Business Intelligence's Feeding Frenzy

Thursday Dec 27th 2007 by Sean Gallagher
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Softness in the software market? Think again. While most of the big names have been snapped up by larger vendors, BI won't be cooling down anytime soon.

Despite concerns about a potentially weak 2008 for software companies, there's one sector of the business that continues to draw startups and acquisitions at a brisk pace: business intelligence software.

"Business intelligence is no longer a back-office, nice-to-have application," said Forrester Research analyst Boris Evelson. "It's the next business differentiator."

Variously called corporate performance management, profitability management, and a host of other names, business intelligence tools help companies look deep into their customer and transactional data to make decisions about how to run more effectively.

Increasingly, businesses are finding the ability to make those decisions highly desirable.

"Companies used to compete by being more productive," Evelson said. "But it's very difficult to compete today based just on price and services."

As a result, BI specialists have become prey in a mounting surge of consolidation. Beginning with Microsoft's purchase of ProClarity in April 2006, many of the independent BI software companies have since been snapped up in an rush of acquisitions.

"In that sector, there almost aren't any names left anymore -- they're all gone," said Robert Johnson, associate director of technology coverage at investment research firm Morningstar.

In March, Oracle acquired Hyperion Solutions for about $3.3 billion. In October, SAP upped the ante with its acquisition of Business Objects for $6.7 billion. And the next month, IBM announced its intention to acquire Cognos for $5 billion.

The remaining players, including SAS, MicroStrategy and Teradata, are likely to be in the sights of larger companies looking to cash in on what has become a full-fledged boom, according to analysts.

The reason for the consolidation isn't that BI software is being commoditized. Rather, it's becoming a major competitive advantage for both vendors and customers, according to industry watchers.

"The way [companies] compete today is, when I create a campaign, if my analysis of who my target customers are is better than yours, I'm going to get more customers," Evelson said. "That's a process run by BI applications."

The biggest business gains for customers is going to be in BI apps," he said, which is why the big software players -- "the Oracles, SAPs and IBMs" -- are acquiring BI companies.

According to a Gartner Research study published in November, Oracle's Hyperion was the market share leader in what Gartner labels the "corporate performance management" sector, with 20 percent of the overall software licensing revenue in the space in 2006.

But taken from a broader view -- online analytical processing tools as a whole -- Microsoft represents the largest player in the market, according to 2006 market share numbers from the Business Application Research Center.

Next page: Still plenty of room to grow.

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Either way, however, there's still plenty of room for growth in the BI market.

"I think the interesting thing here is when you talk to the independent BI players, they'll share with you the same metrics," said Credit Suisse analyst Jason Maynard during the company's 2007 Annual Technology Conference in November. "'We're only 10 to 15 percent penetrated in the user base, we have a huge opportunity, open field, it's green, we can go sell forever in there.'"

With this kind of attitude, it's not surprising that new BI startups are springing up rapidly.

"I track over 300 BI companies now," Evelson said. Some are software-as-a-service efforts; others, like JasperSoft and Pentaho are based on open-source software models.

Yet all may not be as rosy in the BI world as those figures may suggest. In spite of the growing attraction from both customers and vendors, BI remains difficult to implement.

"I've talked to a lot of customers about business intelligence and the one thing that they tell me is it's really hard to use," said Peter Klein, the chief financial officer for Microsoft's Business Division, during at the Credit Suisse conference.

"'I'm not getting the value out of the investment that I made,'" Klein said customers had complained. "'I have invested a lot in my back-end systems, and today 10 percent or less of my employees actually touch it, or get access to the data. I've got six different BI solutions across multiple different departments, none of which talk to each other. And they're hard to use, so I've got to send people to training for two weeks to learn how to use it."

One fortunate outcome of BI's integration difficulty, however, has actually benefited the industry. Namely, the challenges of implementing BI have prevented it from becoming commoditized, Evelson said.

"Even though the market is consolidating, it's not commoditizing," he said. "It's all about customization, and understanding customer requirements, and tweaking. It's still very much an art and not a science."

Because of that, business intelligence has become a major driver of services business -- with $5 to $7 in service revenues for every dollar spent on BI software, according to Forrester Research.

"There are now 100-plus BI consulting companies," Evelson said. "It's like a feeding frenzy."

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