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11/12/2007
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What IBM's Cognos Acquisition Means For The BI Market And Its Customers

Half of the BI tools market will now be owned by the big four: IBM, Oracle, Microsoft, and SAP.

IBM's planned $5 billion acquisition of Cognos cements the inevitable: the days of buying business intelligence tools from an independent software vendor are drawing to an end.

Within one year, the market for traditional, front-end BI software -- the reporting and analysis tools used primarily by executives and financial and business analysts and managers -- has undergone a major shift from one dominated by independent vendors to one that will soon be dominated by the world's largest software companies. IBM's planned acquisition of Cognos follows SAP's pending acquisition of Business Objects for $6.8 billion and Oracle's acquisition of Hyperion for $3.3 billion.

With this shift, half of the roughly $5-billion-a-year market for reporting and analysis tools will be owned by SAP, IBM, Microsoft, and Oracle. After that, share sharply drops, with SAS, MicroStrategy, and Information Builders each owning less than 6% of the reporting and analysis tools market, according to an IDC report based on last year's sales.

The Cognos acquisition will leave privately held SAS as the only remaining independent BI vendor with annual revenues of more than $1 billion (it's revenues hit $1.9 billion last year), but most of SAS's sales come from the higher-end niche area of BI known as advanced analytics. Next in size among the independents would be MicroStrategy, which sells primarily reporting and analysis tools and reported revenues of $313.8 million last year.

Both benefits and cautions come with the shift in market ownership of reporting and analysis tools. With the consolidating software industry, CIOs and IT managers regularly cite the benefits of having fewer vendors to deal with and manage. If vendors do the integration work they promise, it might also prove beneficial to purchase front-end BI from the same vendors who sell the apps that contain core business data: Oracle, Microsoft Dynamics and SAP enterprise-resource planning applications, and Oracle, Microsoft and IBM databases.

Yet the remaining independent BI vendors like to argue those large software vendors' ongoing acquisitions is creating stockpiles of un-integrated software, and could spell trouble for those vendor's customers.

After SAP's acquisition of Business Objects, for example, MicroStrategy issued a statement that "Business Objects needed to be acquired" because it was a company weakened by having accumulated so many non-integrated technologies through its own acquisitions, in a market where "organic technical integration" results in the best BI software. MicroStrategy also claimed that unless SAP maintains Business Objects purely as a portfolio investment, it's likely SAP would change Business Objects' architecture to improve integration with its ERP software, causing Business Objects customers to potentially undergo "major migrations."

Cognos Gives IBM The Front-End Tools

IBM's acquisition of Cognos is an extension of its database-oriented "Information On Demand" strategy it's talked about over the past few years, which includes many investments in technologies to cleanse, organize and store data. Cognos completes the Information On Demand picture for IBM by providing the front-end tools for accessing cleansed and organized data.

IBM's Information On Demand has largely been a strategy of acquisitions: data-integration vendor Ascential for $1.1 billion; content management vendor FileNet for $1.6 billion; metadata management company Unicorn; natural language search company iPhrase; customer data integration company DWL; and identity resolution company SRD. Some of that technology, particularly what IBM got from Ascential and Unicorn, make up IBM's Information Server, a package comprising several WebSphere application servers that conduct various data-integration tasks.

Yet even as they acquire, the big vendors are also making efforts to keep BI choices open to customers. IBM, for example, was likely already engaged in acquisition talks with Cognos when it announced last month a deal it reached with Business Objects, which will soon be owned by SAP and is Cognos' top competitor. Under that deal, Business Objects will distribute and resell IBM DB2 Warehouse with Business Objects XI and CFO Performance Management software, and IBM will distribute a limited license of Business Objects XI with DB2 databases and warehouses.

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