Microstrategy catches a cold

The latest financial results from Microstrategy show it joining the lengthening list of BI vendors that are struggling.  Cognos has at least shaken off its SEC troubles, but it has had mixed results at best recently, while Business Objects recent share price chart has that 1930s Great Depression look about it (see below)   Microstrategy showed a 5% decline in licence revenue, both year over year and on a trailing 12 month basis.  While total revenue increased due to a spurt in services revenue, no software company can honestly say that they are happy if their lifeblood, software licence revenue, is in decline.  The company’s profits were down but operating margins were still a very healthy 32%, albeit again declining from a year ago.

I believe that this latest addition to the casualty list is continued supporting evidence for my long-standing thesis that pure BI players are going to struggle in the medium term due to the steady encroachment of Microsoft with its cheap and cheerful competing BI technologies, and also to the largely unrecognised saturation of the high end enterprise market for BI tools. 

It can be seen below that Microstrategy’s share price has held up better than its main rivals recently, but this latest set of results has triggered a sell-off.

(source for graphs: Yahoo finance web site)

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CDI (or is it MDM?) Summit

I recently presented at the CDI MDM summit in London, the first one in the UK and indeed only the second held at all (I also presented at the inaugural one in San Francisco in March this year). These conferences are the vehicle of the CDI Institute, set up by ex-META analyst Aaron Zornes. He seems in two minds as to whether to re-title them MDM from CDI, and so this one’s title stayed on the fence as “CDI MDM”. At some point Aaron will acknowledge that CDI is just a subset of MDM, but for now the fence straddling continues. Anyway, the title is less critical than the content, and the conference went quite well. There were supposedly 170 registrations, though this included vendors exhibiting, but there did seem to be up to 100 genuine customers at the session. The first day was a workshop where Aaron gave his personal views on the space and the leading vendors, while the second day was a mix of case studies from customer and vendor pitches of varying degrees of subtlety. It is remarkable how many vendors haven’t grasped that conference attendees do not want to hear direct sales pitches when they have paid to attend a conference; if they wanted a sales pitch they would invite the vendor to come to their office. SAP once again stayed away from the conference, which given the state of their current MDM offering was probably prudent.

The exhibits were pretty well attended and the case studies showed that there are some pioneers in the MDM area who are beginning to get some value from their projects, but equally clearly the space is very immature, with various vendors clambering on the MDM bandwagon despite these vendors having seemingly never heard of the term a year or two ago. As well as the pure MDM plays like Kalido, Siperian and Purisma, there were several data quality vendors like Initiate, Trillium and Datanomic, and the expected presence from IBM, Oracle and Hyperion. A number of systems integrators also turned up, but I have the impression that there are not enough major projects out there yet to have excited the big SIs. It seemed clear that the “more than just customer” message was winning, with more than one speaker highlighting the danger of developing silos of master data if one hub is set up for customer, one for product etc. It would indeed seem odd to go from one form of silo (by organisational unit) to another (by data type) when this is entirely unnecessary.

The conference organisers did a good job, with sessions staying to time, and the exhibit hall was laid out sensibly. With the general decline of conferences it was good to see one that clearly had captured some interest and was well run.

SeeWhy real-time event monitoring makes sense…

Given the consolidation in the business intelligence sector, and the recent share price dips even of leaders Cognos and Business Objects, you might wonder why anyone would bring out a new BI product. Certainly there is no shortage of reporting tools, data mining has yet to break out of its statistician niche, while visualisation tools have again failed to become a mass market. However one area that does make sense for a new entrant to focus on is real-time event monitoring, which is typically today addressed (poorly) by the vendors of major applications.

SeeWhy software is a UK start-up which has managed to get over the key hurdle of signing up initial high class customers such as Diageo. It is run by Charles Nichols, previously an executive of Business Objects. Charles is a smart guy who understands the space well. The software pulls data out of real-time message queues, enabling alerts to be generated e.g. for supply chain data in the case of Diageo. The company should continue to focus on this niche in my view, and ovoid trying to be “all things to all men”. For example it would be natural to extend its capability to data mining in order to spot anomalies or trends, but would be wise to partner with existing data mining tools in order to do this. Similarly, if they start to build up repository capabilities and looking at trends in their customer data they should avoid trying to compete with general purpose data warehouse technology, or they risk undermining their message of “real time” analysis. I have written elsewhere how EII vendors struggle when they try and position themselves as general purpose business intelligence tools, since fundamental issues like data quality get in the way if you do not have a persistent store of data such as a data warehouse. This has led to pioneer EII vendor Metamatrix stalling in the market, with virtually no growth in revenues last year. By concentrating on drawing data from real time message queues, marketing to that niche and by selective partnering in other areas SeeWhy should be able to prosper in an apparently crowded market.

