The New Adventures Of Old Business Intelligence

For solution providers, the business intelligence (BI) market is anything but dull these days. Opportunities abound: Implementing BI systems is high on many customers' IT priority lists, especially in the wide-open SMB market, and spending for BI-related software, hardware and services is expected to jump nearly 9 percent this year.

But with continued vendor consolidation--Oracle's $3.3 billion buyout of Hyperion Solutions is just the latest example--and creeping commoditization of basic query and reporting products, the BI industry is undergoing some serious changes. Solution providers have some careful navigating to do.

"Like everyone else, we're looking to see where the market is going," says John Nilsen, sales vice president at 1Answer Solutions, an Englewood, Colo.-based business intelligence solution provider that resells Hyperion's BI products. As far back as a year ago, long before the Oracle-Hyperion deal, 1Answer began exploring options for expansion, such as working with open-source BI software.

Spending for BI and performance management systems, including software, hardware, labor (internal and external) and integration services, is expected to reach $23.8 billion this year, AMR Research predicts. That's up nearly 9 percent from 2006. That breaks down to $6.6 billion for BI tools, $5.5 billion for dashboards and business scorecard applications, $4.3 billion for analytical system infrastructures, $4.1 billion for planning and forecasting software, and $3.4 billion for analytical applications.

A greater share of that spending is within small and midsize businesses. Until recently, major suppliers of BI software, including Business Objects, Cognos and Hyperion, focused much of their sales efforts on Fortune 2000 companies. But there are only just so many "power users" in big corporations, so vendors are turning to the SMB market where only 20 percent to 40 percent of businesses have adopted BI tools. And midmarket BI sales are growing at more than 12 percent, says Todd Rowe, vice president of Business Objects' worldwide midmarket business.

And what better way to reach those SMB customers than through resellers and solution providers? Channel partners have the vertical-industry and business-process expertise needed to integrate vendor BI platforms with business applications and back-end data sources, and the ability to develop the reports, dashboards, key performance metrics and analytical applications that BI platforms require.

"BI will remain an art rather than a science for the foreseeable future," says Forrester Research analyst Boris Evelson. "You can't implement a successful, useful, actionable BI solution 'out-of-the-box.' No matter what tool or technology one uses, BI is always about the right design, architecture, best practices and customization--the realm of [systems integrators] and VARs."

NEXT: The biggest demand driver for BI technology.

"The VARs that have the domain expertise are vital to the vendor and vital to the end customer," says Bob Vander Woude, vice president of sales and marketing at Preferred Strategies, a Soquel, Calif.-based solution provider that resells Business Objects' software. The company integrates those products with ERP applications from JD Edwards (now owned by Oracle), developing reports and graphical dashboards that give managers visibility into their financial and sales processes. One income statement report developed by Preferred Strategies has some 800 formulas behind it--an example of the kind of expertise a BI vendor could never provide. The company is expanding its expertise to other ERP systems and could adapt its technology to other vendors' BI products if it chose to do so, Vander Woude says.

Perhaps the biggest demand driver for BI technology is the realization by business executives that spending thousands, even millions, of dollars to implement ERP, CRM and supply chain management systems has given them very little visibility into their business processes.

"The business intelligence market is so early in its life cycle compared to ERP and CRM," says Jeff Finken, business intelligence practice director at Madrona Solutions Group, a Seattle-based solution provider. Madrona builds BI systems that tap into Microsoft Dynamics CRM applications using the reporting and data analysis capabilities built into the Microsoft SQL Server database and third-party products like Tableau Software's tools for building visual analysis reports and dashboards. (Tableau developed a version of its software for Microsoft Dynamics CRM that's sold through 600 Microsoft channel partners.)

Dashboards are in great demand by big companies deploying BI to large numbers of managers and workers, and by small companies with limited IT resources.

"Ease of use is a big deal," says AMR Research analyst John Hagerty, calling user-unfriendly BI software a major "blocking factor" to wider adoption.

About half of Madrona's projects involve installing Dynamics CRM and building a BI system that analyzes the data it generates. But in other cases, the customer already has the CRM apps in place and BI is the core of the work. Finken says compliance with regulations such as Sarbanes-Oxley is one reason management needs better visibility into operational data. "The ability to predict where their business is going is the other big driver," Finken says.

Some of Madrona's implementations involve building real-time links between dashboards and CRM applications. Linking BI with operational data is a big change from traditional BI practices that analyze historical data collected in off-line data warehouses. Analysts say real-time BI is a significant business opportunity for solution providers with the right know-how.

Applying BI to both structured and unstructured data, the latter including text documents and images, is another area with growth potential for solution providers, Forrester's Evelson says.

Another interesting trend: Some channel partners are adopting an onshore-offshore strategy, says Rich Luciano, senior director of channels at Cognos. Solution providers work with customers on-site to determine their BI needs and develop report specifications, then contract with offshore developers in India or Eastern Europe to handle the grunt report development work.

But Sherlock Holmes, president of Cognos reseller Genware Computer Systems in Lincoln Park, N.J., is skeptical about how effective that approach can be given that BI requires close work with customers. "You need to be there in real-time to work with the users," he says.

NEXT: Caution -- vendors merging.

Taking advantage of these opportunities often means solution providers must become well-versed in specific vendors' product lines. And that can be a gamble with the ongoing consolidation within the BI software industry as big vendors buy small and not-so-small companies. Oracle's $3.3 billion buyout of Hyperion Solutions in April is just the latest in a long line of acquisitions (see "Shopping Spree," right). And speculation that major BI software suppliers Business Objects or Cognos could be acquired by IBM, SAP or some other IT industry titan is ongoing.

