GLG News by Michael Schiff

Implications: o Recognizing the potential of off-premises hosted computing, Microsoft is moving to establish its place in the cloud. o Despite any drawbacks, the desktop landscape is still dominated by Microsoft Windows; Azure will allow Microsoft to leverage the pervasiveness of Windows to integrate its desktop strength with cloud computing. o While Microsoft is usually not the first vendor to enter an emerging market, once it is convinced of the market's potential, it will attempt to establish a leadership position. o The pervasiveness of its Windows platforms and developers' familiarity with Microsoft Visual Study and Microsoft .NET will should provide Microsoft with an advantage over competitive cloud initiatives.  

Analysis: As cloud computing gains in popularity, Microsoft recognizes that this may come at the expense of on-premises computing including its Windows server and Windows desktop operating systems and Office software.  In order to retain its strong market position, Microsoft needs to firmly establish its own place in the cloud.

Microsoft's objective is to integrate its Windows technology with cloud technology so that the two complement each other.  Its Azure Services Platform, which provides a set of developer services and Windows Azure operating system, is the vehicle through which Microsoft hopes to make this possible.  If properly executed it will allow users to transparently access resource such as applications, storage, and computing power, whether they are on-premise or hosted on a Microsoft data center in the cloud.

By launching Azure at its Professional Developers Conference, where attendees were given a Community Technology Preview (CTP) pre-release of Azure, Microsoft is alerting the development community of its intentions and hoping to convince them to develop applications using technology they are already familiar with including Microsoft Visual Studio and Microsoft .NET. This will help build momentum for Azure prior to its general availability. 

This is not the first time Microsoft has entered an emerging market after other vendors have already established themselves.  For example, while it initially failed to recognize the vast importance of the internet and played second fiddle to Netscape, it rallied its forces to establish Internet Explorer as the market leader; a position it still holds even though there are competitors with stronger browser offerings.  Another example is its SQL Server database and the early versions, which lacking row-level locking, could not provide strong support for multi-user transaction-oriented operational systems.

Once Microsoft is convinced that a new market has solid potential, it will move to establish itself as one of the leaders.  Even if it doesn't come out with a strong offering on its first attempt, it has the resources to continue to invest in improving it with each new release and improve its market share.  Furthermore, while offering cloud-based raw computing resources through its Azure Services Platform may be a new initiative for Microsoft, it has been offering cloud-based on-demand software for a while as exemplified by its Dynamics Live CRM and Office Live initiatives. 

In the right environment, with the right applications, cloud computing can be an attractive complement, or even an alternative, to on-premise computing.  By jumping on the cloud bandwagon, and hoping to make Azure the operating system of choice, Microsoft is taking steps to remain a major computing force by keeping its feet on-premises and its head in the cloud.

Implications: o  Although rumors are flying about the possible acquisition of Teradata by SAP, the fit is far from perfect. o  SAP executives have stated the need for advanced analytics and there are other vendors that SAP could acquire to fulfill this need. o  SAP might consider acquiring a data mining vendor in order to augment its advanced analytic capabilities; SPSS would seem to be a likely candidate.

Analysis: SAP, the leader in enterprise operational applications, acquired business intelligence leader Business Objects in January 2008. While SAP had its own business intelligence offerings (e.g., NetWeaver BI), they were installed almost exclusively within the SAP customer base. Business Objects, which SAP has pledged to allow to operate as an autonomous business unit, is database and application agnostic, and has a strong presence in both SAP and non-SAP environments.

Teradata, a leader in the data warehouse market, is noted for its high performance in very large database environments. It was spun off from NCR in September 2007, and has been the subject of continuing speculation that it would be acquired by several major vendors including Hewlett-Packard, Oracle, and SAP.  While SAP may want to augment its analytic capabilities, Teradata is far from the ideal candidate for it to acquire.

Teradata gains its power from a combination of proprietary hardware and database software. It is considered by many as the product to beat in top-end data warehouse implementations especially for enterprise (multi-subject, multi-user, mixed workload) data warehouse implementations. As such, it would represent overkill for SAP who already offers data warehouse software as part of NetWeaver BI. I doubt if SAP is truly interested in becoming a hardware vendor, which is precisely what would result if it were to acquire Teradata.

A more likely candidate for SAP to acquire in order to augment its advanced analytics capabilities would be a data mining vendor. While I have heard speculation concerning SAS as a possible candidate, SAS is $2 billion+ privately-held corporation that has no desire or incentive to lose its independence or have its culture changed as a result of an acquisition.

I believe that SPSS, a leader in data mining and predictive analytics would be a more likely candidate and a better fit. SAP's Business Objects unit OEMs SPSS Clementine data mining technology as the BusinessObjects Predictive Workbench, an optional component of the BusinessObjects XI 3.0 platform. With a market capitalization of under $600 million, acquiring its OEM partner would seem to make make more sense for SAP and be a better fit than Teradata or SAS.

