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With PerformancePoint, Microsoft is content to play follow the leaders

With Vista out of the gate, all eyes are on the software giant's 2007 releases of Office and PerformancePoint Server.

Things must be busy in Redmond. Microsoft Vista has officially launched, Office 2007 is quickly coming down the pike and next summer, PerformancePoint Server 2007 promises to help pull it all together to achieve the holy grail of bringing performance management and business intelligence (BI) tools to the masses.

But Microsoft is known more for its desktop domination, rather than its enterprise applications. Will PerformancePoint 2007 truly deliver on its promise? And will organizations buy in?

Industry observers are preaching caution. Coming out just when many companies are reviewing budgets, Microsoft appears to be trying to inject some uncertainty into the market.

"It seems like Microsoft is trying to freeze the market with a performance management solution and put questions in the minds of potential customers before they lock into another vendor," said Wayne Eckerson, director of research at the Data Warehousing Institute, a Seattle, Wash.-based research association.

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A familiar strategy

Microsoft Corp. has followed a familiar pattern regarding PerformancePoint Server 2007, its new performance management and BI platform: let innovative competitors establish the market, then unveil a similar product and try to seize market share.

With PerformancePoint Server, slated for release in June 2007, Microsoft clearly hopes to siphon revenue from established vendors such as Hyperion Solutions Corp., Cognos Inc. and Business Objects, who offer their own suites of business intelligence and corporate performance management (CPM) software. AMR Research Inc. of Boston predicts that companies will spend about $23 billion on BI applications and services through 2006.

PerformancePoint Server marks Microsoft's most aggressive push into the BI market since the 2005 release of Microsoft Office Business Scorecard Manager, a performance-management server application bundled inside newer versions of the Microsoft Office operating system.

Michael Smith, Microsoft's director of marketing, said PerformancePoint is an integrated Windows-based platform that provides a range of CPM and BI tools, including scorecards, dashboards and tools for financial reporting, planning and consolidation.

"It provides all of the information in one piece. You don't have to do a lot of integration behind the scenes to make the product work," Smith said.

The usability factor

John Hagerty, a vice president with AMR, said one of the things working in Microsoft's favor is the coincidental 2007 release of its new Office suite of software, including Excel Version 12 (which reportedly contains additional BI capabilities).

"One of the things organizations will probably begin thinking about is, 'What do we do about Office 2007,' and I think the PerformancePoint stuff will be part of that discussion," Hagerty said.

But how successfully can Microsoft break into a market with well-established vendors? If history is a guide, analysts say it could take Microsoft several iterations of PerformancePoint to work out the bugs. The product itself will be "a bit clunky" at first, especially for companies accustomed to enterprise-class platforms, said Gerry Brown, a senior analyst with Bloor Research in Northamptonshire, England.

Microsoft's biggest chore -- persuading customers to switch BI platforms -- centers on tying existing Office applications to PerformancePoint's capabilities. For example, Brown notes that more than 50% of firms use Excel spreadsheets for financial planning.

"If Microsoft can turn that Excel functionality into a more rigorous approach to financial consolidation, they're going to cause a hell of a big explosion in the marketplace, because they will begin to undercut more established BI vendors by massive amounts," Brown said.

Microsoft initially positioned PerformancePoint mainly as a tool for budgeting, financial analysis and reporting, but it has broadened its story in recent months.

"Now Microsoft is saying [PerformancePoint] is a place where users can put some processes and intelligence on top of certain data to create their own analytic applications," Hagerty said.

Pricing for performance

Microsoft is not releasing pricing for PerformancePoint until the official release date nears, said Smith. Meanwhile, beta testing continues with about 40 vendors and systems integrators participating in Microsoft's Community Technology Program. However, Smith said Microsoft "will make cost of deployment significantly less" than competing products.

Brown said this is entirely plausible since PerformancePoint Server will get bundled along with Microsoft SQL Server, its relational database geared toward the enterprise market. However, he adds that Microsoft probably won't be able to offer the degree of integrated functions as more established BI vendors.

So while deployment costs may be lower, enterprises should brace for additional consulting and integration fees, on top of software license costs for PerformancePoint.

"That's the clever thing Microsoft does: make it appear as though its product has the lowest cost of adoption, when in actual fact it becomes much more expensive when you start adding up the other costs," Brown said.

Who will buy?

Smith said 30 to 40 companies are participating in beta testing of PerformancePoint, including vendors and systems integrators of varying sizes. Included is software maker Cartesis Inc. of Norwalk, Conn., a smaller competitor to Hyperion in the financial analysis market.

"For us to go to market with a partner like Microsoft completely turns that balance around," said Crispin Read, Cartesis's chief marketing officer.

Still, Microsoft will have better success selling PerformancePoint to smaller and midmarket firms than to the Fortune 500, analysts say. That's because larger firms have significant sunk costs in financial reporting and planning systems of other vendors.

"I think Microsoft will struggle to gain traction among enterprise accounts because of its immature technology," said Brown, "But it may be able to make inroads selling to smaller and midmarket companies, especially those whose businesses run entirely in Microsoft environments."

Although competing BI vendors are taking note of PerformancePoint, Hagerty said Microsoft needs time to build a credible offering.

"I think it's probably a couple years out before Microsoft has any real substantive impact on the marketplace," Hagerty said.

In the meantime, Microsoft is content to play follow the leaders.

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