Category Archives: IBM

Will Oracle or IBM Start a Bidding War with HP over Autonomy?

I’ve heard a fair bit of discussion about whether IBM or Oracle is likely to step in and start a bidding war for Autonomy which HP last week announced that it will buy for $42.21 per share, or $10.2B, as discussed last week in Kellblog when the rumors first surfaced.

My opinion — and this is an educated guess / speculation only — is that the answer is no.  Here’s why:

  • I’m told by those who’ve analyzed the deal that it is a very target-friendly deal on contractual terms as well as price.  HP wants this deal to happen.
  • I’m also told that HP is moving through the acquisition process with great speed.  HP wants this deal to happen.
  • I’m also told that HP is messaging that the deal is not just about buying into unstructured data but also about getting Autonomy’s CIO-level relationships that are supposedly superior to HP’s.  While I’m not sure that Autonomy has great CIO relationships (think:  “let Jimmy here tell you how much you’re going to pay next year”), that’s not the point.  The point is if that HP believes it, the deal becomes about protecting the core as much as about expanding into software which again would suggest that HP wants this deal to happen.
  • Because HP wants the deal to happen, I suspect the deal was not shopped and the first Oracle or IBM heard about it was the announcement.  If that’s true, then they didn’t get a chance to bid (and/or not bid) before the deal was announced.  But if that’s true, HP had to offer a market-clearing price such that Autonomy could accept the deal without shopping it.  That’s how you get a 70% premium to the market.
  • Oracle can move quickly.  The biggest reason that I think Oracle will not start a bidding war is that they haven’t already.
  • I’m told that Oracle investor relations is making comments along the lines of  [not verbatim] “if we were worried about Autonomy as a competitor, we couldn’t think of a better place for it to land than HP.”  And my guess is they believe that.   I suspect Oracle is more bummed about Clearwell slipping away (a leading pure-play e-discovery solution) than it is about a mini-me of document-oriented solutions (i.e., Autonomy) with a mere $250M/quarter spanning numerous categories including enterprise search, web content management, e-discovery, and digital archiving with over 40 products in a product line built through inorganic growth.
  • If either Oracle or IBM cared about a document-oriented, unstructured data platform, they could acquire other companies (e.g., MarkLogic!?)  for a lot less than $10B.  If they care about enterprise search, they could buy one of many small vendors in that space or put (more) wood behind Lucene and Solr.  They already have offerings in web content management and e-discovery.  The key point is that if you de-construct Autonomy, Oracle and IBM either already have or could easily buy each of the pieces.  Buying them all-in-one at discount?  Maybe.  At $10B for the starting bid?  Methinks not.

I’ve been wrong before and I’ll be wrong again, but I just have a lot of trouble seeing a bidding war on this deal.  It reminds me of the Sun / MySQL deal where a hardware company paid a hefty multiple for a deal they decided is absolutely strategic to their future.   You usually don’t get bidding wars on those because the purchaser precludes them by offering a market-clearing price.  And $10B for Autonomy strikes me as a market-clearing price.

Dear CIO: Stop Writing Big Checks for Commodity (Database) Software

Dear CIO,

What’s wrong this picture?

  • At 50%+, Oracle’s operating margins have never been higher
  • The differentiation of Oracle’s database technology, however, has never been lower and the number of both core and specialized alternatives has never been greater.

So what’s going on? You, kind Sir or Madam, are being milked. What’s worse is that you, in an example of collective behavioral dysfunction, have inadvertently played a role in setting up the milking. What happened?

  • Like all smart CIOs you followed a bit of herd mentality when it came to core technology. Pity the poor fools who, back in the day, bet big on Ingres or Sybase. You played it safe and went with Oracle, IBM, or if your requirements weren’t too heavy, Microsoft.
  • The problem is, of course, that everyone executed the same strategy you did. Hence, the market created a system of increasing returns where the strong vendors got stronger and the weak ones died. The result: the RDBMS market is an (order of magnitude) $10B/year market, structured as an oligopoly with 3 players. Most other software markets worked out the same way.
  • You were focused on standardization. You realized that through a combination of decentralized IT decision making and growth-by-acquisition your organization had become a kitchen sink of enterprise software. You had everything. In order to reduce the administrative, training, and license acquisition costs, you fought tooth and nail with your divisions to standardize the environment. You said, “Heck, it’s all the same stuff in the end, folks, so let’s make Oracle our DBMS standard, Business Objects our BI standard, Documentum our ECM standard, and SAP our ERP standard.”
  • And you won. Mostly. There’s still some Cognos in finance. And marketing didn’t totally give up on Interwoven. But, for the most part, you won. You reduced the entropy of your IT environment and drove cost savings for your organization.

The problem is you’ve won the battle but lost the war. Why? Because if, as you say, the “stuff really is all the same” you shouldn’t standardize on the most expensive product. You should standardize on the cheapest.

  • Do you really need to be paying those big fees to Oracle for enterprise licenses? Wouldn’t MySQL do?
  • Are you really using all the functionality of that $1M/year Documentum ECM system? Wouldn’t SharePoint or Alfresco do?
  • For BI, do you need all the bells and whistles of BusinessObjects? Wouldn’t Pentaho or Qlikview do a fine job, at a fraction of the cost?

But these alternatives are obvious. Heck, even “the establishment” (i.e, Gartner) says it’s safe to tread in the open source water. So the question is, what’s holding you back?

