BI Industry Shines Despite Vendor Consolidation, Economic Woes

In spite of consolidation and a weaker U.S. economy, the BI industry increased at near-breakneck speed, growing 13 percent in the last year.

If you thought last year, when the three biggest publicly-traded business intelligence (BI) stalwarts were acquired in less than 10 months, you'd see havoc in an already iffy BI industry outlook, you'd be wrong. Dead wrong.

True, former BI high-flyers Hyperion Solutions Corp., Business Objects SA, and Cognos Inc. were acquired by Oracle Corp., SAP AG, and IBM Corp. respectively, and a worsening economic outlook (complicated by a deepening sub-prime mortgage crisis) did result in slower-than-expected IT spending.

Even so, all was well in the bustling (indeed, bristling) BI segment.

A year's worth of unprecedented consolidation did nothing to dim BI industry hopes, according to market watcher Gartner Inc. For the year, Gartner says, the BI industry grew at a healthy (indeed, at a near-breakneck) clip, growing 13 percent.

Gartner cites a few caveats, of course -- starting with the weakened value of the U.S. dollar, which makes U.S. software less expensive overseas (boosting unit shipments and revenues) and, simultaneously, drives up the cost of software stateside (boosting revenues). All things considered, the industry seer concludes, last year's performance seems indicative of a robust industry.

Robust, yes -- and remarkably streamlined as well. According to Gartner's analysis, a Gang of Four -- namely, IBM, Oracle, SAP, and Microsoft Corp. (the only one of the three that didn't have big-budget BI acquisition last year) -- controls slightly less than 60 percent of the overall BI market.

Intriguingly, none of these vendors is a BI or performance management (PM) specialist -- although three of them (IBM, Microsoft, and Oracle) do develop market-leading relational databases, while the fourth (SAP) is one of the world's largest producers of enterprise software.

It's worth noting that SAP NetWeaver BI -- the former SAP Business Information Warehouse -- has an enormous presence in customer accounts (some 12,000 installations, according to SAP), making NetWeaver BI one of the industry's most pervasive products.

What's interesting, Gartner indicates, is that -- BI Gang of Four or no -- the BI space isn't really all that consolidated. To put it another way, even if IBM, Microsoft, Oracle, and SAP do garner two-thirds of BI industry revenues, there's still plenty of activity in the remaining quarter, thanks to a combination of start-ups and stalwarts that are agitating to keep things interesting.

"Taking all the consolidation into account, the large stack vendors Oracle, SAP, IBM and Microsoft have raised their market presence during the course of 2007 from just over one-fifth of the market to owning close to two-thirds by the end of the year," said Dan Sommer, senior research analyst at Gartner, in a statement. "That marks a pendulum shift from a market driven by best-of-breeds to one dominated by megavendors," Sommer continued. "However, many smaller independent BI vendors grew faster than the market, and we expect continued innovation and new vendors to enter the market."

Last year, Business Objects was number one in terms of overall BI platform revenue (controlling nearly 20 percent of the market entire), followed by an independent BI power, SAS Institute Inc., which controlled almost 15 percent of BI revenues. Call SAS an outlier: rounding out the top five were mega-vendors (or their stewards): the former Cognos (with nearly 14 percent of BI market share), Microsoft (with nearly 11 percent share) and Oracle (with 9.4 percent share).

With SAP's acquisition of Business Objects, Gartner notes, the combined entity now accounts for more than a quarter (26.3 percent) of global BI revenues. Adding IBM's BI tally to that of Cognos catapults the pair into what Gartner describes as a "virtual tie" -- with BI independent SAS -- for second place. Meanwhile, the combination of Oracle and Hyperion also shakes up the market, launching the database giant into a virtual tie with Microsoft for fourth place overall.

As expected, year-over-year growth hit a snag in North America, thanks largely to the plummeting value (and decreased stateside buying power) of the U.S. dollar. It was a double-digit slip: compared to 16 percent growth in 2006, BI industry growth last year clocked in at a disappointing 5 percent. Happily, a devalued dollar significantly boosted BI exports, resulting in "buoyant" spending outside of the U.S., according to Gartner.

The market-watcher projects more of the same in 2008 and beyond. "A weakening dollar and a slowing economy means vendors will have to get used to a much larger proportion of vendor revenue coming from outside of the United States," said Sommer.

International splurging on BI technology wasn't just a function of a devalued dollar, Gartner indicates. In fact, depressed markets (e.g., France and Germany) roared back to life in 2007, notching impressive growth -- even after taking currency fluctuations into account.

"BI spending in the emerging regions of the world continued to grow aggressively, but also countries in Western Europe, especially Germany and France, showed surprising growth when discounting currency fluctuations, after several years of morose spending," Sommer concludes.