What’s next for ERP?

The ERP landscape became simpler this week, when SSA was swallowed up by a private equity company called Golden Gate Capital. This group (and its subsidiary Extensity) has now absorbed Baan, Comshare, Dun & Bradstreet Software, Epiphany, Infinium, Marcam and Systems Union. As Ventana points out this means that the choice boils down to SAP, Oracle, Microsoft and this new amalgam under GoldenGate/Extensity. It is interesting that this private equity group seems to be performing the role CA used to play: hoover up under-performing companies, slim them down and milk the support revenue stream. What the article implies is that this is pretty much the endgame for the ERP space, but I am not so sure. The one dimension missing here is the hosted model.

Salesforce.com showed what could be done with a hosted software model. In the ERP world we are seeing new entrants like Intacct and Ataoi, which while they are small so far are making solid inroads into their chosen markets. At present this approach may appeal more to SMEs, but remember that salesforce.com started this way as well, only later taking on Siebel more directly. I know the CEO of one of these emerging hosted ERP vendors, who was amused to be in a competitive bid with SAP at one prospect. His company’ bid was less than one-tenth that of the behemoth. I’m not suggesting that these hosted ERP systems compare in functionality with SAP and Oracle, but perhaps that after all is the point. Traditional ERP systems have become so bloated that large parts of them remain unused and having systems hosted avoids all the environmental installation problems that ensure with traditionally installed software, where there are so many combinations of operating system, DBMS, transaction monitor etc that the vendors have to spend as much time testing combinations of software than actually writing new functionality.

It may take some time but I think the next change in the ERP market will be via this hosted model. When you start to see defensive market offerings by the giant vendors, just as Siebel started an on-demand offering (but too late), then we will know that this prediction has been fulfilled.

The Informatica recovery story

The data integration market has previously split between the EAI tools like Tibco and Webmethods, and the ETL space with tools like Informatica and Ascential (now part of IBM). The ETL space has seen significant retrenchment over recent years, with many of the early pioneers being bought or disappearing (e.g. ETI Extract still lives on, but is practically invisible now). Mostly this functionality is being folded into the database or other applications e.g. MSFT with SSIS (previously DTS) and Business Objects having bought ACTA. Still in this space are Sunopsis (the only “new” vendor making some progress) and older players like Iway and Pervasive, whose tools are usually sold inside other products. Others like Sagent and Constellar have gone to the wall.

The integration market is surprisingly flat, with Tibco showing 9% growth last year but a 10% shrinkage in license revenues, while Webmethods grew just 4%, with 1% growth in license revenues. Hardly the stuff investor dreams are made of. BEA is doing better, with 13% overall growth last year and 10% license growth, but this is still hardly stellar. Informatica is the odd one out here, having extracted itself from its aberrant venture into the analytics world and now having repositioned itself as a pure play integration vendor. It had excellent 31% license growth and 27% overall growth last year. The logical acquisition of Similarity Systems broadens Informatica’s offering into data quality, which makes sense for an integration vendor. When IBM bought Ascential some pundits reckoned the game would be up for Informatica, but so far that is not proving the case at all.

Microsoft builds out its BI offerings

A week ago Microsoft announced Performance Point Server 2007. This product contains scorecard, planning and analytics software, and complements the functionality in Excel and in its SQL Server Analysis and Reporting Services tools. With Proclarity also within the Microsoft fold now, it is clear that Microsoft is serious about extending its reach in the BI market.

I have argued for some time that rivals Cognos and Business Objects should be a lot more worried about Microsoft than about each other in the long term. Most business users prefer an Excel-centric environment to do their analysis, and as Microsoft adds more and more ways into this it will be increasingly uncomfortable for the pure-play reporting vendors. As ever, Microsoft will go for high volume and low price, so will probably never match BO or Cognos in functionality, but that is not the point. Most users only take advantage of a fraction of the features of a BI tool anyway.

Microsoft is playing a long game here, and the pure-play tools will continue to do well in what is an expanding market. But the ratchet just got tightened another notch.

True love

After a long courtship Microsoft today announced its engagement to its long-time lover, ProClarity. ProClarity had long been in a monogamous relationship with Microsoft as a partner, and had clearly been trying to win Microsoft’s heart ever since they first met. This s a excellent example of power dating in the software industry, as Proclarity had seemingly tied its fate to Microsoft as a conscious strategy for a long time. Proclarity had revenues of USD 15.1M in 2005, but had barely grown in 2005 over 2004 (just 2% growth) and at 135 employees was probably not profitable. Growth of 2% and losing money is not a healthy position for Proclarity or any other software vendor, so its new position as a blushing bride is a sound move for the company. Financial terms of the Microsoft dowry were not obvious from the announcement.

