Making The Right Choice

That's both good news and bad news. The good news is that companies always need more data about their operations and customers. The bad news is that there's probably only one thing worse than too little data and that's too much undifferentiated, unparsed,face it,useless data.

Solution providers have been attacking this problem with analytics, or business intelligence, tools. This software helps them ensure that their customers get the information they need,about inventory levels, about sales, about customer-service requests.

A raft of vendors,Business Objects, Cognos, Brio, MicroStrategy and others,have made this their business and built a market for themselves.

Yet now, heavyweight software companies including Microsoft, Oracle, Siebel Systems, PeopleSoft and SAP want some of the spoils. They are pouring more analytics into their own application and platform software, seeking to change the rules of the game and usurp the pure-play vendors from their market-leading positions.

This move, solution providers contend, inevitably will lead to a shakeout of suppliers,especially if IT spending does not rebound.

"In two to five years, analytics will be part of the flora and fauna of all applications,not a separate discipline per se," said Frank Cullen, principal at Blackstone & Cullen, an Atlanta-based solution provider specializing in business intelligence. "Siebel, SAP, PeopleSoft,all have their analytics. %85 It's become part of a normal application because it's so strategic," he said.

As consolidation occurs, the business intelligence vendors had better watch out, said Burley Kawasaki, CTO of Equarius, a Bellevue, Wash., solution provider. "There are not a whole lot of new capabilities the pure-play guys can continue to add to differentiate themselves. The platform guys [like IBM and Microsoft] are catching up in most ways, and their ability to bundle [business intelligence] as part of a larger offering will be compelling from a [total-cost-of-ownership] perspective. I believe the pure-play vendors will be acquired in the next two years."

As the future of this market plays out, important questions arise for solution providers: Which vendors can supply these tools faster and better,the pure-play analytics players or the carpetbaggers coming into the space? Will the business intelligence vendors survive? Will solution providers need to partner with application vendors like SAP or Siebel in vertical markets but Microsoft or IBM for enterprisewide solutions? Picking the right horse in this race may not be so easy.

The moves in the market started out aggressively. In December 2001, Oracle Chairman and CEO Larry Ellison warned companies like Business Objects to "stay out of our backyard." Ellison didn't want other software vendors selling into Oracle's installed base. He also backed up his warning by pledging to put even more analytics into Oracle's database and application server, thereby eliminating the need for third-party products from the business intelligence vendors.

Two months before Ellison's comments, CRM market leader Siebel, seeing its bread-and-butter software business shrinking, bought nQuire for its analytics. Around the same time, Informatica, a leader in extraction transformation and load technologies, launched its own homegrown enterprise analytics and ended its licensing pacts with San Jose, Calif.-based Business Objects and MicroStrategy, McLean, Va.

These kinds of moves helped solidify the impression that analytics was one of the few growth markets in an otherwise stalled business software field. Indeed, AMR Research projects the market will double in the next three years, to $12 billion in 2006 from $6 billion now.

So analytics is big. And, solution providers say, companies' need for faster, more dynamic data analysis,reports-on-the-run,is what's driving growth. The old, huge, occasionally updated data warehouses have limited use in this new era, where the demand is for near-realtime response, according to solution providers.

"If you ran a business six years ago and wanted a three-year plan, you took six years of history in the warehouse ... and used analytics packages to make strategic decisions based on that data. In the old days, you could survive on that plan," said Dan Linstedt, CTO of Core Integration Partners, a Denver-based solution provider.

No longer. "The value in the history is dropping fast as a stone in water. [But] the value of trends in history is increasing,and that boosts the value of [business intelligence] tools," he said.

This is increasingly true in a down economy when companies must wring out every bit of expense and work every bit as hard on retaining existing customers as they do wooing new ones. All of that takes information. The right information.

Whereas the Y2K scare and dot-com boom prompted huge investments in transactional systems, investment "is now shifting to figuring out what's in those databases %85 where is the knowledge vs. bringing more databases online," said Bill Baker, general manager of SQL Server for Microsoft.