While I'm speculating about possible acquisitions, Acxiom, with a market capitalization of around $1 billion,  is also worthy of consideration as it would augment the information available through Business Objects Information OnDemand store of marketing and financial data.  However, this is a discussion for another day.

Implications: - Microsoft's pending acquisition of Datallegro should allow Microsoft to better compete in very large database environments.  - As Microsoft will stop selling Datallegro's data warehouse appliances to new customer until they are integrated with Microsoft SQL Server, it may take a while to see any results.   - Microsoft's acquisition of Datallegro will likely lead to additional vendor consolidations. - Data warehouse appliances have a solid track record in very large data mart environments; they may not necessarily be ideal in mixed workload, multi-subject, enterprise data warehouse deployments.

Analysis: While the pending acquisition by Microsoft of data warehouse appliances vendor Datallegro, will provide technology that will allow Microsoft to better compete in very large analytical database environments, it does not mean that his will occur immediately. 

For example, in June of 2007 Microsoft acquired master data management vendor (MDM) Stratature and withdrew its products from the market until Microsoft could integrate them with its own technology. Although Microsoft's expected MDM offering is in the technology preview stage, over 14 months have passed and it is not yet generally available. Since Microsoft has stated that "Datallegro's products will not be sold to new customers until they are fully integrated with SQL Server," it is not clear how long they will be off the market or in what form they will reappear. Complicating the problem for Microsoft are architectural issues; Datallegro's appliances are Linux based and utilize the Ingres database, rather than Microsoft Windows and Microsoft SQL Server.

Furthermore, many of the success stories associated with data warehouse appliances actually involve very large data marts rather than enterprise data warehouses.  An enterprise data warehouse should be able to handle multiple mixed workloads, store data on multiple subjects, and handle very large data volumes. Many data warehouse appliances have found their sweet spot in very large, single subject, data marts; for example, in analyzing very large numbers of call detail records for the telecommunications industry.

It remains to be seen if Microsoft will market a data warehouse appliance on its own, or incorporate Datallegro's technology into Microsoft SQL Server.  However Microsoft utilizes Datallegro's technology, it is quite likely that the acquisition of Datallegro will lead to additional consolidation within the data warehouse industry.

Implications: Making applications easier to use will help increase the breadth and depth of their deployment within an organization.  Applications that allow user collaboration are also likely to see increased usage, especially in organizations that encourage interdepartmental cooperation rather than departmental rivalries.  In many situations, especially among nontechnical users, an application is judged by its user-interface.  Users who have positive experiences with the social networking features of new applications will become evangelists for these applications.

Analysis: While vendors of enterprise applications often focus on their products technical capabilities, their ability to integrate with other software in the prospect's organization, and the benefits that the solution provides, many end users judge an application by its ease-of-use and "friendliness" of its user interface. 

Although the well-known adage, "don't judge a book by its cover" has generally proven to be true, many users, especially those who do not appreciate the technical details of a software solution or even how the solution contributes to their company's overall profits, judge the worth of a software application by its user interface. After all, if an application is easy to use, and due to an intuitive interface, requires only minimal training, there will be less resistance to using the application and the breadth and depth of its deployment will increase within an organization.

While some users, for example those whose jobs are almost purely data entry related, are satisfied with merely being able to enter the required data into the system (and after using the system for a while probably only glance at their screens!) many other users are involved in real-time interactions  (for example in a call center)  with customers and prospects, and the ability to employ social networking services to seek more information or collaborate with others to resolve a customer issue or overcome a prospect objection, is invaluable. It is these users who will tell others about their positive experiences and help these software solutions gain additional traction within (and external to) their organizations.

Oracle's new business applications are about more than ease-of-use and collaboration, they are also about using data mining and predictive analytics across both internal and external sources to increase sales productivity.  This however, is a potential topic for another blog.

Implications: o While Teradata has been slow to acknowledge that data warehouse appliances were more than a niche market, Teradata may actually have been the original data warehouse appliance vendor. o Data warehouse appliances do not necessarily replace traditional data warehouses; rather they complement them and should be considered as a possible component of an organization's overall data warehouse architecture.  o Teradata is being squeezed at the top end by traditional database competitors such as Oracle; it is being squeezed at the low end by data warehouse appliance vendors such as Netezza.

Analysis: In mid April, Teradata launched a family of data warehouse platforms built around the Teradata 12.0 database engine that are squarely aimed at its data warehouse appliance competitors.  The family consists of three offerings, two of which, the Teradata 550 and the Teradata 2500, are directly targeting the data warehouse appliance market.

Although Teradata has been slow to acknowledge the demand for data warehouse appliances as anything more than a niche market, appliances have continued to gain advocates and demonstrate their capabilities as a cost-effective alternative to general-purpose data warehouse deployments.  This lack of acknowledgement is somewhat ironic as Teradata, which in 1984 released its DBC/1012 (DBC for database computer; 1012 for 10 to the 12th power which equals a terabyte) with its special purpose database that is optimized for query and analysis is, for all practical purposes, the original data warehouse appliance vendor.

