Consolidation buffets BI market.

In mid-summer, when a lot of software executives were walking the beach or working on their golf games, Hyperion Solutions announced it was buying a longtime technology partner, Brio Software.

The $142 million deal provided more evidence that in the business intelligence (BI) and business performance management (BPM) space, there's little time for relaxation. A long-predicted consolidation has started to sweep through the industry, which has long been divided among a group of very large and smaller--sometimes much smaller--players serving mostly mid-sized to multinational corporations.

The opening salvo in the shakeout was sounded in January, when Cognos acquired longtime rival Adaytum.

Since then, at least half a dozen deals have been announced, and more are certainly coming. Among the other significant deals made public to date:

* Business Objects SA is acquiring Crystal Decisions

* EAC is acquiring Comshare

* Actuate has acquired Nimble Technologies

* Ascential Software is buying Mercator Software

The consolidation has major ramifications for finance executives. BI and BPM (sometimes dubbed "CPM" for corporate performance management) systems--with their ability to tie together disparate groups and create a unified view of key numbers, then facilitate analysis of that data--have become increasingly widespread and valued in recent years. The onset of Sarbanes-Oxley rules, with their focus on internal controls and attestations, only promises to boost that value.

"From a macroeconomic basis, some of the activity seems to have a lot to do with the state of the economy and the lack of visibility into corporate earnings. That has raised the visibility of business analytics and performance to a much higher level," says Tom Malone, president and CEO of SRC Software, a CPM software firm based in Portland, Ore. "And that demand is causing every software company in any way related to the space to put up their antennae and [look to] large enterprises, whose needs have changed.

"When you get closer to the software space we're in, clients cannot be comfortable with looking at historical data through existing tools," Malone adds. "We're working in an environment where boards are no longer satisfied with an annual forecast. They're asking for a quarterly analysis that can model multiple scenarios ... CEOs are working in an era where plausible denial is dead ."

Market watchers say that Microsoft Corp. and database and enterprise resource planning (ERP) giants like Oracle Corp., SAP AG and PeopleSoft Inc. have been adding or planning analytic applications for their software suites, which puts more pressure on smaller players to bulk up in order to compete. Microsoft, in fact, was preparing to launch a beta version of its SQL Server 2000 Reporting Services in the fall.

Some attribute the merger surge in part to the attention that BI and BPM applications are drawing from C-suites. "The conversation level around performance management is elevating," says Rich Lanahan, vice president of enterprise planning and market development for Cognos. "More and more, we're not just talking to line managers, but to CEOs, CFOs and CIOs around the entire concept. The IT agenda is consolidation; finance and operations are looking for the best solutions for their needs."

Research suggests, however, that for all the noise about BI and BPM in recent years, no more than 15 percent of potential customers have acquired analytic systems. But they are perceived as a priority at many companies, and AMR Research reports that the market grew 6 percent last year and should grow at about the same rate this year, even as overall software sales are continuing to slide.

Bigger players are getting bigger, analysts and others say, in order to promote a "suite" of applications they can sell under one brand; where they see themselves as deficient, they are increasingly inclined to buy a rival that has strength in that area.

"More Like a Merger'

"The BO [Business Objects] purchase of Crystal is more like a merger," says Ted Dinsmore, the head of U.S. operations for London-based software consultant Conchango. "BO has a strong leadership position, as well as having tapped into a reporting tool vendor. There is some project overlap, but not a lot. It's more of a suite story."

"Offering a full suite of solutions is where companies are moving," adds Cognos' Lanahan. "It's not just the volume of dollars, but bigger deals that are a good measurement" of market penetration and success.

Hyperion's announcement about buying Brio cited the tools it would be gaining. "With Brio, we will gain one of the most innovative and pioneering companies in business intelligence, and our customers will gain integrated query, reporting and analysis tools that are renowned for their ease of use, quick deployment, scalability and remarkable power," noted Hyperion CEO Jeffrey Rodek. He added that the deal would enable Hyperion "to deliver a complete solution for business performance management that unites strategic and day-to-day decision making."

Adaytum offered "a very capable, forward-looking information management system that does planning, budgeting and forecasting," says Cognos' Lanahan. That's key, he adds, because "that planning system equals performance management. Once that is solved, finance is then positioned to use that tool to be lead partner in information management across the organization."

Dinsmore believes that Oracle and Microsoft are vital players in the broader view of the business intelligence market, while "the niche players are suspect--Actuate, MicroStrategy or Information Builders all need to get bigger. Clearly, with Microsoft bringing out the [SQL Server] Reporting Services in September-October, competitors will all need to be in suites," Dinsmore adds, projecting additional consolidation over the next year.

"I do think that Microsoft must move up the enterprise software ladder," says Malone. "That will hit [Hyperion's] Essbase, Business Objects, Cognos and ProClarity head-on. That's great for me, because Microsoft analytics is already part of my platform. We've integrated some of the best Microsoft tools into a different platform."

Looking ahead, just how quickly or how thoroughly the shakeout will proceed is anyone's guess. "The combination of smaller players finding niche plays is going to wane. We've seen a lot of software submarkets boiled down to one, two or three dominant players," says Lanahan. Yet he believes that smaller specialists aren't yet doomed--"right now, there is room for all." Conchango's Dinsmore agrees, saying, "I think there's room for vertical best-of-breed solutions. They will keep those companies running."

This group includes specialists like INEA Corp., a Toronto-based BPM provider focused on financial services, and SRC, which has carved out a presence in industries like healthcare and financial services. Malone is undeterred by the mergers, and argues that his company offers a common look and feel for a newly expanded range of products, based on the same source code, while competitors are cobbling together different systems without that commonality in the race to create "suites."

Asked to assess the market's future, Dinsmore says, "Cognos is strong, and it can connect well into [Microsoft's] SQL. But it's a tough market. Microsoft, Oracle and IBM will be the winners--and beyond that, we'll see. Vertical players may survive, but if you don't own the database, where do you fit?"*