And that data has to be available not just to CEOs and CFOs but also to the corporate masses where, presumably, it can do the most good. "Analytics has to be an everyday thing," Baker said.

Butler Group research concurs. A recent research note on online analytical processing trends stated: "OLAP and hence [business intelligence] as a whole is no longer seen as a specialist solution for business analysts and experienced line-of-business managers but as an end user's solution, supporting the information needs of a broad range of individuals. Furthermore, OLAP needs to be viewed not as a stand-alone tool but as part of a larger integrated [business intelligence] solution."

Solution providers say the analytics vendors are watching Microsoft's business intelligence moves with great interest, and more than a little worry. "There is a lot of concern about where Microsoft will play in the presentation layer," said Blackstone & Cullen's Cullen, pointing out that Microsoft is already writing more analytics into everything from its Great Plains applications to Microsoft Project and Commerce Server.

But, maybe in part due to Microsoft's past problematic relationships with ISVs and government trustbusters, executives there are loath to predict a shakeout. They say analytics is huge,more than big enough to support all comers.

Not surprisingly, the analytics companies agree. Still, they are strengthening their hand by positioning themselves as neutral parties.

Unlike the interlopers, the analytics companies say they are focused on being a neutral party that must tap data from all applications, something an application vendor, or even a database vendor, may promise but may not really want to do. As Karen Williams, vice president of product marketing at Cognos, Ottawa, said, "We bridge the gap between all those individual systems to give a consolidated view of information."

Oracle, for one, makes no bones about its contention that data belongs in Oracle databases and businesses should run on Oracle financial applications. And Microsoft, for all its talk about interoperability with non-Microsoft platforms, remains a firmly Windows- (and Office)-centric company.

The analytics vendors also say the economy plays in their favor. After spending millions on back-office applications, many companies won't balk at the $30,000 to $100,000 it costs to implement a business intelligence solution, they say. Especially if a solution provider can prove that the investment will make those applications pay off better.

Recently, research firm IDC studied companies that implemented business intelligence solutions and found they reported a whopping 457 percent average return on investment (ROI) and a median ROI of 112 percent. But, there was no correlation between the business intelligence budget of the project and the ROI,some of the highest ROIs came with a low total investment, the researcher said.

Given this kind of performance, the market for these solutions has plenty of room to grow, said Business Objects Chairman and CEO Bernard Liautaud. "There is a push on for dashboards of information, the key performance indicators, and you need to drill through all layers of an organization. In addition, analytics can help companies protect their bottom line, keep expenses down by providing a better understanding of where the costs are, how to optimize the supply chain,all of this requires very good intelligence.

"The real value of analytics is in giving companies the ability to analyze data across a whole series of applications, not just one," Liautaud said.

With business needs like these driving the market, it's the app vendors that are on the run, not the analytics guys. At least, according to Liautaud, not the big analytics companies like his.

"Smaller companies will be bought or go out of business," he noted. "To be successful in this market, you need scale, you need market presence and R&D dollars to invest in the [business intelligence] platform."

Of course, the app vendors contend they can play with the business intelligence boys by facilitating data flow between various applications, too. Siebel, San Mateo, Calif., is pushing its Universal Application Network, a proposed standard framework for building application connectors. In theory, UAN,backed by IBM, Tibco, SeeBeyond and Microsoft, would mean that connectors to the back-office applications would become commoditized and vendors would compete at a higher level.

SAP's NetWeaver application integration platform promises the same thing. Walldorf, Germany-based SAP said that its software will talk to Microsoft .Net and J2EE-compliant applications and does not care what language they are written in.

Expect even more changes, solution providers say. The momentum toward faster access to up-to-date data,basically a marriage between data warehouses and Web services,"will blow apart the structure as we know it," said Core Integration's Linstedt. This will be a boon to solution providers who have experience both in legacy data-warehousing systems and the new wave of Web services, he said.