IBM Accelerates Information on Demand Strategy with Cognos Acquisition

| November 14, 2007 | Business Infrastructure Software | Competitive Intelligence Report

| Analyst: Brad Shimmin

Current Perspective: Positive
Vendor Importance: High
Market Impact: High

Event Summary

On November 12th IBM and Cognos announced that the two companies have entered into a definitive agreement for IBM to acquire Cognos, a publicly-held company based in Ottawa, Ontario, Canada, in an all-cash transaction at a price of approximately $5 billion (or $58 per share), with a net transaction value of $4.9 billion.

Analytical Summary

• Current Perspective: Positive on IBM’s announcement of a definitive agreement to purchase business intelligence (BI) and performance management solution pure-play Cognos for approximately five billion dollars (U.S.), because this acquisition builds nicely upon and truly legitimizes the company’s “Information on Demand” initiative and, when completed in early 2008, it will give IBM a complete BI solution that utilizes service-oriented architecture (SOA) standards across server, storage, and integration requirements.

• Vendor Importance: High to IBM, which needed to respond to similar moves made by SAP (with the acquisition of Business Objects) and Oracle (with the purchase of Hyperion). These vendors have begun building acquired BI technologies in with existing enterprise applications and robust middleware solutions to provide end-to-end BI capabilities in support of corporate performance management (CPM) requirements. With Cognos, IBM will be able to reach these same ideals with a focus on infrastructure rather than packaged applications.

• Market Impact: High on the SOA, BI, and data management (DM) markets, as the two companies combined will be able to exert significant, global influence across a number of market segments. The two firms have a well-established partnership (15 years) and little technological overlap, which will translate into immediate cross-selling opportunities for customers looking for single contract and support agreements.

Recommended Competitor Actions

• Rivals in the BI and SOA markets should position IBM’s pending acquisition of Cognos as nothing more than an attempt to catch up with similar acquisitions made by Oracle (Hyperion) and Software AG (Business Objects). In addition, while these two vendors will undoubtedly employ acquired BI technologies primarily in the service of packaged line-of-business applications, rivals should note that IBM will position Cognos as a more vendor-agnostic BI solution with strong support for enterprise applications from rival vendors.

• Rival SOA platform providers without a strong CPM story should consider acquiring a BI pure-play provider to capitalize upon the current market trend toward full visibility and accountability based upon historical and real-time process information. Vendors such as BEA (pending acquisition talks with Oracle), TIBCO, and Software AG should take a close look at the only major player remaining in this space, SAS Institute.

• Conversely, remaining BI pure-play vendors should actively seek out partnerships and/or acquisition opportunities with both SOA platform vendors and vendors with strong supporting products such as database/data warehouse solutions, portals, and BPM tools to build out a more comprehensive product portfolio that is capable of competing with heavyweights IBM, Oracle, and SAP in particular.

• Microsoft, in particular, should continue to focus its energies on improving its overall BPM and BI capabilities by expanding its business process alliance (BPA) of partners. More immediately, Microsoft should position its recently released PerformancePoint Server 2007 as a capable competitor in providing operational and financial performance management across multiple departments.

Recommended End User / Customer Actions

• Existing Cognos customers should rest easy in the knowledge that IBM’s track record with acquisitions of this magnitude has been overall successful, particularly with regards to continued support for existing product lines while rolling out technological enhancements that leverage the company’s broader portfolio of products. The company’s decision to position Cognos as a distinct business unit and to retain its upper management clearly signals IBM’s intention to preserve the Cognos brand and product base.

• Existing IBM customers with a strong requirement for CFO-level CPM should welcome this acquisition as it will lead to an end-to-end BI solution likely able to support both appliance and SaaS form factors and delivery methods, respectively.

• Potential Cognos customers with a substantial investment in IBM BI technologies through DB2 solutions should press IBM for a detailed roadmap concerning the company’s product rationalization and integration plans for both products and industry frameworks. Given the company’s track record in this regard, existing investments will be preserved with an option to upgrade to an expanded BI offering post-acquisition. That said, such an upgrade will certainly include a strategic move away from DB2 as an active platform for data analysis.

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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