Teradata's has long advocated a centralized strategy that was based on consolidating an organizations's individual data marts into a massive enterprise data warehouse.  This was something that Teradata could readily accomplish as it is considered the vendor-to-beat in the high-end data warehouse market.  However, the appeal of the data warehouse appliance was that it could be utilized for special-purpose analytic applications such as the analysis of massive volumes of call detail records at a relatively low cost, be implemented very quickly, and significantly outperform traditional data warehouses.

As data warehouse appliances matured, they evolved to the point where organizations were not using them just for a single type of analysis; in fact, some organizations have had success deploying them in multipurpose enterprise implementations.

Teradata, whose technology is being squeezed at the top end by traditional database vendors including IBM and Oracle and at the bottom end by appliance vendors such as Netezza and Datallegro, found that it could no longer ignore the appliance market.

While the press release announcing the new Teradata platforms seems to go out of its way to avoid labeling any of the offerings as an appliance, this is exactly what the Teradata 550 and Teradata 2500 are. Teradata has even gone as far as to say that the "Teradata 2500 can also complement a robust enterprise data warehouse environment where customers may have other analytical needs."

Vendors of data warehouse appliances will certainly agree with this statement. However, they will argue that rather than using the Teradata 2500, prospects should use the vendor's own data warehouse appliance offering instead!

Implications: ● In a perfect world all users would immediately install any patches or upgrades that would enhance the security of their systems.  ● However, many users, especially in home or home office environments, are reluctant to change something that seems to work.  ● Of course, in a perfect world software patches and upgrades would not cause problems of their own; unfortunately, this is not always the case and a user who has been burned once may be hesitant about applying new fixes.

Analysis: While spyware is certainly a problem that many computer users underestimate or don't take the necessary steps to minimize their risk of exposure to, they are only partially to blame.  Many users have learned the hard way that the interactions among software programs can't always be completely anticipated and that sometimes a solution to one problem can lead to other problems.

Some users have had the negative experience of upgrading to a new browser, installing a Microsoft update, or upgrading to a new release of anti-virus or anti-spyware software only to soon discover that it has adversely affected the stability of their systems. This is especially true in home or home office environments where users usually don't have an in-house IT team to help them resolve unexpected problems.

In almost all large enterprises, and even in many small-to-medium sized organizations, software changes are first installed in a test environment to see if they cause problems prior to being released to the general user community. In a home or home office environment, many users simply take a "if it ain't broke, don't fix it" attitude and ignore upgrades and fixes.

This was not always the case, but has become more common as vendors like Microsoft have released operating system and browser patches that, in some cases, have created other system problems. Once users discover that, for example, a "fix" has disabled one of their devices or perhaps even curtailed their ability to access the internet, they become extremely cautious and may be reluctant to take chances with other patches or upgrades. Some users have even adopted an informal policy of delaying any patch for at least a week in order to see if any problems have been reported in the press.

Malware creators take advantage of this "user installation latency" to launch attacks as soon as a new area of vulnerability is exposed. The user community is caught in the middle; if they don't install a upgrade or critical patch they increase their risk of exposure to malware; if they install a patch that has a problem, they can temporarily disable their systems. While some might suggest that more thorough testing is needed prior to releasing a software update or fix, it is almost impossible to test for every possibility.  Software vendors need to build a protective wall around their software, malware perpetrators need only discover one loose brick.

Perhaps a reasonable tactic would be for users to take a complete system backup prior to installing a software patch so that they can restore their system to its former state in the event a problem is discovered, and then wait for a new patch to be delivered.

Implications: ● The release of a Windows Update patch that potentially crashes Internet Explorer 6 is a major faux pas for Microsoft.  ● As with all software, IT organizations need to thoroughly test any Microsoft patches prior to allowing them to be installed on users' PCs.  ● Microsoft should have reacted more quickly once the problem was reported; initially advising users to manually edit the Windows Registry was not an adequate solution.

Analysis: Included in its monthly Windows Update patches on December 11, 2007 was a security patch for Internet Explorer (5.1, 6, and 7) that, in some cases, caused Internet Explorer 6 to crash or freeze in Windows XP SP2 operating system environments. As Windows Update is supposed to fix problems and/or enhance security, an update that creates problems of its own represents a major faux pas for Microsoft and serves to undermine user confidence in its monthly Windows and Microsoft Update patch releases.

While Microsoft has now released a patch to fix the problem, it did not do so until December 20, nine days later.  Microsoft's initial response was to minimize the extent of the problem and advise affected users to manually edit the Windows Registry, a process that can cause significant system damage if incorrectly performed.  While Microsoft certainly needed to exercise caution and ensure that the patch to the original patch did not create additional problems, it might have considered pulling the original patch and rerelease it with the fix included. 

There is certain to be some speculation that Microsoft delayed its response in an effort to induce IE6 users to migrate to IE7.  While I don't believe this to be true, it will like cause users that have previously not considered non-Microsoft browsers to now consider installing one, if only for backup in the event of a future problem.  Furthermore, it may even serve as another reason for users to consider Linux.

