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The birth of Performance Management - 2007 : Consolidation of an entire industry

2007 has been quite an amazing year for the market of Business Intelligence and Corporate Performance Management. More than 15 billion $ was spent in Mergers & Acquisitions, mainly by the software industry giants SAP, Oracle & IBM, to acquire the crown jewels of the BI & CPM market. Rarely a complete industry consolidated that quickly, but then again … the stakes are high.
 
In this "Insight", we reflect on the sequence of events & the drivers for the consolidation.
 

The "ancient times”

The industry of Business intelligence & CPM has always known "mega” (compared to the size of the market back then) - Mergers & Acquisitions ( see also "The History of Performance Management" here ) : 
  • In 1995, Oracle acquired Information Resources' Express-software as the basis for its BI platform. In the next decade the lack of interest of the company in BI would bring it from its then market-leading position to a third tier PM-player
  • As early as 1998, Arbor Software, the company behind the Essbase OLAP technology acquired ("merged”) with the financial consolidation vendor Hyperion, adopting Hyperion as the new name for a then 350 million $ company. The company formed in fact the first "Performance Management” vendor, combining a Financial Analytical Applications-offering with Business Intelligence
  • In a busy July 2003, the same Hyperion acquired Brio Software to complement its CPM-suite with additional Business Intelligence functionality while Business Objects acquired Crystal Decisions, the then leading operational reporting vendor, who was preparing an IPO, to counter the launch of ReportNet by Cognos, creating a 736 million $ company
  • Another important acquisition, in hindsight, was the acquisition of Ascential, then a 250 million $ company, by IBM in 2005

People looking at the industry from a distance, might think that 2007 was just another year of M&A activity very similar to the preceding 5 years. However, 2 different waves –each with their own & very distinct drivers- can clearly be distinguished.

The first wave primarily had to do with Business Intelligence converging with CPM, the second wave was all about the software giants getting interested in the promise & market potential of Performance Management as a whole.


The first wave : Business Intelligence converging with CPM

Indeed, if we look at the main M&A activity since 2001, we can see the major "pure” players in BI & CPM completing their offering in those areas in which they were still weak in order to create a more complete Performance Management platform :
  • Business Objects acquired Acta Technology in 2002 for its ETL-technology, SRC Software in 2005 for its Planning & Budgeting software, Firstlogic in 2006 for data quality software and ALG Software, ABC software in 2007
  • Cognos acquired Adaytum in 2003 for its Planning & Budgeting software, Frango in 2004, for its consolidation solution and Applix TM/1 in 2007 for its in-memory OLAP & ABC functionality
  • Hyperion acquired, next to Brio Software (see earlier), QIQ Solutions for additional BI functionality (dashboarding) in 2003
  • SAS acquired ABC Technologies in 2002 for its leading activity based costing technology
  • Cartesis acquired Inea Corporation, Planning & Budgeting software, in 2005
Marking more or less the end of the first wave, Business Objects acquired Cartesis for consolidation functionality in April 2007. Meanwhile, it's an industry secret that another interesting merger was on the table during 2007, but did not materialize: Information Builders being acquired by Hyperion.


The second wave : giants getting interested in Performance Management

And then, in a matter of a few months the software giants SAP, Oracle & IBM awake :

  • March 2007 : Oracle acquired Hyperion for 3.3 billion $
  • October 2007 : SAP AG acquired Business Objects for 5.3 billion $ (net), after acquiring Outlooksoft for est. 300 million $ in May 2007 (the latter being a planning & execution mistake as future might tell us ?)
  • November 2007 : IBM acquired Cognos for 4.9 billion $ (net)
Contrary to common believe, these acquisitions were not the pure result of intelligent homework and "due diligence” of the giants in terms of future potential of the market space. It takes "2 to Tango” and only where a buyer and a seller meet, there is a transaction. Industry watchers know that the sale of Business Objects was a direct consequence of the wish of Bernard Liautaud, founder and major shareholder of Business Objects, to retire and that Cognos was "offered” to IBM by the Cognos CEO Rob Ashe, most probably pushed by the Cognos shareholders, seeing the attractive multiples of the Hyperion & Business Objects' acquisitions. The same reasons, most probably, make that SAS Institute and Information Builders will remain independent for the foreseeable future. Their founders and main shareholders are not planning to retire in the short term.
 
However, it also is clear that SAP, Oracle & IBM have strategic reasons to invest in the Performance Management space.

For all three, their acquisitions were considerable in size & mark a shift in strategy in some way :

  • For Oracle, the Hyperion acquisition marked the re-entry in (Corporate) Performance Management, following the loss of its CPM-market share it once had with Financial & Sales Analyser and following the rebranding of the BI offering from Siebel (Siebel Analytics) as its new Business Intelligence platform.
  • For SAP, Business Objects was by far its biggest acquisition ever, marking a significant shift in strategy from mainly developing all its technology itself and only acquiring small companies for point technology. BO‘s development teams are estimated to be 5 times what SAP used to have itself in the area of Performance Management. It also seems an acknowledgement of the remaining challenges of implementing SAP's current solutions for BI & CPM (BW, SEM, BPS, BCS, ...).
  • For IBM, Cognos was its biggest acquisition ever and is potentially marking a change of strategy to again become involved in more end-user oriented, enterprise applications. Cognos 8 completes in an excellent way IBM's "Information On Demand” and SOA- strategy.

None of the above, would have happened without the giants being serious about "Performance Management”. Finally also "peer pressure” and the risk of being left without a potential good "acquisition candidate” (the fate of HP ?) will have made all of these moves happen so quickly, almost as if they were orchestrated.

As a final proof of the second wave Microsoft launched its own PerformancePoint Server at the end of 2007. PerformancePoint Server is a new offering, based on Microsoft's own initial attempt in Scorecarding, Business Scorecard Manager, its self-developed functionality for Planning & Consolidation and the technology from ProClarity, which it acquired back in 2006. Even though further acquisitions, especially in the area of Planning & Consolidation, cannot be excluded the combination of PerformancePoint Server with the upcoming MS SQL Server 2008 completes Microsoft's offering in Performance Management.