Consolidation looms in BI field.

Looking for a software solution in planning and budgeting? How about online analytics or data mining? What about customer relationship (CRM) management applications?

Right now, there are companies jostling in each of these business intelligence submarkets, and the players include household names like IBM Corp., Microsoft Corp. and Oracle Corp.; larger specialists like Hyperion Solutions, Cognos Inc. and Comshare Inc.; and smaller niche competitors.

Like most high-tech arenas, however, the overall business intelligence software market is almost certainly ripe for consolidation, with survivors buying additional capabilities or partnering for them. Opinions vary on how swiftly or how completely that will happen, but it's generally agreed that it's now mostly a matter of timing. A study by consultants Bain & Co. last year concluded that BI was made up of five submarkets ranging from $1.8 billion in annual revenues (query and reporting) down to $500 million (CRM).

For top finance executives, the promise of BI has often been frustrated because enterprise resource planning (ERP) solutions have failed to deliver integrated information. "Major application systems such as CRM (customer' relationship management), ERP and SCM (supply chain management) systems are designed to improve business applications," says Richard Skriletz, national managing principal for business intelligence and data warehousing with RCG Information Technology, which specializes in IT strategy and design, application development, management and integration. "They focus on optimizing business transactions, not on optimizing information distribution and analysis."

Skriletz adds: "BI benefits are based on two critical factors: identification and, gathering of essential, enterprise-wide business data into a single data warehouse and the power of BI technology to access and manipulate this data easily." For vendors; he says, two choices have emerged: "Merge their products with others through consolidation or develop the same capabilities into their BI product. So far, more vendors seem to be choosing the path of developing greater functionality into their product."

Increasingly, however, vendors are turning to partnerships or original equipment manufacturer (OEM) agreements with competitors to develop that functionality. Hyperion, for instance, recently entered into partnerships with both Crystal Decisions and Sagent Technology inc. In an interview, Hyperion CEO Jeffrey Rodek suggested that Hyperion will focus on 30 to 50 partners, hoping to double the volume of revenues coming from outside partnerships. "Our DNA is in analytics, modeling and reporting," Rodek says. "We will partner when we don't see the function as core (to what we do]."

Dave Henry, a vice president of product marketing at Mountain View, Calif.-based Sagent, says he expects the company's component-based approach to analysis to be included on Hyperion's next general analytic platform. In general, he says, Sagent is looking to partner "with those who can take advantage of our platform." It recently inked a deal with a mainframe data connectivity firm, for instance.

But some vendors seem inclined to focus on their own niche for the time being. Andrew Ferguson, CEO of SRC Software in Portland, Ore., says, "There seems to be a kind of 'group-think' going around" that a consolidation wave is coming, but he demurs. "It always comes down to ERP or all-in-one [solutions] versus a best-of-breed concept. Our personal feeling is that we are a best of breed, even within our niche" of budgeting, planning and forecasting.

"It's impossible to have shrink-wrapped solutions," he adds. "Every business model is different and requires different solutions... GL (general ledger] and financial planning needs may be similar, but the tools needed to model in the actual operating environment may be different."

Hyperion's Rodek sees three to four huge players likely dominating BI in as little as two to three years. "Among the choices, OLAP [online application processing, where Hyperion has a big presence] has the highest barriers to entry in terms of complexity, and also offers the most sophisticated solutions. One of the data extraction or CRM players could emerge as a competitor, although we are also partnering with those people to provide in-line solutions."

RCG's Skriletz sees "strength of the technical vision" as the critical component of success for 81 sellers. Today, he doesn't see the necessary investment or the comprehensive vision in place for one company to break from the pack. "Technologically, a BI 'killer app' must be scalable to support immense data warehouses, perform well for hundreds of thousands of business people, and integrate with key technology trends such as Web services." His conclusion: "BI technology is still developing."