As with all software, Microsoft patches should be thoroughly tested by IT organizations before they are installed on users' PCs. Individual and home users might want to reconsider the automatic download and installation of Microsoft patches and, with the possible exception of "zero-day" vulnerabilities, delay installing any updates for a few days to see if any problems have been reported. 

Implications: • By having its operating system pre-installed on Founder Technology Group's PCs, Microsoft should be able to reduce the piracy of its operating system in China. • This will also benefit Founder's users as their operating system software will pass Windows Genuine Advantage test and thus receive non-critical operating system updates. • It should serve as a model for other PC vendors, both in China and other "high-piracy" countries, and encourage them to seek similar agreements with Microsoft.

Analysis: Microsoft's agreement with Founder Technology Group, China's second largest PC maker to pre-install Microsoft's Windows operating system on its PCs is a clear win for Microsoft. Given that software piracy is widespread in China, the agreement can only serve to increase Microsoft revenues and encourage other PC vendors, some of whom don't pre-install any operating system software with their computers, to seek similar agreements. Whatever revenue Microsoft obtains from its agreement with Founder will certainly be more than it would obtain if the user installed pirated software.

The Windows software will be pre-installed on nearly all of Founder's consumer PCs and about 40% of its business computers.  While the specific version of Windows was not specified in the announcement, whatever version or versions are included will be legitimate Microsoft products and therefore should pass its Windows Genuine Advantage test. As failing this test can result in denial of non-critical updates and/or disabling some operating system functions, this should benefit Founder's users.

Microsoft has been aggressively seeking to fight those selling counterfeit copies of its software and at the end of October filed lawsuits against 20 software dealers in the United States. The piracy problem in China is much more widespread and Microsoft's agreement with Founder Technology Group is a winning tactic to combat the problem.

Implications: • With IBM including a starter edition of Business Objects software with IBM DB2 and DB2 Warehouse, Business Objects will gain new prospects. • The strengthened alliance between IBM and Business Objects demonstrates that despite SAP's pending acquisition of Business Objects, third parties like IBM are still very much interested in partnering with Business Objects.

Analysis: IBM and Business Objects are extending their long-standing relationship with a new agreement whereby IBM will include a starter edition of Business Objects software with IBM DB2 and IBM DB2 Warehouse. Additionally, Business Objects will be able to resell and distribute IBM DB2 Warehouse with its Business Objects XI solutions and CFO Performance Management applications.

Both IBM and Business Objects are targeting the mid-market and by teaming up they hope to align their forces to make further inroads into this market. Business Objects and IBM are certainly not strangers to each other and this new agreement further enhances a relationship that is over a decade old. For example, in November 2006, IBM announced that it would expand its Business Objects Center of Competency while in 2004 the two companies signed an agreement whereby Business Objects could resell IBM mainframe data connectivity software in conjunction with BusinessObjects Data Integrator. Furthermore, Business Objects' Crystal Reports Server is currently included with the IBM Balanced Warehouse C1000 offering.

It is interesting to note that until late 2005, IBM OEMed Hyperion Essbase as the core technology for its DB2 OLAP Server, a product it no longer markets. However, this arrangement was discontinued more than a year before Oracle, whose database is a major competitor to IBM DB2, acquired Hyperion in April 2007. 

Although Business Objects will soon be acquired by SAP, IBM and SAP are partners, not rivals and I see no reason for the Business Objects / IBM partnership not to remain intact when the acquisition is completed.  After all, IBM, SAP, and Business Objects all compete with Oracle. 

Implications: • The BI industry will continue to consolidate as BI specialists seek to broaden their platform capabilities while database and/or enterprise application vendors seek to acquire their own BI technology. • A vendor dichotomy consisting of BI specialists and application and/or database vendors is developing within the market. • Additional acquisitions could occur in the near-term; in particular HP may be interested in broadening its data warehouse capabilities by acquiring a BI vendor like Cognos or a data integration vendor like Informatica.

Analysis: The October 7th announcement that enterprise application software leader SAP AG plans to acquire business intelligence (BI) leader Business Objects in a friendly acquisition provides additional evidence of the consolidation trend within the BI industry. Furthermore, considering the April acquisition of Hyperion Solutions by Oracle, the January acquisition of Celequest and the pending acquisition of Applix by Cognos, and the acquisition of Outlook Software by SAP earlier this year, it also demonstrates that a dichotomy is developing within the BI industry consisting of 1) BI specialist vendors and 2) database and/or enterprise application software vendors .

Operations and analysis go hand-in-hand and enterprise application vendors wish to grab a slice of the BI pie rather than sole relying on partners for this functionality. After all, SAP has offered its Business Information Warehouse (now a part of SAP NetWeaver BI) for over a decade and Siebel acquired nQuire for its BI technology years before it was itself acquired by Oracle. 

