VARs: IBM's Cognos Takeover Was Inevitable

The first question on Cognos partners' lips on hearing news of the announced $5 billion acquisition by IBM is: What took so long?

"This was supposed to have happened last year. There was a strong rumor in 2006 that IBM would buy Cognos," said Hemant Warudkar, CEO of Cognos partner Express Analytics in Irvine, Calif.

For David Jones, director of business intelligence (BI) software specialist Paragon Consulting in London, IBM's Cognos purchase finishes off an M&A trifecta: he bet a friend £100 that Oracle would buy Hyperion, Business Objects would buy Cartesis and IBM would acquire Cognos. This year, all three deals have come to pass. (SAP's move to snap up Business Objects was an unexpected round on the BI Buyout Bingo board, Jones admitted.)

The only real surprise in IBM's Cognos buy is the way it contradicts IBM software chief Steve Mills longtime stance that IBM isn't in and doesn't want to be in the applications business. IBM spent $3.5 billion in 1995 buying e-mail and collaboration applications maker Lotus, a deal the company has struggled with: IBM's Lotus integration was rocky, and Lotus Notes continues to steadily lose ground to Microsoft's rival Exchange.

Mills softened his "no applications" position in a conference call with press on Monday, following the Cognos announcement. "We haven't changed our strategy in any fundamental way. We have applications technology in our portfolio today," Mills said, citing Notes and FileNet, the content management software maker IBM bought last year.

Pending shareholder and regulatory approvals, IBM expects the Cognos deal to close in the first quarter of 2008. Channel integration plans won't be worked out in detail until further in the planning process, according to Mark Register, a vice-president in IBM's information management unit. He expects IBM to begin actively working with partners on channel road maps several months after the close.

Although IBM has its own extensive services business, the company knows it needs to continue working with Cognos' existing partners, Register said.

"We recognize that customers often make a choice for incumbent systems integrator vendors. That won't change," he said. "We'll still be maintaining the relationships that Cognos has with all their systems integrator partners in exactly the same way."

Cognos VARs say they don't expect any changes in the short term but are waiting to see about the long-term impact of the IBM buy.

Next: Mixed VAR Experiences With Past IBM Acqusitions.

Express Analytics' Warudkar has been through this once before, with IBM's mid-2005 purchase of data integration software maker Ascential. Express Analytics was at the time an Ascential partner, but it gradually fell away from the company and its products. Business slowed down, Ascential executives Express Analytics had relationships with left, and IBM seemed a bureaucratic morass: "You had to go through too many layers to become a partner," Warudkar said.

He hopes his company's Cognos alliance has a brighter future. Cognos 8 is selling well, and is a good fit for IBM's DB2/WebSphere infrastructure, Warudkar said. He plans to continue working with Cognos's software, and hopes IBM can help increase its market penetration.

Michael Ward, founder and principal of Cognos partner Creative Technology and Training Solutions in Shelby Township, Mich., also hopes IBM preserves Cognos's growing channel ties. Cognos has gradually increased its reliance on resellers, trimming the percentage of its license revenue generated through direct sales from 75 percent in 2005 to 71 percent in its 2007 fiscal year. Sales have been strong, and Ward said he would like to continue as a Cognos reseller.

"They've been very good with the partner channel. They recognize the value," he said.

Ward expected IBM to buy Cognos, but when he heard the final price, he expressed surprise that IBM passed on the BI market's biggest fish, Business Objects. Cognos, at $4.9 billion in cash, will be the most expensive acquisition IBM has ever done, but the deal is not that much smaller than the $6.8 billion in cash SAP agreed to pay for Business Objects. Business Objects has a larger product portfolio than does Cognos, with revenue to match: Business Objects has sales of $1.3 billion in its last fiscal year, compared to Cognos' $979 million.

"Business Objects is broader and I think would have been a better fit, product-wise," Ward said.

Paragon Consulting's Jones wonders why IBM, after staying away from applications for so long, is digging in now. "I can see why IBM wants the BI solution set (ReportNet) to augment all its other infrastructure and reporting components, but Cognos Finance (formerly Frango) and Cognos Planning (formerly Adaytum) just don't seem to fit with the IBM strategy," he said via e-mail. "For many years IBM have steered clear of finance applications ... so, why would they now want two products that need a lot of investment to update them and that clash and compete spectacularly with core SAP and Oracle-Hyperion offerings?"

Much as IBM might prefer to stay out of the applications fray, the changing software market leaves it little choice but to join in the consolidation frenzy. When independent, niche specialists filled the software market, IBM did well partnering widely and positioning itself as a neutral party interested only in supplying customers with hardware and middleware to run whatever applications they chose. But competitors, particularly Oracle, have picked off many of the large ISVs IBM once partnered with: J.D. Edwards, PeopleSoft and Siebel all disappeared into Oracle's portfolio. Even SAP is as much a rival to IBM now as a partner: it has its own NetWeaver middleware line to push.

In the new market, where the big players get bigger and the smaller ones get bought, remaining an applications Switzerland is a strategy that risks marginalizing IBM as Oracle, Microsoft and SAP intensify their efforts to be all-in-one software vendors to their clients.

Still, IBM insists that its Cognos deal is a continuation of its existing strategy and not a turning point signaling a new one. It hopes ISVs will continue to view it as a safer haven than Microsoft, which is famous for crashing partner ISVs underfoot when it moves into their market space.

IBM's Register points to his company's Business Objects partnership -- which it hopes to maintain, despite the looming SAP takeover -- as an example of the compete-and-support dance IBM carries out with partner software vendors.

"With SAP, we have a very strong relationship in our data services business. Parts of our portfolio compete with parts of SAP's portfolio. As strategic partners, you live with that because you know, at the end of the day, that you get a very good outcome that benefits both businesses," Register said. "We hope that would continue with our ISV partners."