Excerpted from:
BARRON'S Online
TECHNOLOGY WEEK - Tech trader:
The Next Brawl in Enterprise Software
Barron's - September 15, 2003 -- by Bill Alpert
Glance at the headlines and you'll agree that business needs more intelligence. The vendors of "Business Intelligence" software have been trying to address that need -- and the spiffy performance of BI stocks like Cognos and Business Objects reflects the success of the BI category. Shares of Cognos have spirited up 69% over the last year, to a recent 32, while Business Objects have leapt 83%, to 27. The laggardly Nasdaq Composite rose just 43% in the last 12 months.
Business Intelligence software looks for business trends in a company's day-to-day data: sales receipts, warehouse stocks, customer complaints, receivables ledgers. That data piled up, unanalyzed, before the arrival of software sold by leaders like Cognos, Business Objects, Hyperion Solutions and the privately-held SAS Institute. A BI system can present business trends on printouts or PC-screen "dashboard" displays, to help a company focus its people on the measures that matter most.
Sales grew for firms like Ottawa-based Cognos right through the recent recession -- and that's focused the attentions of covetous giants like Microsoft, SAP and Oracle. By improving the analysis and reporting features of their product suites, those big boys hope to annex the fertile business intelligence territory that's been pioneered by outfits like Business Objects, a French firm that operates out of San Jose, Calif. With the stakes rising, the fragmented BI industry has been trying to bulk up. This year, Hyperion absorbed Brio Software. Business Objects snapped up Crystal Decisions for $820 million, just as Crystal was planning to come public.
Biggies like SAP and Microsoft have succeeded in some of their past grabs at an enterprise software category. Stand-alone firms once thrived by providing portal software that ensured that a Website's contents stayed fresh and up-to-date. But since Microsoft added low-priced portal functions to its enterprise software, sales have slowed for portal players like Interwoven, iManage, Plumtree Software and Vignette. With Microsoft launching improved BI features for its SQL Server software before year-end, should shares of BI pure plays like Cognos be trading at 30-times next year's earnings?
"Our business is stable," says Cognos Chief Executive Ron Zambonini. "It doesn't bounce around as much as the stock bounces around." In the fiscal year ended February 2003, Cognos sales grew 12% to $550 million -- and an impressive 55% of those revenues were from ongoing agreements for support and services. Earnings nearly doubled to $73 million, or 81 cents a share, for the same period. The data dashboards on the screens of Cognos's own executives focus their attention on maintaining the steady revenue contribution of support agreements. Customer satisfaction measures are another key business intelligence focus at Cognos, says Zambonini.
Cognos recently started some new product cycles, including the launch last week of a data-reporting product called ReportNet. Zambonini is confident that ReportNet can outperform the Crystal product that Business Objects just acquired, as well as Microsoft's impending offering. Half of Cognos customers draw data from non-Microsoft Windows computer systems, notes Zambonini, whereas Microsoft's product is expected to play best with other Microsoft software.
Business Objects also says that Microsoft's upcoming product won't hurt. "It's going to be aimed at a Microsoft-only stack [of software]," says John Olsen, president of Business Objects. "We don't see them cooperating with SAP and Oracle to create an open environment." Business Objects grew sales 9% in 2002 -- a slowdown in comparison with its five-year average growth rate of roughly 25%. Last year's profit was $39 million, or 63 cents a share. Profits have averaged even better growth than sales. That was in the face of competitive offerings from the likes of SAP, Olsen proudly notes.
Last week also saw a product announcement from Business Objects: version 6.1 of its flagship Enterprise product. That product, plus the recently-acquired Crystal software, will give the sales force a pipeline of new stuff for battling Microsoft and other imperial giants.
A dozen portal software vendors once brandished their "best-of-breed" products against empires like Microsoft. Today, only Documentum has held on to a large stock market value, among those content-managers. Whether the BI category goes the way of the portal category, there are sure to be fewer BI vendors in the future.
"Companies are looking at consolidating their BI tools," says Neal Thompson, who runs strategic business technology for Maritz Travel in St. Louis. After considering half-a-dozen vendors, Maritz standardized this year on Business Objects. If different business units use different products, says Thompson, then management can't get a comprehensive view of the company's performance.
As customers start throwing vendors off their islands, who will be the business intelligence survivor?