Database vendors also wish to increase their product portfolios and BI functionality is a natural complement to their database offerings. This is not a new trend as Oracle acquired the Express OLAP technology from Information Resources in the mid 90s and Microsoft has bundled both business intelligence an data integration technology in its SQL Sever database since the release of SQL Server 2000.

But who will acquire whom?  Let me speculate on some possibilities.

When rumors of Business Objects acquisition were circulating prior to SAP's offer, I thought that if Business Objects were to be acquired, HP would be the most likely acquirer.  While HP partners with several BI vendors (including Business Objects) it is serious about having its own data warehousing technology as evidenced by its NeoView data warehouse platform and its acquisition of Knightsbridge, a data warehousing consultancy, at the end of 2007.  If HP decides to acquire a BI vendor, Cognos, an HP partner, would be a likely target.  Of course HP might also decide to enhance its data integration portfolio as well.  If so, Informatica, also an HP partner, could be a potential target.

Implications: • While the adoption of Windows Vista in 2007 may have been somewhat disappointing, it should accelerate in 2008. • This will be driven by business users having almost no choice but to obtain Vista when they acquire new home PCs and by Microsoft's expected Q1 2008 release of Service Pack 1.

Analysis: While the migration from Windows XP to Windows Vista may not be proceeding at a record setting pace, it will surely accelerate for a number of reasons including home use adoption and IT acceptance.

With few exceptions, as business users purchase new PCs for their homes, the installed operating system will be Vista.  Most retail stores not longer stock XP based PCs and build-to-order companies like Dell overwhelming favor Vista and only offer Windows XP on a limited basis.  With the holiday (and gift-giving) season around the corner, many homes will acquire new PCs and these PCs will be running Vista. Business users who use these PCs at home, will familiarize themselves with Vista and serve as a catalyst for its deployment in their business environments.

Furthermore, many IT departments are reluctant to roll out the first release of any operating system, preferring to let early adopters find bugs, incompatibilities, and other problems. Many organizations simply wait until after the first service pack is released before wide-scale deployment and Microsoft is expected to release SP1 in the first calendar quarter of 2008. This will serve to break down one of the barriers to Vista adoption. 

Additionally, as Vista is now approaching its first anniversary, new releases of many previously incompatible applications have now been ported to run under Vista. Vista adoption will also increase as some companies go through their periodic PC upgrade cycle and replace existing hardware with more powerful desktop and laptop PCs with the requisite power and memory to effectively utilize Vista.

Microsoft didn't help matters when it issued Vista with at least five versions (Home Basic, Home Premium, Business, Ultimate, and Starter- a bare bones version that is not available in the United States), complicating the choice of which version to chose.  Sometimes too many choices can serve to delay any decision at all. Furthermore, it has also extended the life of Windows XP by agreeing to make it available to PC manufacturers and retails through the end of June 2008 rather than the earlier deadline of January 30, 2008. This may provide more breathing room for XP users and may delay, but not eliminate, eventual Vista migrations.

The bottom line is that while Vista adoption may have been somewhat slow in 2007, it should pick up in 2008 as home users have little choice but to go with Vista when acquiring new PCs and many of the barriers to business adoption will be removed.

Implications: •Microsoft's acquisition of Jelllyfish.com provides immediately credibility to the social shopping market. •Microsoft acquired Jellyfish.com for both offensive and defensive reasons. •Microsoft recognizes that today's product set might not always meet the needs of tomorrow's users and the acquisition provides additional technology to broaden its technology portfolio and diversify its offerings.

Analysis: While Microsoft may not have a reputation as a cutting-edge technology innovator, it is astute enough to recognize market trends and ensure that it grabs a piece of the pie.  Once it decides that it likes the pie, it frequently harnesses its vast resources and moves to establish itself as a major player.  For example, while it initially seemed to ignore the impact of the web, once it started to take it seriously Microsoft moved aggressively to establish Internet Explorer as the market leader and displaced the now almost forgotten Netscape for market dominance.

Even thought Microsoft's Windows operating system and its Office product suite are the runaway leaders in the PC world, Microsoft is hedging its bets with new offerings such as Microsoft Office Live Workspace which will help it defend its position against open source offerings as well as offerings from competitors like IBM. Other examples include Microsoft's entry into the on-demand or software as a service market.

The acquisition of Jellyfish.com serves to establish Microsoft in the web shopping market and provides not only a social marketplace with a wide range of technologies including search functionality, chat capabilities, consumer provided product evaluations, and price comparisons, it also encourages consumer participation by allowing them to share in the royalties that are generated when they make a purchase. It also includes an innovative auction capability in which prices are reduced as the auction nears completion. The Jellyfish acquisition as both offensive and defensive characteristics. On the offensive side it provides Microsoft with a beachhead from which it can expand its web shopping capabilities; from a defensive perspective it serves to help it further compete with Google in the online advertising space.

Whether the primary motive was offensive or defensive, one thing is certain - Microsoft is taking this market seriously and be taking it seriously, Microsoft is further enhancing the social networking shopping market's credibility while continuing to evolve and augment its own capabilities.

