The nature of what constitutes a commodities IT infrastructure is changing. And the ability of the new infrastructure to blur the distinction between groups of products, and thus the market dynamics of particular products and vendors in this space, is stimulating mergers, acquisitions and alliances.
There is a large amount of inevitability as vendors are stuck in existing positions, battered by trends that are larger than they are, and unable to move to catch a wave, or to avoid being drowned. The prize at the end of this can be exemplified by SAP, which in the R/3 product set, provides a platform for operational applications and therefore plays a fundamental part in the commoditization of the IT infrastructure.
R/3 tends to get referred to as an Enterprise Resource Planning application suite, but it is effectively a set of horizontal and vertical applications built on top of a common platform. People buy the applications, not the platform. However, the company is able to milk the platform to leverage new application sales, and there is a raft of third-party activity around the platform, consultancy and VAR channels.
SAP’s success with R/3 as the platform for operational applications puts it in an interesting position, with respect to the platform for analytic applications. R/3 is so widely deployed that it can be thought of as part of the base infrastructure, against which the platform for analytic applications gets built. SAP has its own fledgling platform for analytic applications, known as Business Information Warehouse (BW), which interfaces with R/3. The tight coupling between the two isolates SAP from much of the turbulent market dynamics associated with changes to the base infrastructure.
SAP got to the position it is in today by selling R/3 as an application rather than a platform. In the Business Intelligence space, there is an almost exact parallel in the shape of SAS Institute, which has continually sold a platform by pretending to sell applications. SAS is very much isolated from the turbulent market dynamics of changing base infrastructure, and master of its own destiny – at least within its own customer base. The other obvious way of controlling your own destiny is to control the base software infrastructure. There are only four companies that can do this to any degree today: Microsoft, IBM, Oracle and Sun Microsystems. Of these, only three – Microsoft, IBM, and Oracle – are active in the Business Intelligence space.
If any of the rest of the players in the space are to provide a universal platform for analytic applications, they need to construct a technically-competent platform by formalization of relationships with other tools vendors, and then rely on market dynamics to build a momentum around the platform amongst VARs etc., in order to get people building packaged applications against the platform.
Like most areas of computing there is a natural tendency to move to a monopoly, so the chances are only one or two such consortia of tools will persist in a few years time. Time is of the essence, because resellers are notorious for picking winners. In addition to SAP, SAS, IBM, Microsoft and Oracle, a number of players now have some form of credible platform: PeopleSoft, Hyperion, Platinum and Information Builders come to mind, along with Sybase and Informix perhaps.
In terms of trying to predict the overall M&A activity that will ensue in the next few years, two questions need to be taken into consideration: do the existing credible platform suppliers currently lack any of the pieces? And are there any combinations of the remaining tools players that can together build critical mass?
To answer the first question, PeopleSoft is playing the partnering game at the moment. Oracle, IBM, SAP, SAS and Microsoft are pretty well set up, although Platinum probably needs a new OLAP server and a better front-end. Hyperion needs a proper ETL capability, although its market capitalization will probably have to settle down before it can move, and it’s not entirely clear whether Informix and Sybase still have ambitions and the scale to play in this space.
To answer the second point, of the remaining tools vendors Brio is trying to build up a platform by merging with Sqribe. Informatica and Ardent might both (separately) also be able to deliver an offering in this space. Cognos, BusinessObjects, and Hummingbird have ambitions as well (M&A activity is expected and/or has recently been announced).
However, most of the tools players have gone for a wide range of partners in complementary areas, and it may be tricky to unravel these partnerships. The problem is that vendors have to start to work now, in order to get the channel partners on board. They need to nail their colors to the mast, cast off some partnerships, and take a revenue hit in the short term.
In the long term, the role of partnerships is likely to decrease as companies start to interface to fewer external tools. This phenomena is largely market-driven, since in time the market will expect a vendor to provide the complete platform. At least it will need to provide enough so that a channel partner can build an effective solution in a lot of situations, without requiring to buy into more than one vendor’s products.
Some people can play the partnership game (one would expect IBM to do so), but overall a set of loose partnerships is unlikely to prove attractive to a VAR as a platform against which to build their business.
Many of the VARs are likely to be small-scale and relatively geographically localized, but there is likely to be a big market for global horizontal or vertical applications builders who are prepared to commit to one of the successful emerging platforms. This should provide a bright future for those who have developed an application-specific niche early on. The two most obvious examples are Corvu and Gentia. Gentia is actually a sad and typically British story. It had the platform first, it just never persuaded anyone it was sufficiently credible to buy from. It then started selling a niche application, and in due course, to survive it may have to port that application onto other peoples’ platforms.
