BI market consolidation: What does it mean for you?

Whilst the credit crunch has impacted other sectors, the business intelligence segment is poised for strong growth. Stuart Lauchlan examines an industry that has been characterised by consolidation to find out how it is being reshaped - and what it means for customers.

By Stuart Lauchlan, news and analysis editor

"70% of executives in large multinational companies report that data is one of the most valuable corporate assets, but only 40% of executives are using data as a competitive advantage." That's the view of Sohaib Abassi, CEO of data integration firm Informatica, and it's one that goes a long way towards explaining the continuing appeal of the business intelligence (BI) sector.

While the bottom might drop out of other technology segments in the face of the credit crunch coming from the US, the BI industry appears poised for healthy growth. Worldwide BI platform revenues are expected to continue to grow at an 8.1% clip through 2012, according to analyst firm Gartner. This year the worldwide market for BI platform solutions should reach $5.8 billion, which would represent an 11.2% improvement from 2007 and seriously outpacing the wider applications software sector. According to a Gartner global survey of 1,500 CIOs, executives cited BI as their number one technology priority for the third year in a row.

"The fact that BI has held the top spot with CIOs in this survey for three years running makes us believe that BI will be more resilient against the effects of a possible downturn in IT spending than some other technologies," said Dan Sommer, senior research analyst for Gartner. "Furthermore, the survey indicates that CIOs are looking to increase their budgets for BI by about 11% this year."

That said, there will some slowdown in the near future. "Despite BI being a top priority for 2009 and beyond, we expect a downward-sloping growth projection because of product and vendor consolidation, which will be offset somewhat by larger sales forces behind some of the products," Sommer said. "Commoditisation of BI across the board, but in particular for query, online analytical processing, and reporting, will drive price points down. This will be partially offset by newer, innovative BI capabilities, as well as the general proliferation of BI, allowing it to reach more users within organisations."

Turmoil and consolidation

Still, it's encouraging that the BI market is still showing signs of life after a period of considerable turmoil and consolidation over the past two years with IBM, Oracle and SAP swallowing up Business Objects, Cognos and Hyperion Solutions. Since March 2007, the three enterprise giants have dished out $15 billion to bolster their BI credentials. Oracle offered $S3.3 billion for Hyperion, SAP pitched $6.8 billion for Business Objects while picking up Cognos cost IBM $5 billion.

Oracle rolled up Hyperion's EPM software with its own business intelligence tools and analytic applications, creating an expanded performance management system that includes planning, budgeting, consolidation, operational analytics and compliance reporting. Hyperion sells business intelligence tools and financial applications to corporations. The company's software is used to analyse business data, such as sales history, and for financial planning and budgeting. It also provides 'dashboards' or applications for that visually represent how a company is performing on a set of measurements, such as improving customer response time or meeting a sales objective. "The acquisition of Hyperion makes Oracle the category leader in the high-growth enterprise performance management market," said Larry Ellison, Oracle's CEO at the time.

It also gave Oracle another stick with which to beat arch-enemy SAP as a large tranche of Hyperion customers are also user of the German firm's software. "Thousands of SAP customers rely on Hyperion as their financial consolidation, analysis and reporting system of record," said Charles Phillips, Oracle president. "Now Oracle's Hyperion software will be the lens through which SAP's most important customers view and analyse their underlying SAP ERP data."

In turn SAP is looking to Business Objects technology to beef up its own arsenal against Oracle. John Schwarz, chief executive of Business Objects, described the partnership as an “unbeatable combination” which would bring more opportunities for both to gain market share. Business Objects has remained a standalone entity in order to keep exploiting horizontal markets.

The consequences of consolidation

With those two market leaders out of the way, speculation quickly mounted that Cognos would be the next to fall to a predator, but the fact that it was IBM came as something of a surprise to many. The acquisition was the biggest IBM had ever mounted, but analysts speculated that Big Blue was forced into action by the activity in the rest of the market. “Given the acquisitions around them, IBM could not just sit and wait,” said Andreas Bitterer, research vice president at analyst Gartner.

So is the market now about to calm down? It seems likely, reckons Bitterer, who noted that Microstrategy's ownership structure makes any takeover unlikely. “SAS Institute is the biggest independent out there but it is private so it is not so likely to be acquired,” he added, before making the claim: “This is the end of the BI market as we know it.”

But such consolidation was perhaps inevitable. “Market consolidation is a natural evolution. There was only so far the independents could take the BI market by itself,” said Helena Schwenk, senior analyst at the consultancy Ovum. “I think IT as an industry is maturing and likewise the BI sector within the IT industry is maturing.”

But what does the consolidation mean for customers? It impacts on them in a number of ways. Firstly, the consolidations will lead to vendors embedding BI functionality solutions within their service offerings such as CRM ERP or financial systems. This in turn is leading to new entrants to the market being much more focused on best-of-breed or niche market solutions. Finally, there is the move towards the software as a service model with BI on-demand making this technology more readily available to smaller companies in the mid-sized market.

Active and growing

Another development is the blurring of boundaries as BI starts to encroach on other technology areas. For example, Forrester Research cites the merging of BI and search technologies to provide business people with better context and information to make daily decisions. "As search and BI get ever closer, the lines could eventually blur to the point of simply going away," said Forrester in its 'Search + BI = Unified Information Access' report. “This will help bridge the artificial system boundaries between structured data and unstructured content. It will not only affect the interfaces we use to search for, discover, analyse, and report on what we need to know, but help us learn more about what we don't know."

This is one of the immediate advantages of convergence between BI and search - the ability to discover things you didn't know you didn't know. Forrester noted: "As search gets more powerful and begins to understand the meaning behind unstructured text, entity extraction and other linguistic analysis methods will be able to be used to reveal unforeseen and highly illuminating connections among documents or between documents and data."

There are other ramifications of the BI market consolidation that might benefit other vendors, including Abassi over at Informatica who cites his firm's continuing independence as a competitive asset. Oracle didn't acquire Hyperion to help SAP, he notes, it acquired it to put SAP out of business. As such it is highly unlikely that in future Hyperion will work as well with SAP as it does with Oracle, for example. At the same time, there are Hyperion users that are customers of both SAP and Oracle. They need to know that they can have access to their data so in turn it's in the best interests of SAP and Oracle that there are 'honest brokers' like Informatica that can keep them happy.

So the BI market evolves. It's active, it's growing – and some would argue it's not that much different to before. “The likes of Business Objects and Cognos have been acquired, but they are still around, it's just that they're having to spend more of their time dealing with their new parents problems,” said Jim Goodnight, CEO of SAS. “There has been a lot of mergers and acquisition activity. Some firms – such as Oracle – go after market share because they are no longer very innovative. Larry Ellison has admitted that he sees no more innovation in the software industry. SAP really needed to have a BI solution to add to their platform. It was honest of SAP to admit that its whole BI strategy was a failure. But the BI market is still one of the fastest growing.”

Other articles in this focus report:

• Business intelligence: Only the tip of the iceberg


• Data: Unused, unanalysed and undervalued?


• Business intelligence + enterprise resource planning = competitive advantage


• Business intelligence in action


• Business intelligence vendors