Implications: • A newspaper report that Business Objects is looking for a buyer is only a rumor. However, if I had to pick a likely acquirer, my guess would be HP. • Should Business Objects be acquired it will change the competitive landscape of the BI industry with ramifications that will affect  its competitors, its customers, and its partners. • Business Objects has been an aggressive acquirer of other business intelligence companies and is now the revenue leader among BI specialists.

Analysis: According to French newspaper Le Figaro, Business Objects may be looking for a buyer.  BI acquisitions in 2007 have included Oracle acquiring Hyperion Solutions, SAP acquiring OutlookSoft, Cognos' January acquisition of Celequest and its pending acquisition of Applix, and even Business Objects' own acquisitions of Cartesis and Inxight Software. 

While mergers and acquisitions have been a fact of life in the business intelligence (BI) industry, the potential acquisition of a BI market leader like Business Objects would have major impact on the competitive landscape from vendor, customer, and partner perspectives.  

With the possible exception of those vendors whose technology is exclusively oriented toward Microsoft, most BI specialists pride themselves on their ability to work and partner with many database vendors, even those that offer competing products. One of a BI specialists major strengths is its ability to support heterogeneous database and operating system environments.

However, if a BI specialist were to be acquired by a database or enterprise application vendor it is not clear that all of its technology would continue to survive.  For example, Oracle's acquisition of Hyperion has left Essbase and Brio (acquired by Hyperion in 2003) customers wondering about Oracle's long-term commitment to all of Hyperion's BI tools. Further complications arise if the partners of the acquired BI company are competitors of the acquiring company. If so, existing alliances, even if strong and well-established, could suddenly crumble.

It would surprise me to see an industry leader like Business Objects be acquired by an Oracle, IBM, or SAP.  Oracle already has a cadre of BI technology thanks to its own development efforts and the BI technology it obtained with the acquisitions of Hyperion, PeopleSoft, and Siebel. Rather than attempting to acquire dominant BI technology of its own, IBM seems to prefer to remain a neutral partner to all. And while SAP has been more aggressively marketing its NetWeaver BI, it doesn't want to risk alienating the many BI partners that support both its application and BI offerings.

A more probable acquirer would be Hewlett Packard.  HP is moving to establish itself as a force in the data warehouse world. Its late 2006 acquisition of data warehousing and BI consultancy Knightsbridge and its Neoview hardware/software data warehouse offering support this. The acquisition of Business Objects would immediately establish HP as a major force in the BI world. 

Only time will tell if the rumor is based on fact.  

Implications: • While open source pricing is generally quite attractive, issues such as maintenance and support must also be considered • The open source market will continue to grow, especially in the BI sector, due to both growing BI demand and additional organizations deciding to give it a try. • Deploying a new BI tool doesn't necessarily mean abandoning an old one; BI tools, both proprietary and open source, can exist side by side.  

Analysis: The open source software market continues to grow as additional organizations decide to give it a try.  Furthermore, initially driven by the success of Linux, open source is now an established technology that is no longer considered an immature offering. Open source deployments will continue to grow as business organizations and software developers further embrace it, even if only on a trial basis in order to gain experience.

In the business intelligence and database market the open source movement is also growing from expanding demand that benefits both proprietary and open source offerings.  In the business intelligence market, the software business is not necessarily a winner-take-all, zero-sum, game; business intelligence products can coexist side by side and run against the same database.  Consequently, success in the business intelligence market can be measured by growing the number of end user licenses or "seats" in an account rather than, as is often the case in other software markets, displacing the incumbent.

This has important implications to the open source BI vendors as their goal can be to first establish themselves in an account, even if only on an experimental basis, and to then increase the number of seats in that account each year. This can be accomplished by expanding the number of end-users accessing an analytic application built upon open source technology and/or successfully implementing an open source application and then using open source technology as the basis of additional new projects.

Commercial open source vendors earn their revenue through maintenance and support; each additional supported user increases their open source revenues.  While initial open source acquisition costs are usually quite low, if not free, any organization utilizing open source technology as a building block for its applications needs to ensure that this technology, and the resultant applications, are commercially supported.

The software business often follows an annuity model; initial license fees can be less important than the future ongoing maintenance and support revenue stream. This is a revenue stream that is generated by both proprietary and open source offerings.

Implications: •Informatica's OEM partnership with SAP further strengthens its presence in the enterprise application market. •As Ascential was once the strategic data integration partner for SAP, the Informatica/SAP OEM relationship may have resulted more from IBM's acquisition of Ascential rather than Informatica's own marketing prowess. •Acquisitions and mergers can influence existing partner relationships and astute investors should keep this in mind.

Analysis: Informatica's announcement that it has entered into an OEM relationship with enterprise application giant SAP AG, is a major victory for Informatica and bodes well for its continued market leadership as an independent data integration specialist. 

