IBM purchase of Cognos brings turmoil and opportunity to BI mid-market space

Small and medium-sized businesses in the market for business intelligence (BI) software will benefit from IBM’s US$5 billion offer to acquire Cognos Inc., according to industry analysts.

Insiders predict there will be “initial turmoil” in the market but the deal will eventually open up the SMB space long held by the Ottawa-based firm to other BI vendors that can provide fresher product offerings.

“Cognos was at risk of being among the walking dead vendors,” according to George Goodall, senior research analyst for Info-Tech Research Group of London, Ont.

“The deal with IBM enables the company to move along and open up the SMB space for other vendors,” he said.

The two firms Monday announced a definitive agreement for IBM to buy Cognos in an all-cash deal of approximately US$5 billion or $58 per share. The acquisition, which is expected to be completed by the first quarter of 2008, is still subject to Cognos shareholder approval.

Cognos, Goodall said, has long offered businesses with top quality BI tools. Its Cognos Now suite, which is targeted at SMBs, is touted by the company as “BI for the masses.”

“But with the trend towards consolidation, Cognos runs the risk of being passed by larger vendors,” Goodall said.

Earlier this year Oracle agreed to buy Hyperion Solutions. In October, SAP snapped up Business Objects. These developments left the Ottawa-based Cognos as the only large, independent BI software vendor.

Buyers were also moving away from standalone BI products and leaning towards end-to-end business analytics suites that are part of a data centre or enterprise resource planning (ERP) system, he said.

He said the Cognos was left with three choices: grow organically, acquire lower ranking players, or be bought by a bigger company.

Goodall believes a Big Blue purchase will move Cognos up market towards IBM’s enterprise-class clientele. “This will open the mid-market for SMB-focused BI vendors such as Microsoft and Qliktech (International AB of Radnor, Penn).”

The BI mid-market “is still a wild, wild, west frontier” with big software vendors fighting for their share of the business, according to Joel Martin, vice-president of enterprise software research with IDC Canada.

But IBM should keep Cognos relevant to SMBs where it has built a formidable following, Martin said. “Cognos is a world-class builder of business performance metrics tools. People like Cognos because they understood what the company was doing.”

He said ties with IBM’s worldwide workforce and trusted install and service component will also enable Cognos to extend its reach.

In a statement issued Monday, IBM said the purchase supports its Information on Demand strategy. The plan, which was initiated last year, seeks to combine IBM’s information integration, content and data management and business consulting services.

“We chose Cognos because of its industry-leading technology that is based on open standards, which complements IBM’s Service Oriented Architecture strategy,” said Steve Mills, senior vice-president and group executive for the IBM Software Group.

“Cognos provides the missing business insights component to this strategy,” said Martin.

A manager for another BI vendor, however, said the purchase could add confusion to the market.

“With all these acquisitions going around, BI buyers are generally in a flux,” said Gaurav Verma, global technology product marketing manager for SAS Institute.

Verma also sees the deal as a positive development that will open up the SMB market but added that links with IBM might send “mixed messages” to Cognos customers. He said SMB customers might now associate Cognos with IBM’s more corporate-focused initiatives.

“As part of IBM, Cognos will echo a different tone and confuse the buyers,” he said.

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