Deals like Oracle's Hyperion acquisition can be dicey for channel partners. Solution providers accustomed to cozy relationships with smaller vendors may get lost in the shuffle when their supplier gets acquired by a giant company with thousands of channel partners. "There's a good chance the whole partner model might change. Or the terms and conditions might change," says AMR Research's Hagerty. Several vendors contacted for this story said they might try to recruit Hyperion VARs during the merger.

"I think vendor consolidation is part of the customer buying decision today," says Bridgette Chambers, vice president of enterprise business solutions at Comsys, a Houston-based IT services company that partners with SAS Institute, Business Objects and Cognos. Customers worry about committing to a vendor's technology and facing big expenses if that technology disappears after an acquisition. Customers are trusting their solution providers for advice, and, for that reason, Comsys partners with multiple vendors, Chambers says. "It's how we maintain that agnostic position in the market. Then you really have an opportunity to serve the client and not the vendor."

One thing about the BI industry, however, is that it appears in no immediate danger of consolidating to the point where it's dominated by just a few humongous vendors, as has happened with ERP and CRM software. For every vendor that disappears in a buyout, a dozen more pop up. "As quickly as large vendors consolidate, small start-ups will keep bringing innovative business intelligence solutions to the market," Forrester's Evelson says.

And there's no shortage of such start-ups. Some BI software developers, such as Pentaho and JasperSoft, are following an open-source business model. Endeca Technologies develops software that combines elements of BI and search technologies. Some small vendors are offering on-demand BI tools, including SeaTab, which is enlisting solution providers under a channel partner program it inaugurated in November.

While it's early in the game, a number of solution providers are taking a serious look at open-source BI, especially open-source reporting tools. Over the past year, 1Answer executives have debated whether to expand the company's Hyperion-related services or explore open-source options, ultimately settling on the latter. Open-source BI software "dramatically lowers [the total cost of ownership], and it opens up opportunities for creativity," Nilsen says. The company is evaluating vendors. Nilsen estimates that broad acceptance of open-source BI software is still a year away. 1Answer also considered signing on with an established vendor like Cognos or Business Objects. But Nilsen's perception is that those vendors are very focused on winning sales to large companies. "The new frontier for business intelligence is the market for small and midsize companies," he says.

Some solution providers foresee fierce competition in the SMB space between open-source BI products and the expanding BI product line offered by Microsoft. Over the past several years, Microsoft has built reporting and data-analysis capabilities directly into its SQL Server database, essentially making those tools available to a wide audience for free and, some say, putting pressure on other vendors' pricing of reporting tools. "It takes a really powerful value proposition to convince [customers] that they should use something other than the tools embedded in SQL Server," Madrona's Finken says.

Although Microsoft's share of the fractured BI market remains less than that of market leaders Business Objects, SAS Institute and Cognos, its BI product sales in 2005 grew more than 35 percent, according to market researcher Gartner.

NEXT: How Microsoft plans to maintain that momentum.

To maintain that momentum, Microsoft will take aim at the performance-management sector of the BI arena this fall when it debuts a suite of tools built around its PerformancePoint Server. Now in beta, the suite will include business scorecard and dashboard development software, financial consolidation tools, and analysis software Microsoft acquired when it bought ProClarity last year.

Microsoft sees opportunities for its channel partners to implement data warehouse, performance management, and reporting and analysis systems based on Microsoft products, says Chris Caren, who as general manager of Office business applications oversees Microsoft's BI efforts. With PerformancePoint on the horizon, Microsoft is recruiting new channel partners with expertise in performance management, and offering partners free educational workshops.

Not that the market leaders are sitting still. Business Objects, which already generates about half of its sales through its 2,300 channel partners, has been courting solution providers as part of its own aggressive push into the midmarket. As part of that effort, Business Objects offers Crystal Decisions, Standard Edition, an integrated package of query, reporting, analysis and dashboard tools for the midmarket that VARs build systems around and for which they provide support and educational services. Other editions of the package with data-integration and performance-management capabilities are due later this year. Business Objects is also working with VARs to develop reports and data connectors around Crystal Decisions for specific business processes and vertical industries.

Given the price sensitivity of smaller businesses, the Crystal Decisions line opens doors to new midmarket customers by allowing Preferred Strategies to offer contract bids as low as $60,000. "It's very, very competitive," Vander Woude says, contrasting that against the six-figure bids the company makes with Business Objects' enterprise-class products.

Business Objects also recently started a program for its North American channel partners under which resellers can earn "considerably more" by driving the entire sales cycle, from initial sales lead to proof-of-concept to implementation, without assistance from the vendor's direct sales staff, says Tamra Muir, Business Objects' vice president of worldwide VAR and distribution partners. Last month, IBM expanded its BI efforts with new "Balanced Warehouse" systems that preconfigure server and storage hardware with IBM's DB2 Data Warehouse and Business Objects' Crystal Reports Server.

SAS Institute, which began recruiting for its new channel partner program last summer, now has some 60 partners--including about 35 VARs that also work with competitors--who currently have between $15 million and $20 million in deals in the sales pipeline, says Jack Duncan, director of channel sales. SAS hopes to have a stable of 150 to 200 partners by the end of this year.