Under the agreement, SAP will embed Informatica software such as PowerCenter, PowerExchange (derived from the technology for accessing mainframe legacy data structures that Informatica acquired with its 2003 acquisition of Striva), and Metadata Manager into SAP offerings including its SAP NetWeaver platform.  Since SAP previously had an OEM relationship with data integration specialist Ascential Software (acquired by IBM in 2005) for populating its SAP Business Information Warehouse (now part of the SAP NetWeaver Business Intelligence product set) from non-SAP data sources, Informatica's OEM relationship with SAP serves to now position Informatica as SAP's preferred data integration vendor.

Informatica and Ascential have historically been arch-rivals in the data integration market and have constantly competed for the attention of enterprise application vendors including SAP and (prior to its acquisition by Oracle) PeopleSoft. However, IBM's acquisition of Ascential seems to have strengthened Informatica's hand as it can credibility claim to be a market leading independent data integration specialist while letting the FUD fly as to how "Ascential's technology will, over time, be optimized for IBM's own databases." 

Acquisitions and mergers effect more than just the two companies involved;  an astute investor should consider the secondary effects they could have on established partnerships and relationships each of the two companies may have with other vendors as well.

Implications: •Netezza's successful IPO bodes well for other high-tech startups. •It may cause other companies to carefully weigh the IPO option versus being acquired by other companies. •While this will not stop the overall trend towards industry consolidation within the data warehousing industry, it could serve to enhance competition by strengthening existing privately-held competitors whose investors chose to remain independent  and ultimately go public rather than be acquired.

Analysis: Netezza's initial public offering on July 19, 2007 was a success not only for the company and its pre-IPO investors, but also for those who acquired the company's stock at its IPO price of $12; a price that was above the initially expected range of between $9 and $11 per share. Excluding underwriting expenses, the 9 million share offering raised $108 million for the company. On its debut day, Netezza opened at $15 and closed at $17.39; it has since settled down around $14 having closed on August 7 at $13.90.

While Netezza has solid and innovate data warehouse technology which helped establish, or at least popularize, the data warehouse appliance concept it had never been profitable.  (Note: I would argue that Teradata, despite its original protests that it was not a data warehouse appliance vendor, was, in fact, one of the first data warehouse appliance vendors.)

The success of Netezza's IPO bodes well for privately-held high-tech companies. It may cause their investors to more seriously weigh the IPO option when evaluating acquisition offers from potential acquirers. Although this will not stop the ongoing data warehousing industry consolidation trend, it will serve to keep the industry more competitive and make it stronger.

Implications: •While the deployment of open source software can certainly reduce initial acquisition costs, organizations must also consider ongoing support. •The threat of using open source software rather than licensing a vendor's commercial offering can provide leverage during negotiations. •Third party software applications developers may find open source technology advantageous as components of their own products; they should be aware of any restrictions they are subject to as a result of using open source code.

Analysis: While the use of open source software can provide organizations with many benefits, it may not necessarily be a "sure thing" in all situations.  For example, while the deployment of open source software can be very cost-effective, issues including support and problem resolution need to be considered, especially in mission-critical applications. 

A company utilizing an open source database at the heart of its order-processing application will likely require an immediate fix or work-around in the event of a software bug that prevents the application from operating. However, this may not always be possible if the open source code is only supported by volunteer programmers.

Traditional software companies make their livings not only from software licensing fees but also from the associated maintenance and support fees. From the software vendor's perspective these maintenance fees can be viewed as an annuity-like income stream and some companies have been known to almost give away their software licenses (especially near the close of the fiscal year) as long as they are receive maintenance fees from the customer at x% (typically between 15% and 25%) of the then-current software license list price. Fortunately for companies choosing to utilize open source software, some commercial companies recognize this issue and provide fee-based support for open source software as part of their business model.

In addition to acquisition price and ongoing support, another factor to consider is the leverage that the use of open source software might provide when negotiating with commercial software vendors. Even the mere mention that an organization is considering using open source software, rather than licensing a vendor's commercial software, may be enough to persuade the vendor to reduce its price. 

The use of open source software can also be beneficial to third party software developers. Rather than pay license fees to other software vendors these developers might use open source technology, such as a database or analysis tool, as components of their own proprietary software applications.  However, developers who do so should make sure they fully understand the licensing and usage agreements that apply to any open source software they utilize lest they later discover that the software they developed is now considered open source as well!

Implications: •Oracle's Q4 FY 2007 earnings report shows that the company continues to grow as it absorbs its string of acquisitions.  •As many SAP implementations utilize the Oracle database, Oracle frequently receives revenue even when it loses the application sale to SAP. •While acquiring its competitors has contributed to Oracle's increased enterprise application software market share, these acquisitions have provided Oracle with additional and powerful business intelligence products as well.

Analysis: Oracle closed out fiscal 2007 with GAAP revenue and earnings that were up 25% and 27% respectively from FY 2006.  Despite concerns over its ability to absorb is numerous acquisitions, Oracle continues to grow and prosper.  Once considered a database vendor seeking to establish itself in the enterprise applications market, Oracle, with FY 2007 applications software revenue of over $3.5 billion (compared to database and middleware software revenues of almost $8 billion) is definitely now one of the leaders in the enterprise applications market. 

