Cognos CEO Rob Ashe was indulging in a bit of Friday afternoon golf when he took the $5 billion call. He claims the acquisition proposal from IBM’s information management chief Ambuj Goyal in mid-October came as a shock to him – even though observers had been speculating about IBM’s interest in the business intelligence (BI) software vendor ever since the two had formed a sales partnership back in 2006.
Throughout that time, he had professed the importance of Cognos staying independent. But the extraordinary events in the BI market over the past year, with the whole upper layer of the sector all but consolidated out of existence, had clearly caused him to redefine his notion of independence.
Following Oracle’s acquisition of Hyperion Solutions in 2006 and SAP’s move to buy out Business Objects this October, Cognos was beginning to stand out as one of the last major specialists in BI tools. After decades of battling with a close group of peers, the company was facing much more formidable competition: the two partners-turned-rivals, Oracle and SAP, and the mighty Microsoft – all companies with strong enterprise resource planning (ERP) portfolios that they believe dovetail well with BI.
As Ashe observes: “Both SAP and Oracle exercise a lot of influence on [customers] accounts. We have to make sure we are equipped through our distribution capabilities so that we can compete with that influence.”
That being the case, Ashe was happy to listen to Goyal’s arguments: If Cognos is “going to be independent in the market, it has to go to the only other person who’s really independent – no ERP affinity”, he recalls the IBM executive saying.
And that had to be IBM.
Independence, of sorts
In the area of business intelligence and performance management, Ashe observes, “buyers like a player who is independent of the ERP system. They are going to have many data sources, many ERP systems, different transaction processes. The prevailing wisdom is that when these BI vendors get aligned with ERP players, the BI vendor will make the ERP vendor’s infrastructure its first priority.” And that is not universally appealing in a world of data heterogeneity.
"Both SAP and Oracle exercise a lot of influence. We have to make sure we can compete with that influence"
Rob Ashe, Cognos
A recent study by Wall Street financial house Goldman Sachs highlights how 60% of BI purchasers prefer to buy from a company that is independent of any underlying data or applications structures.
But it was not just independence – albeit IBM-style – that convinced Ashe to recommend a sale to shareholders. With its competition now in the multi-billion dollar range, Cognos needed greater size and reach into client accounts. And Goyal assured him, “We can provide scale like you’ve never seen.”
Certainly, a look at Cognos’s balance sheet wouldn’t suggest a company with many other pressing needs to sell. The company has come through the teething problems and uncertainty of a major new product release. Cognos 8, a major revamp of the toolset, now brings in 80% of new revenues and about 15% of existing customers have upgraded.
Alongside its traditional business intelligence base, the company has aggressively positioned itself in the performance management arena, with an integrated toolset that rolls business-wide performance metrics up for senior managers, with tools for monitoring and measuring, scorecarding, planning, reporting and analysis.
To support that – particularly in the area of financial performance management – Cognos has just completed an acquisition of its own. In September it spent $339 million on Applix, a specialist in ‘deep analytics’.
Behind these moves is a picture of solid financial health. Revenues in its latest quarter rose 10% to $252.4 million, with licence sales – the key measure of future prosperity – up 12%. That generated profits of $26.5 million, also up 12%. The company is now on target for $1.1 billion in revenues for its fiscal 2008 to the end of February.
The sustainability of that profile depends on whether Cognos, or its rivals, have read customer aspirations correctly – whether ERP-centric BI is more valued than data source-agnostic BI.
IBM is already emphasising the openness of Cognos; it wanted a BI product line that would add a front-end analytics flavour to its Information on Demand strategy – the company’s multi-billion dollar initiative to deliver a rounded set of information management software. That has been fuelled over the past 18 months by the bringing together of IBM’s own historically strong products in this area – its DB2 database and WebSphere data management products, in particular – with a string of key acquisitions that have included FileNet (for content management) and Ascential and DataMirror (data management and integration technologies).
As with these latter products, IBM says it will keep Cognos independent of the IBM back-end technologies so that customers running the BI product with Oracle or another database should be confident of ongoing development and support.
IBM’s ambitious Information on Demand strategy certainly seeks to address some of the same fundamental demands that Ashe is seeing in the market.
“There has been a significant shift of budget dollars to line-of-business projects that can clearly improve performance, and those are usually information-intensive applications where companies are looking to use data more effectively at the point of impact in the business,” he says. “So you see very significant demand to make sense of the huge investment that these companies have already made in data. And they think BI and performance management is where it is at.”
The second aspect he highlights is a trend towards standardisation and cost of ownership. That translates into fewer tools in the organisation, as companies seek to pursue common, transportable skill sets, lower maintenance cycles and less hassle with vendor relationships.
That is a message that is also coming from the remaining large independent players in BI tools. They are now an interesting bunch. SAS and Information Builders are privately owned and still run by their founders; alongside them, MicroStrategy is publicly listed, but founder and CEO Mike Saylor has structured the shareholding in such a way as to provide tight control.
For IBM, the Cognos acquisition does represent a departure. The company’s software strategy has historically drawn a line across the software stack below applications, with the company’s investments targeted at infrastructure and back-end software. Cognos – with its analytical tools and applications for finance, HR and marketing management – takes IBM into the front end, putting the software in front of the end-user. Whether this is an overture to a wider role in the applications market remains to be seen – but, in his first few months as the head of IBM’s new BI division, that is not something that Rob Ashe is likely to be lobbying for.
Business intelligence market consolidation SAP buys Business Objects; Cognos buys Applix
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