest dashboard and appliance technology (which Cognos acquired earlier this year). What will happen to the Applix TM1 OLAP technology and its associated assets (which Cognos picked up just two months ago)?

Given Big Blue’s traditional middleware-heavy emphasis—and even allowing for its extremely liberal understanding of what exactly constitutes middleware (e.g., its DB2 database)—the Cognos client tools face an uncertain future. Not so for the underlying technologies that support them, however. IBM officials talked up the importance of Cognos’ reporting and analytic capabilities, touting their "synergy" with Big Blue’s existing data-integration and content-management assets. In this scheme, Cognos’ back-end reporting and analytic technologies will join a teeming universe of IBM middleware technologies.

"[We are] providing business intelligence [solutions] that touch on many applications and many sources of data. We see [technologies such as] BI and master data management … as being horizontal. It is very much horizontal technology that cuts across all types of applications," said Steve Mills, IBM senior vice-president and group executive for the IBM Software Group, in a teleconference.

IBM and Cognos officials declined to say just how long the acquisition has been percolating, citing regulatory restrictions. Given statements Cognos officials made just last month in the wake of SAP’s acquisition of Business Objects, it probably hasn’t been in the works for very long.

At the time, Cognos talked up SAP’s move as a windfall that helped recast it as the unqualified Last of the Big BI Vendors. "The acquisition … presents a great opportunity for Cognos and validates the market vision we laid out more than six years ago—to be the leading independent provider of performance management solutions for customers," said Mychelle Mollot, vice-president of market strategy and strategic communications with Cognos. "Our single focus on performance management will enable us to innovate and respond to the changing needs customers better and faster than any other vendor out there."

Cognos’ Mollot also cited research from Goldman Sachs—the same research that Cognos touted after Oracle’s purchase of Hyperion—which found that more than 60 percent of CIOs preferred to purchase their BI solutions from an independent vendor, not an application or database vendor. "We welcome the removal of a competitor who was committed, as we still are, to being an independent player and giving customers equal access to their entire infrastructure, applications and data sources," she said.

In Monday’s conference call, Cognos CEO Rob Ashe acknowledged this about-face: "When this all began, the company was not for sale. We didn’t feel a great need to go and sell ourselves as a result of [the Business Objects] acquisition. In fact, we saw a great opportunity because of the dislocation in the marketplace."

Motives Behind the Move

What should we make of IBM’s acquisition? If nothing else, industry-watchers stress, it opens up a myriad of new questions.

"For years, IBM representatives have stressed that the products the Information Management group builds and buys are focused on the infrastructure level, despite an occasional foray into applications or tools that resemble applications," says Philip Russom, senior manager at TDWI Research.

No matter how IBM chooses to spin it, Russom stresses, Cognos is an applications company: "The Cognos acquisition clearly steps across the line in a big way, so it begs the question: Is this an exception to the infrastructure rule or is this a whole new rule? If it’s a new rule, the list of possible acquisitions we can expect from IBM just got a whole lot longer."

What will become of Cognos’ BI client assets? Russom thinks IBM will do right by Cognos customers. After all, he points out, Big Blue has considerable experience maintaining and supporting legacy tools—both its own and those it has acquired and/or inherited.

"People forget that Cognos still maintains its original, non-BI product called PowerHouse, which by now is a hoary and warted legacy, along with recent BI legacies like Impromptu and PowerPlay," he observes. "A few more legacies shouldn’t be a problem for IBM, which has long experience maintaining an elephant graveyard of products. Just look at the legacy databases IBM got by acquiring Informix in 2001, and, of course, the mainframe is one of the largest annuity businesses in the world of computing."

It’s with respect to OLAP that the acquisition is potentially most fraught with questions. Two years ago, IBM stopped reselling its DB2 OLAP Server (an OEM-ed—and substantially modified—version of Hyperion Essbase). Just recently, Big Blue announced new OLAP functionality (based on technology it acquired three years ago from the former AlphaBlox) for its DB2 Warehouse offering.

Cognos, too, manages a collection of OLAP technologies, from its own homegrown PowerPlay and ReportNet technologies to the TM1 in-memory OLAP engine it acquired from Applix. How IBM manages and reconciles these OLAP assets will bear watching, according to Russom.

"As with other BI-related acquisitions, this one involves a considerable product redundancy concerning OLAP. The redundancy is inevitable because there are multiple approaches to OLAP, and these are often embedded in multiple products of various types. For example, OLAP capabilities are available from Cognos ReportNet, Cognos Now!, and TM1, an OLAP engine recently acquired from Applix. Likewise, IBM resold Hyperion Essbase for years—which is similar to TM1—but switched to the OLAP capabilities of AlphaBlox, which are now embedded in DB2 9.5. Redundancy of this type always confuses the newly merged customer base, so IBM will need to differentiate these clearly."

A Long Time Coming

In the final analysis, says Wayne Eckerson, director of TDWI Research, this acquisition has been a long time coming.

"This was the one [acquisition] people thought would happen all along. I think for many of the others, we were a little bit surprised in the industry. This is not a surprise, because IBM and Cognos have partnered for a long time together. Cognos is the one BI vendor that’s implemented its architecture on SOA principles more than the others," Eckerson points out, noting that Cognos’ SOA underpinnings help make it more integration-friendly. "However, that doesn’t explain why they spent $5 billion for Cognos at this particular point in time."

When considering what accounts for the accelerated pace of consolidation over the last 12 months alone, Eckerson favors a domino theory explanation. "The leading BI players—Oracle, IBM, SAP, and Microsoft—and the companies that they’ve acquired represent two dozen or more companies that were standalone companies prior to [this round of consolidation]," he observes. "I think the BI vendors have seen for a long time that the ERP vendors and the big database vendors were going to come into this space, so they want to bulk up to prepare themselves which they did … through acquisitions. Ultimately, once one of them went and had a partner with big, deep pockets, they all had to go, so it’s kind of a domino effect".

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