While Oracle's acquisition strategy, especially in the enterprise applications space, has resulted in eliminating many of its former competitors such PeopleSoft and Siebel while acquiring their technology and market share, Oracle's primary applications rival remains SAP, the enterprise application industry giant. However, due to the fact that the plurality, if not the majority, of SAP implementations run on the Oracle database, Oracle frequently benefits even if it loses an application sale to SAP. In addition to providing Oracle with revenue and profits, it also provides an entry point for Oracle's aggressive sales force to market Oracle's applications to these accounts.

Although much attention has been focused on the operational side of the enterprise applications acquisitions, Oracle obtained strong business intelligence technology as well. For example, Siebel had acquired nQuire in 2001 and used it as its foundation for Siebel Analytics; this now serves as the foundation for the enterprise edition of Oracle's BI suite. Oracle also acquired data warehousing and performance management technology when it acquired PeopleSoft.  When combined with its own BI technology (e.g., Oracle Discoverer, Reports, and the now-dormant Express OLAP products) and the BI technology it recently obtained with its Hyperion acquisition, Oracle has accumulated a large stable of solid BI technology. 

As Oracle continues to sort out packaging and the fate of some of the Hyperion offerings, it will be interesting to watch how its BI presence is affected. Oracle has evolved from a pure database vendor to now become an enterprise application industry leader; as analytics complement operations, Oracle is clearly well-positioned to more aggressively pursue this market as well. 

Implications: •Given that there are only 500 "Fortune 500" companies IBM recognizes that it must also target the SMB market. •By reducing the total number of required servers, their power consumption, and IT administrative support, IBM BladeCenter S should appeal to cost-conscious and resource-constrained SMB organizations. •As the BladeCenter S won't be available until Q4 2007, this is an "intention announcement" and IBM may be using it to recruit additional partners and/or cause SMB organizations to hold off commitments to competitor solutions until then.

Analysis: Several years ago IBM announced that it was actively targeting the small-to-medium-sized (SMB) market and the its pre-release announcement of its BladeCenter "S" clearly supports its efforts. It doesn't take an IBM mainframe to realize that their are only 500 "Fortune 500" companies and that there is revenue to be had by targeting smaller organizations.

While IBM BladeCenters, which combine processing power, storage, networking, and applications , were initially introduced five years ago as solutions for large organizations, the BladeCenter "S" is targeted at SMB organizations with limited resources as well as small branch offices of larger companies that are, for the most part, self-supporting. It is designed to deployed by non-IT professions, plugged into 120-volt power outlets, and promises to include applications such as file and print servers, email, backup and recovery, telephone management, and antivirus and firewall protection. 

Unfortunately, IBM BladeCenter S isn't scheduled to be available until the fourth quarter of 2007. While this provides IBM with addition time to recruit , and certify, complementary third-party solution partners, it may, to IBM's advantage, also delay some organizations from committing to non-IBM alternatives, until they can see what IBM will be delivering as part of its BladeCenter S offering.

Whatever IBM's motives, the BladeCenter S should benefit SMB organizations as it will increase competition for their business and as a result, reduce the cost, site preparation, and level of expertise required for them to implement IT and systems management solutions and bring them functionality that they may have previously considered as being beyond their reach.

Implications: • Salesforce.com offers a cost-effective vehicle for SMB companies to benefit from CRM software.
• Salesforce.com will come under continuing pressure from companies like Microsoft, Oracle, and SAP that are now seeking to establish their own on-demand presence.
• Salesforce.com could be an attractive acquisition target for these companies; if so, it will likely demand a premium, not a firesale, price.

Analysis: While I agree with the author's analysis that Salesforce.com will face increasing competition from enterprise application giants such as Oracle and SAP, I don't agree that Salesforce.com will soon be a CRM has-been.

Salesforce.com has successfully established itself in the small-to-medium (SMB) market and the company's success has been one of the proof-points for the software-as-a-service concept.  Salesforce.com has brought CRM capabilities to companies that simply could not afford to maintain their own computer infrastructure and did not have the requisite IT staff to install and maintain on-premise enterprise application software. 

Salesforce.com recognizes that it will face increasing competition. It is taking steps with offerings like AppExchange (which enables Salesforce.com partners to offer complementary on-demand applications), Platform Edition (for on-demand application hosting) and Salesforce SOA (to facilitate the integration of on-demand and on-premises software) to continue to make itself attractive to the SMB community as well as the developers that target the SMB community.

Furthermore, while companies like Microsoft, Oracle, and SAP are now more aggressively targeting the SMB market, they so not have the experience that Salesforce.com has.  If anything, these companies may decide to augment their own expertise by attempting to acquire Salesforce.com; if so, it will probably be a premium, not a firesale, price. While this may fulfill "the end of Salesforce.com" prophecy, it is not in the manner that the author envisioned.