Years of rumors were laid to rest today as Big Blue announced plans to purchase Cognos, one of the few remaining independent vendors of business intelligence (BI) and performance management software.
Though speculation about an IBM BI purchase has persisted for years, spokespeople have refuted such rumors, saying the company wasn't getting into the BI application business. Instead, IBM has historically focused on the underlying information infrastructure -- providing databases, data warehouses and other data management tools, and partnering with application vendors such as Cognos, with which it's had a 15-year relationship. That approach appears to have changed today, with the announcement that IBM will pay $5 billion (U.S.) or $58 per share for the publicly held, Ottawa-based BI and performance management vendor. The combination doesn't surprise most analysts -- Cognos was a frequent subject of IBM acquisition rumors, though publicly it touted its vision of being an "independent" BI leader.
So what changed? IBM, Cognos and analysts from Forrester and Gartner all have slightly different answers.
"Customers are demanding complete solutions, not piece parts, to enable real-time decision making," said Steve Mills, senior vice president and group executive, IBM Software Group. "IBM has been providing Business Intelligence solutions for decades. Our broad set of capabilities -- from data warehousing to information integration and analytics -- together with Cognos, position us well for the changing business intelligence and performance management industry. We chose Cognos because of its industry-leading technology that is based on open standards, which complements IBM's service-oriented architecture strategy."
Why did IBM acquire its longtime partner Cognos?
There are many good reasons to take the long-standing partnership further with an acquisition, Mills said during a press call today. IBM and Cognos customers are both looking to the future of more real-time BI, he said, and seeing a rapid rise in the quantity of data they want to analyze.
"The requirement for real-time, low-latency analysis and decision making is on the rise, and [customers] are looking for the next generation of BI capability that is going to be characterized much more by this high-performance, high-speed, large data quantity and more variability," Mills said. "In order to achieve this level of high-scale and high performance, we're going to have to do a lot together for this next generation of BI. It's been our experience that independent companies finally reach a point where it becomes very challenging to execute against this type of complex, high-performance set of requirements. In order to achieve the next level of scalability and performance, we needed to acquire. It's the changing market conditions that cause us to make these decisions."
"Changing market conditions" may be an understatement describing the current BI industry. The acquisition announcement follows SAP's recently announced plans to acquire Business Objects, Oracle's acquisition of Hyperion earlier this year and a host of other BI and performance management industry moves. But IBM says the timing is coincidental.
"Our decision to acquire Cognos was not related to prior acquisitions in this space," an
During the press call, Rob Ashe, president and CEO of Cognos, said the company "was not for sale" when talks began. He said the strategic deal will help Cognos "focus on innovation" and will accelerate its growth through an extended global and partner reach.
"It was more the attractiveness of the strategy, as opposed to any kind of fear or desire to be acquired because of changes in the landscape," Ashe said.
Despite these assertions, others still wonder whether market pressures played a role. Boris Evelson, principal analyst with Cambridge, Mass.-based Forrester Research Inc., wrote a blog post on the topic today.
"In my opinion, IBM/COGN and SAP/BOBJ deals are defensive moves since both companies have been telling us for years that they prefer to grow their BI portfolios organically, with smaller tuck-in acquisition," Evelson wrote. "However, organic growth is not happening fast enough, and giving in to sideway pressures from Oracle (with two top of the line BI products from Siebel and Hyperion) and upward pressures from Microsoft (after Proclarity acquisition and with significant Performance Point market momentum), IBM and SAP had no choice but to react."
Questions remain about plans, partners and product overlap
One of the big questions today is whether the announcement represents a larger shift in strategy for IBM, Evelson continued. Now that the company is apparently pursuing applications, Evelson wondered whether Big Blue will make even more purchases to compete "head to head" with Oracle, SAP and Microsoft. The partner networks of both companies are likely to change too, he noted, given IBM's partnership with Business Objects and Cognos's relationship with Informatica.
In fact, the acquisition is the twenty-third in support of IBM's Information on Demand strategy, a "cross-company initiative" that combines software, services and research to help customers gain more business value from information, according to the release. This has been the largest bid so far in the string of acquisitions that has included its 2005 purchase of Ascential Software for $1.1 billion and its 2006 buy of FileNet for $1.6 billion. More recently, it bought Data Mirror for $161 million and Princeton Softech for an undisclosed sum.
But despite the multi-year shopping spree, there is little major product overlap between IBM's portfolio and Cognos's, according to spokespeople and analysts.
That said, analyst Evelson noted online analytical processing (OLAP) functionality overlap between IBM's Alphablox, Cognos's Powerplay and Cognos's TM1 Engine
Is the BI space going away?
The announcement underscores a shrinking BI space, according to Colleen Graham, research director with Stamford, Conn.-based Gartner Inc. Historically, there's been a neutral zone between applications and infrastructures, often addressed by BI vendors, but that space is going away, she said. Now, more BI functions are showing up in databases, applications -- or both. Microsoft and Oracle added reporting and analysis functions to their databases, she said, while SAP has added BI functions to its applications. Performance, real-time business demands and evolved technology are all driving these changes, she said.
"Twenty years ago, the technology itself was very hard to use and very complex. The actual software environment was so siloed that you had to have an independent agnostic solution," Graham said. "Now, things have become a lot more integrated, so it's actually a lot easier to have a solution within one packaged application that can touch other applications."
Implications for Cognos and IBM customers -- and new BI buyers
The combination will be good news for both companies' customers long-term, Graham said. IBM DB2 customers will likely get a more competitive database soon, with low-level reporting functions, she said. Cognos's more than 25,000 customers, including many joint customers with IBM, can finally move beyond the uncertainty of acquisition rumors that have plagued the BI vendor for years and take advantage of IBM's large sales and support network. For now at least, she doesn't foresee IBM making major changes to Cognos or its product portfolio.
Cognos customers should "expect continued support for their heterogeneous environments," according to IBM's website FAQ, and will "continue to be supported by their current contacts and processes." Once the deal closes, IBM will integrate Cognos and its approximately 4,000 employees into its Information Management Software division, the release said, creating a new BI and performance management group which will be led by Cognos's Ashe. The acquisition is subject to Cognos shareholder approval, regulatory approvals and other customary closing conditions and is expected to close in Q1 2008.
This acquisition -- and the others that are likely to follow -- shouldn't concern new buyers, according to John Hagerty, vice president and research fellow with Boston-based AMR Research. It's more about a positive move IBM is making to remain competitive in the market, he said. Though the industry landscape may change further, he doesn't think organizations should wait to invest in BI.
"My recommendation would be to choose the product that today will be the best fit for you and go with it. The larger of the firms available around BI -- their futures are now pretty much spelled out," Hagerty said. "I think you can assume that the products won't be changed fundamentally going forward, so now is the time to jump right in."