Computing giant IBM has agreed to acquire Canadian business intelligence and corporate performance management software provider Cognos for a price of $5 billion.
The deal represents the now near-total assimilation of the business intelligence industry by the world’s largest IT corporations. In October 2007, Cognos’ chief rival Business Objects was bought by German application vendor SAP, while earlier in year Hyperion had been acquired by applications, database and middleware provider Oracle.
Steve Mills, head of software at IBM, denied that the deal was a reaction to that consolidation. "We never do acquisitions on defensive moves or based on what others are doing," news agency Reuters quotes Mills as saying after announcing the deal.
For Cognos’ shareholders, the fact that the company was the last of three industry to find a suitor had its advantages. The amount IBM has agreed to pay represents a 9% premium on its share price at close of trading on Friday of just over $50. But that figure was up over 25% from its average price six months ago, when the Hyperion deal stoked speculation that Cognos would soon sell.
IBM, which has conducted something of a consolidation spree within the software industry itself of late, plans to establish the company as a distinct BI division within its Information On-Demand wing. Rob Ashe, Cognos’ CEO, will continue to head that division.
Bye-BI
The value of BI software is greater than ever – the global market is worth $6 billion annually. But the market is now running short on sizeable independent providers.
Of the remaining BI independents, two companies – Information Builders and the SAS Institute – are among the few technology vendors to have been privately-owned and run by their founders since the 1970s.
Ownership of what is now the largest publicly-listed independent BI provider, MicroStrategy, is also dominated by its founder and CEO, Michael Saylor. In 2000, Saylor lost $6 billion in a single day after the company’s share price plummeted following an accounting scandal – at that time more than any one person had ever lost in 24 hours.
The strong leadership of these companies makes them harder to acquire than their now-assimilated rivals. Of course, there are also fewer potential acquirers, with SAP, Oracle and IBM having already made their moves. But were HP or Microsoft to attempt to close the BI gap that now separates them from their opponents through acquisition, it would take some powerful persuasion.
But these companies, especially Information Builder and the SAS Institute thanks to their private ownership, now have an opportunity to innovate.
The root cause of this spate pf consolidation is seen by many analysts to be the fact that BI functionality has been largely commoditised – most of the large players provide roughly the same thing. When that happens, the battleground for competition becomes market penetration rather than innovation – clearly easier for a company with a tech giant on its side.
If they can use their independence to usher in a new era of business intelligence functionality, they may yet breathe fresh life into what is currently a rapidly shrinking market.
Further reading
SAP acquires Business Objects Business intelligence industry all but assimilated.
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