Conventional wisdom has it that large-scale mergers and acquisitions in IT all too often fail to live up to expectations; deals in software being the most likely of all to run into difficulties.
So it takes a brave – or foolish – executive board to bet their company on an acquisition. But this is exactly what Business Objects has done by buying Crystal Decisions, a fellow business intelligence vendor. At a cost of $820 million in cash and shares, Business Objects’ CEO, Bernard Liautaud, is playing for high stakes indeed.
The potential rewards are vast, however. The deal, which closed formally in December 2003, immediately propels Business Objects to the front of the business intelligence race, putting it in a far stronger position to take on rival Cognos, the established market leader.
The fundamentals of the Business Objects/Crystal Decisions link-up appear sound. There is relatively little overlap between the two companies’ product lines and customer bases. Customers of Business Objects tend to use it as a standalone business intelligence platform, while Crystal’s core market is software developers looking to incorporate a strong reporting tool into their wares.
Business Objects’ decision to buy Crystal Decisions – whose board had started the public offering process – appears to have been driven as much by technology as any need to gain market share, suggest analysts. Nate Root of Forrester Research says that Cognos had moved ahead of Business Objects in reporting, with the launch of its ReportNet platform in 2003. Crystal’s reporting technology, Root believes, erodes much of that advantage.
The deal also brings significant new channels for Business Objects’ products. Crystal had 2,500 partners and 300 licensees and original equipment manufacturers (OEMs) including IBM and PeopleSoft, which incorporated the companies’ reporting tools into their own products. Forrester accepts that some Crystal partners – such as SAP and Microsoft – might now develop their own reporting tools, but that most OEMs will stay with Crystal products, bringing a valuable source of new business to Business Objects.
“The product lines have very little overlap, that is why the acquisition makes so much sense,” says Andreas Bitterer, a vice president at analysts Meta Group. “Business Objects’ reporting was not a viable product. Crystal Decisions is the de facto standard and widely used worldwide. The channels are also very complementary,” he adds.
Liautaud, for his part, has committed his company to maintain both sets of products. But he says that the underlying technologies will merge into a common platform. “Crystal has a very scalable architecture for information delivery and we will re-use that as the foundation for a number of our products. The intellectual property in Crystal’s report authoring tool is very hard to replicate,” he says. Liautaud adds that the enlarged company will still develop software for its two distinct markets – business users and developers. “It is as if a car manufacturer makes both sports utility vehicles and sedans from the same components,” he says. “We are not just going to produce a Model T Ford for everyone.”
Business Objects has also gone to some considerable lengths to reassure customers about the new product roadmap. The company has announced a three-stage integration plan, starting with a product integration pack and portal integration, moving to platform-level integration by the end of 2004, and complete integration in 2005.
Early feedback from customers and analysts seems positive. Credit card company MasterCard International, which uses both Business Objects and Crystal, says it believes that an integrated product will make its business intelligence work easier. “This acquisition brings together two important technology tools under one key partner,” says John Meister, vice president for technology at MasterCard.
“It is a good move that customers have alternative upgrade paths,” says Meta Group’s Bitterer. “No customer is forced down a particular road. But Business Objects will need to make it attractive for customers to upgrade to the joint platform, because this means quite some work for customers.”
As for the integration of the two businesses, Liautaud maintains that the highly complementary nature of the two companies’ product lines minimises the risk. “The difference here is that we are bringing together two very successful companies,” he says. “Both are growing, and are leaders in their space.”
But Business Objects faces two further challenges. First, it has to persuade users to upgrade to the new, common platform. Then, it has to convince both customers and shareholders that it can digest such a large acquisition.
Business Objects’ next biggest purchase, the $65 million acquisition of data integration software company Acta Technology in July 2002, was less than one-tenth the size of the Crystal deal. For Liautaud, it seems, the hard work has only just begun.