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M&A Activity in the Business Intelligence Sector

You cannot work in or around the business intelligence software market and not have seen the recent flurry of merger and acquisition activity, spurred no doubt by the slowdown in software spending overall, but also by customers' increased preference for dealing with fewer vendors.

Who is next? There is plenty of speculation (just check out the Yahoo! stock message boards for any publicly traded BI firm).

Market Focus Today, What about the Future?

There is significant hype about the saturation of enterprise software among the Fortune 2000, and that the real fertile ground for software sales in the immediate future lies in the small and medium-sized business market. As many a software executive has found, high-end enterprise suites are typically ill-suited to the demands of a smaller customer, who not only has fewer staff and less money to maintain and buy software (let alone customization services) but also is not willing to buy something that is entirely packaged (and that offers little to no differentiating, customer-specific "settings"). Thus, large enterprise players are looking to buy successful, niche companies that have nailed a specific application for the small to mid-sized customer.

Rounding Out the Stack

The "stack" is the sum of the technologies that comprise a software vendor's value proposition (or solution). Most companies don't have the complete stack but rely on partners to deliver a whole solution. Pricing pressure, brought on by a weak economy and good ASP (application service provider) offerings, has forced many a software vendor to reexamine their stack and bolster their value proposition by purchasing the missing pieces.

Next Generation or Leapfrog Technologies

The software business model of old, where firms sell a high-cost physical piece of software and reap annual fees, is increasingly in danger of becoming irrelevant. In its place we are likely to find current models such as ASP and emerging models such as computing on demand. Ultimately, market demand is shifting to software as a "service" and this means new technologies that help deliver on this vision will increasingly be in demand by software vendors with the foresight to invest in the future.

What you see at work now is both a natural evolution in any market life cycle (reduction of suppliers due to competitive intensity) driven by customer demands (mitigating complexity and cost by dealing with fewer suppliers). This leads vendors weakened by slowing demand to pursue acquisition by strong players as an exit strategy. At the same time, large vendors are looking to fill tactical holes in their product portfolios to round out their stacks, while keeping an eye on new technologies that can provide an edge in the future. The ones who lose, not surprisingly, are the niche vendors that cannot make a strong enough case for the value of their technology.


Gib Bassett is president of Analytic Strategy Group, a research and consulting firm focused on the analytics and business intelligence markets.

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