The deal, valued at $5bn, or roughly $58 per share, would absorb the last-remaining top tier BI pure play vendor still standing.
Cognos will become a new unit in IBM’s Information Management Division, the part of IBM Software that became the outgrowth of the DB2 business. Specifically, Cognos would become IBM’s BI and performance management unit, and would continue to be lead by its current CEO, Rob Ashe.
Both companies have been dealing with each other in one form or another for at least 15 years. Eighteen months ago, the relationship ramped up with announcement of a strategic alliance where Cognos agreed to optimize its then-new Cognos 8 SOA-based business intelligence platform atop IBM’s WebSphere and Information Server offerings, and for IBM’s services arms to support Cognos offerings.
Typical of Cognos’ recent dealings with IBM was a deal last February to embed Cognos 8 Workforce Performance application as the analytic and reporting engine for IBM’s outsourced human capital management services offering. According to Cognos’ Ashe, IBM was by far the company’s largest partnership.
Speculation about a possible IBM-Cognos offer emerged after SAP announced its intent to buy rival Business Objects for $6.8bn just over a month ago.
And back in March, Oracle acquired Hyperion, the other top tier BI vendor, for $3.3bn. In fact, in the weeks following the SAP-Business Objects deal, Cognos shares initially surged 30% to $52; on news of the IBM deal, they jumped to a 52-week high of $57.
Cognos’ recent financial performance has been fair but not spectacular. Q2 2008 earnings, which were reported in late September, showed a 12% rise in margins, with revenue up 10% and licensing up 12%. At the time the company also announced a $200m buyback of about 7% of its shares, which was to have concluded by October 2008.
The highlight of the quarter was closing of its acquisition of Applix, which had a separate OLAP engine distinct from Cognos’ that could be optimized to run in cache on a 64-bit machine. More to the point, the Applix technology was designed for a smaller, distributed footprint that could add localized real-time reporting to Cognos’, and now presumably, IBM’s portfolio.
With the field’s top three vendors (Business Objects, Hyperion, and now Cognos) sold off, players in what’s left of the independent BI market are pointing to opportunities and omissions now that the usual suspects are off the map.
There is room for independent BI vendors that can work with the links of IBM and SAP, claimed Jake Freivald, a marketing director for Information Builders.
Others such as QlikTech, which offers a different approach, caching snapshots of existing data sources rather than building defined cubes, claims that there is room for new approaches that emphasize ease and speed to benefit. And SAS, which largely dominates the niche for highly algorithmic business intelligence, claims that IBM and Cognos don’t offer true analytics.
A few lines in the news release seem to be more of a hope and a prayer than a description of what’s in place, claimed a SAS spokesperson in an email.
In fact, there are some notable gaps, such as forward-based predictive analytics, as eBizQ analyst Beth-Gold Bernstein pointed to in her blog.
IBM expects to close the Cognos deal in Q1.
Our View
This just had to happen. Forgetting for the moment that IBM and Cognos have a long history, the fact is that IBM has been building out its information management strategy in a manner that has long anticipated BI.
Beginning with acquisition of Ascential, which provided the back end hub for managing, transforming, and federating information, related acquisitions have included Alphablox for providing back end tools for embedding analytics into business applications; DataMirror, for the all-important change data capture (where you update only data that has changed to a data warehouse or operational data store); DFWL (for customer information management); SRD (which analyzes personal identities); and Princeton Softech (for archiving enterprise data).
With Cognos 8, the company reengineered its product so it would sit nicely atop IBM WebSphere, where analytics and reports could be requested as services, or where a change data update triggers a reporting service.
Given that both IBM and Cognos are public companies and the deal is significant in size, there was no way that IBM could address specific product or organizational roadmaps other than that it intends to retain the core of the Cognos organization, starting with its CEO. But once the acquisition goes through, IBM will have relatively few product overlaps, other than the fact that it will have three OLAP engines: DB2 OLAP, Cognos (the modern successor to PowerPlay), and the Applix TM/1 technology, the recent acquisition of Cognos, where the ink is still drying.
There are potentially a number of interesting potential synergies from this deal, aside from the fact that it fills the BI hole in IBM’s information management strategy. For instance, the Applix TM/1 technology itself could be spun along a parallel entry level path aimed at SMBs that could package this memory-resident, 64-bit, distributed OLAP analytics offering inside an IBM DataPower appliance.
Of course, this all begs the question of what is to become of the independent t BI market now that each of the top players have been acquired by the top enterprise software platform players.
In an exclusive interview with Computer Business Review last week, Ashe declared that the SAP opened new opportunities for Cognos as an independent BI provider. In this market, research has shown that by an order of two-to-one customers want an independent or pure-play vendor. The [SAP] ERP approach is different, it means that whatever they try to do, the pure-play will get aligned with their ERP.
Questioned again in the wake of the IBM deal, Ashe clarified that independent meant a BI vendor that was independent of an ERP or enterprise applications provider.