Microsoft gains a strong reporting technology and moves ever further into direct competition with the mainstream BI vendors Business Objects and Cognos, a trend noted previously in this blog.

A bit poor

You may recall my blog on SAP’s farcical claims about its software’s impact on company profitability. It looks like someone with more time on their hands than me actually checked up on the figures and found these lacking, in addition to the lack of logic in the original claim. Nucleus Research, who are noted for their rigor with numbers, found that in fact that SAP customers (identified by being listed on SAP’s web site) were 20% less profitable than their peers, rather than 32% more profitable. Of course this is not quite the same thing, but it is amusing: it suggests that only SAP’s identified reference customers are relatively unprofitable. Perhaps the ones who keep quiet are doing OK? As I noted earlier, the SAP claim was deliberately skewed to exclude all financial institutions (which share the twin characteristics of being highly profitable and rarely using SAP) while anyhow the notion that the choice of your ERP systems provider is a cause of either good or bad profits is both logically flawed and also deeply amusing to those of us who have watched companies spend billions implementing SAP to little obvious effect in terms of hard business benefits.

Good on Nucleus for poking further holes in this especially egregious piece of over-marketing. Bruce Brien, CEO of Stratascope, the company that did the market research for SAP, reacted by sayng:“They’re making an implication that my numbers can’t prove, but it’s a marketing message. Companies do that all the time,” he says. Oh well, that’s all right then.

Cognos recovers somewhat

Cognos announced its full year results, notably seeing a recovery in license revenues to USD 118M in their fourth quarter (i.e. Q1 2006) after the disappointing Q4 2005 results. It was also important to note that the company closed 18 deals over a million dollars in size, which was another marked improvement on the previous quarter. Profit margins were a healthy 18%. Still, license revenue was actually down compared to the same quarter a year ago (USD 130M) while overall revenues at USD 253M for the quarter was slightly down on the same period last year. Actually shrinking is not generally a cause for celebration in a software company, so it is a measure of just how bad Cognos’ previous quarter was that these results were generally greeted with relief.

This (relative) recovery all bodes well for the broader sector, and indicates that Cognos’ stumble at the end of 2005 was to do more with company-specific issues (limited deployment of its new product line) than with any general slow-down in the business intelligence market (which just about every analyst predicts will grow at a healthy clip in 2006). In the medium term, Cognos faces the same issues as other BI suppliers: the relative saturation of the market, and the ever-growing threat from Microsoft.

The ratchet goes up a notch

Back last year I wrote about the creeping progress of Microsoft into the business intelligence arena. In CBR Madan Sheina, (one of the smartest analysts in the industry by the way), examines the latest move in this direction, the SQL Server 2005 suite’s enhanced business intelligence offerings. The new ETL offering SSIS (previously DTS) will be of interest, although its SQL Server ties may limit the take-up of this relative to database-neutral offerings. However the new Analysis Services and Reporting Services promise to ratchet up the pressure on the pure-play BI players, Business Objects, Cognos and the rest. I have long argued that the most ubiquitous BI tool is actually Excel, and that given that people already know this, an ideal BI tool for many users would be one which magically got the data they wanted out of a data warehouse directly into an Excel pivot table. Yes, there will always be a subset of power users for who this is not enough, but in the vast majority of cases this will actually do the trick. Other tools (visualization, data mining etc) would be relegated to niches if this were to happen significant niches perhaps, but niches nonetheless.

Business Objects has done well because of its semantic layer, the “universe”, which overlays something closer to a business view on top of data marts and warehouses; this imposes some maintenance overhead but this is acceptable to users since it represents the data in a more business-like form. However Business Objects has always struggled with its OLAP capability relative to competitors. Cognos by contrast, had the best OLAP tool out there in Powerplay, but a rather ordinary reporting offering. These two vendors pretty much carved up the market between them, though in a growing market there was enough room for other tools like Microstrategy, Actuate etc as well. Microsoft’s new suite poses a potent threat to most of these BI vendors, since most users do not use more than a tiny fraction of the features of a BI tool, so adding more features just to stay ahead of Microsoft is ineffective; the end users simply don’t need more features. With its low price point and “good enough” features, the Microsoft tools are likely to gradually eat into the market share of the independent vendors. Nothing dramatic will happen overnight, and the curious restraint of Microsoft from serious marketing of its tools to the enterprise will also slow progress. What was the last time you saw a webinar or advert for Analysis Services? Compare and contrast with Business Objects, which is a marketing machine.

However, just like a pack of hunting dogs wearing down a large prey animal, the Microsoft tools can just edge up on the BI vendors in reach with each release, secure in their Office base that they control what users really want: Excel.