Business Intelligence Market Trends

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2006 proved to be another active year for the Business Intelligence (BI) M&A market. While not experiencing significant annual growth, 2006 BI related transaction volume was at a healthy level with a large increase over 2004’s volume. Unlike some of the large consolidation transactions in the ERP and ECM markets, most BI M&A activity has been under $100 million in size with the last known billion dollar transaction being IBM’s 2005 purchase of Ascential. Perhaps the most significant recent M&A event is NCR’s announced spin-off of Teradata and the potential this company holds as an independent entity.

Other notable BI deals in 2006 would undoubtedly have to be Microsoft’s acquisition of ProClarity and Oracle’s purchase of Sunopsis. ProClarity should allow Microsoft to continue to exert competitive pressure at the lower end of the market. While SAP’s increasing presence at the upper end may cause vendors to be squeezed from both directions. Of course speculation continues to abound regarding the future of the large BI platform vendors possibly being ripe for a phase of consolidation. Private equity and venture players’ interest in BI will also influence the market. Time will tell…

We have identified several trends that are having an impact on the BI market. These trends are vital for market participants to be aware of, as they will drive investment, consolidation and most importantly the overall growth of this market.

  • Data Quality and Integration: Organizations are increasingly discovering that data quality is at the root of many of their most important business issues. Inaccurate or incomplete data only promotes inefficiency, inhibits compliance and diminishes the accuracy of analytical/decision support and other BI tools. Moreover, disparate platforms throughout large organizations pose integration challenges, further exacerbating the issue of data quality and completeness. Ultimately the end user is constrained by these two fundamental issues of data quality and integration.
  • Structured vs. Unstructured Data: Companies are beginning to grapple with the challenges and, recognizing the benefits, of integrating unstructured and structured data for analysis. Content integration, search, text analytics, portals and metadata/master data management are some of the tools being used to accomplish this. Gartner, taking an optimistic view, predicts that by year-end 2007, a framework and terminology will have emerged to help companies better align their various forms of data.
  • Convergence of BI and Business Process Management (BPM): Not to be confused with Business Performance Management, BPM and BI integration allows users to not only analyze performance data and business processes but to also change actual business processes and rules to enhance performance. Indeed Business Objects’ recent partnerships with Pegasystems and Savvion are designed to link BI and BPM for actionable results.
  • Software as a Service (SaaS): 2006 witnessed continued SaaS initiatives by BI firms.Salesforce.com has become a popular partner for BI vendors’ SaaS solutions; the ubiquitous hosted CRM tool is being used by Informatica for connector and integration services and Business Objects for its Crystal Reports and ETL products. Additionally, Evolutionary Technologies International introduced its internally developed BTO Integration SaaS offering. On the M&A front, Business Objects acquired Nsite and Cognos purchased Celequest. At BNC, we predict this trend will continue as vendors work hard to address small to medium sized enterprises and as SaaS continues to be lauded by investors as a panacea to inconsistent perpetual license revenue streams.
  • BI Spend Rates and Growth: IDC estimates that the total BI market, inclusive of analytics and tools, has a projected CAGR of 8% over the next three years; it is expected that by 2009 the market will be greater than $21 billion. IDC’s forecast anticipates the strongest growth to be realized in BI analytics, which will certainly drive investment and interest in this market. Encouraging long term trends such as this and other favorable BI market dynamics drive private equity and venture capital interest.
  • Preferred Liquidity Methods: No secret to many observers, the IPO continues to fall out of favor as the preferred means of an exit for entrepreneurs and equity firms. Increasingly, the value of selling the company to a larger entity or a private equity firm has become apparent. Certainly the inherent risks in IPO’s and lackluster market conditions as well as the immediate liquidity offered by M&A transactions are behind this trend. Additionally, the heightened regulatory climate within the US markets has made maintaining a small or mid-cap public company very expensive and overly time consuming.