Is BI Recession-Proof...or Are We Just Bracing for the Next Shoe to Drop?
By James Kobielus
The economic outlook isn’t all gloom and doom. Bright spots remain in some substantial IT growth sectors--most important, in the sprawling business intelligence (BI) market.
In the past month, we’ve seen solid financials--in some cases, record growth and profitability numbers--from leading BI vendors, including SAP (Business Objects), IBM (Cognos), and privately held SAS Institute. Oracle and Microsoft also seem to be doing fairly well with BI-related revenues. Even vendors that only participate in BI environments as a provider of data warehousing (DW) solutions (e.g., Sybase) or data integration (DI) middleware (e.g., Informatica) are reporting outstanding financials all the way through year-end 2008. That includes the period just passed when the world economy began to spiral wildly out of control.
What’s going on here? Is the BI industry recession proof, or is the next soft-economy shoe--or heavy hammer--poised to drop on this segment’s unsuspecting heads? To some extent, I suspect that BI’s relative, perhaps short-lived, immunity from tough times is due to its use as a “recession-busting” tool for identifying areas to cut costs, consolidate operations, and boost revenues. SAS CEO Jim Goodnight articulated this view in his recent statement: “In tough times, companies focus on optimizing their businesses.”
But excuse me if I take a slightly cynical perspective on any sector’s claim to be recession proof. I take issue with the notion that people have no choice but to use one particular vendor’s or sector’s product, no matter how bad the economy gets. For example, the “people gotta eat” argument didn’t translate into general prosperity in the agricultural sector during the Great Depression. People found ways to survive on less store-bought food--or less meats and sweets--or larger backyard gardens--or handouts.
As regards the indispensability of BI, I suspect the actual market dynamic is bit more nuanced than we’ve been led to believe. What’s interesting about the latest round of BI vendor earnings numbers is that some are lackluster and/or declining. Case in point: MicroStrategy’s recent report of a 12 percent decline in BI license revenues in Q4 2008, compared to the same quarter a year earlier (bear in mind that the vendor’s product licensing revenues grew by 5 percent for the year as a whole, due to a strong start).
Why is MicroStrategy reporting flaccid Q4 numbers but SAP, IBM, SAS, and others are doing OK? I suspect that one of the key factors is the encroaching commoditization of “core BI” stacks, with concomitant declines in prices. Forrester defines “core BI” as solutions that incorporate any or all of the following features for information access, delivery, presentation, and user-side sharing: reporting, query, OLAP, dashboarding, Microsoft Office integration, portal integration, alerting/notification, and interactive visualization. Clearly, this particular segment is overcrowded, with dozens of vendors--including open-source and software-as-a-service providers--that are becoming as indistinguishable as polar bears in a blizzard. Though MicroStrategy is a well-established, widely adopted core-BI vendor, it does not have much beyond that common denominator feature set.
Another trend that’s making it more difficult for MicroStrategy and similar vendors to grow is enterprise information managers’ desire to consolidate their analytics environments down to a few core vendors--which, more often than not, provide data warehousing (DW), data mining, data quality, and other solutions in addition to core BI. MicroStrategy is mostly missing from those other markets, so it may be experiencing problems growing its footprint among existing customers.
Yet another trend that explains the soft MicroStrategy numbers may be enterprises’ preference for BI vendors that can offer a full range of prepackaged “business content”--such as analytics tailored to specific vertical and horizontal requirements--to extend and leverage the core BI platform. That’s where the likes of SAP/Business Objects, IBM/Cognos, Oracle/Hyperion, and SAS come into the picture--and the MicroStrategies of the BI market are mostly absent.
Just as important to these latter vendors’ ongoing success are strong professional services organizations, partnerships, and customer relationships. Only by deepening their domain expertise and customer intimacy--and pouring this new “business content” into packaged applications and solution accelerators--can BI vendors realize healthy margins going forward. Forrester refers to these packaged domain analytics applications as “business performance solutions” (BPS).
SAS’ Goodnight alluded to this key BI-vendor success imperative in his recent press release: “We achieved our 33rd year of revenue growth in the worst economy most can remember. This growth is a direct result of being a stable privately held company, which allows us to invest in long-term relationships with employees and customers.”
Where SAS and some other vendors are concerned, another key differentiator that’s helping them stay strong is emphasis on BI’s chief growth segments: most notably, advanced analytics, which encompasses predictive analytics (PA), data mining (DM), and text mining/analytics. Deep domain expertise and customer intimacy are also keys to vendor growth in advanced analytics. Indeed, the range of tailored analytic applications that leverage advanced analytics features continues to grow, though the number of PA/DM “workbench” providers on the market remains fairly stable.
At heart, BI is a relationship business. The BI solution provider should be a committed partner helping customers to address their most burning success imperatives. Customers won’t forget if you helped them out of a tight situation, such as nasty patch of sluggish economy. They’ll keep coming back to you time and again.
Steady repeat business--loyal customers--indispensable brands--that’s the best business model--just ask Warren Buffett.