  • Switching costs. It’s hard to move off Oracle or Documentum and you don’t want to pay the nut to do so.
  • Organizational inertia. Your whippersnapper DBAs who were in their 30s in the 1980s are now in their 50s. They’re thinking that change devalues their knowledge and experience; some just want to cruise into retirement. But that’s their personal agenda, not your enterprise one.
  • Accounting: you made it free for your divisions to keep using Documentum, Oracle, or BusinessObjects because you bought an enterprise license. While this appeared to “save” you money on a per-license basis, and it helped support your standardization initiative, it squashed innovation in your divisions, reinforced the organization inertia, and has a lot of people using the wrong tool for the job, resulting in projects that either take more or more expensive hardware than necessary (Oracle is good at this), that take too long to develop, or that simply fail.

So, what do I recommend doing about all this? I suggest that you adopt these policies, which –- for full disclosure, are at least partially in the self-interest of this blog’s author:

  • Stop writing big checks for commodity software. Every time a big check comes along, ask yourself: is this software differentiated or commoditized? Be willing to pay a premium for differentiated software, and price shop commodity software. Call a group of your smartest staff together periodically to help you make the commodity versus differentiated call.

  • When you see a big check coming for commodity software, make a migration plan. My hunch is that most of the time, you can create a nice 3-year ROI in the transition from premium to cheaper software. (This reminds me of the time I visited an investment bank’s CIO asking about their Documentum strategy. The answer: “our Documentum strategy is to get off Documentum,” because we’re paying too much and using too little.)

  • Stop doing enterprise agreements that create poor economic incentives within your organization. Don’t pay $XM at the enterprise level, spread that as a “tax” across your divisions, and then make use of certain software “free.” It distorts project reality, creates false incentives, squashes innovation, and generates lots of hidden costs. If you want to negotiate a master agreement and discount rate, that’s fine. Shoot for centralized discounts without central planning.
  • Don’t worry that the prior policies will create mayhem. While I understand that you don’t want arbitrary taste differences increasing the entropy of your enterprise software portfolio, recognize that with the first policy you’ve solved that problem already. If you deem a category (e.g., core RDBMS, enterprise search) commoditized, then you are going to force people to pick on cost. You’ll get standardization on the commodity categories –- just on the least expensive alternatives. The only entropy you’ll need to manage will be on the differentiated software which, having dispatched the commodity majority, you’ll have time to explore, study, and exploit.

Why I am taking the time to write this note to you? Back in the 1980s I was a foot soldier in the relational database revolution, and today I’m the CEO of one specialized DBMS company and on the board of another.

  • Mark Logic makes an XML server which can save great amounts of time and money in creating applications against unstructured information, replacing the combination of an RDBMS, an enterprise search engine, and an application server. Not only can Mark Logic manage 100s of TB of XML, the system eliminates the object / relational/ hierarchical impedance mismatch between Java, SQL, and XML that hampers developer productivity. Mark Logic was recently named the fourth fastest-growing IT company in Silicon Valley.
  • Aster Data makes a specialized data warehouse DBMS that runs on low-cost commodity hardware with a shared nothing architecture and leverages in-database MapReduce technology for parallelism and high scalability.

And during the past 25 years or so I’ve watched the market evolve. While I fully understand the policies and market forces that have led
us to where we are, I feel like we’ve come full circle. Vendor power is now concentrated in the big three. Vendor margins top 50%. Big vendors don’t innovate; they consolidate. Inertia has set in customer organizations. And there’s a major platform shift in progress; last time it was mainframe to minicomputer, this time it’s cloud.

Things feel a lot to me the way they did in 1985, just past dawn of the relational revolution. So in one way I’m writing to point out the oft-overlooked obvious: stop paying premium prices for commodity items. And in another way I’m saying, take the money you save in so doing and invest it in innovation technologies that:

  • Drive competitive advantage (which will matter again as we come out of the Great Recession)
  • Enable the Internet-scale applications you’ll need to face the coming information deluge
  • Reform the application development stack in ways that make sense for the coming generation of information applications, not that made sense for the last generation of data-centric ones.

Thank you for reading my note. If you have any questions or comments, please give me a ping at dave-dot-kellogg-at-marklogic-com or comment on this post.

Sincerely,

Dave Kellogg

Oracle Acquires Hyperion: BI Enters Wave 2 Consolidation

According to this story in today’s New York Times, Oracle will acquire Hyperion for $3.3B, or $52 per share, a 21% premium over yesterday’s closing price.

The concept isn’t surprising; that it finally happened is. For years, speculation has circled the major BI vendors — Business Objects, Cognos, and Hyperion — who seem somewhat obvious targets for the “big guys” such as Oracle, Microsoft, IBM, and even SAP.

In fact, without any quant to back this up — it strikes me that BI is one of the biggest unconsolidated (i.e., independent) categories in software. Quick, name another category that has three $1B-ish vendors and where the big guys have either no or no-credible offerings?

This begins what I call the second round of consolidation in BI. Why “second” round? Well, round one was suite-itization. Let’s go back in time ten years:

  • Business Objects had the best ad hoc query and reporting tool (BusinessObjects)
  • Cognos had the best OLAP tool (PowerPlay)
  • Crystal had the best enterprise reporting tool (Crystal Reports/Enterprise)
  • Informatica had the best ETL tool
  • Hyperion had the best financial planning software
  • Arbor had the best OLAP server
  • There other, smaller, related categories, with their own leaders, such as data mining, data profiling, and set-based analysis

So you had, back then, leaders in what we now consider sub-categories of BI. Back then, of course, it wasn’t obvious to the vendors whether you were leading a category that would remain independent — or a sub-category of a larger market that was about to consolidate.

As I recall, Hyperion and Cognos were most aggressive about driving category consolidation. I think Hyperion started it all by acquiring Arbor. Cognos later acquired DecisionStream (ETL) and Adaytum (planning). Informatica made a failed atttempt at building its own Q&R tools and analytic applications. We at Business Objects were more dragged into the party. First, we bought Acta (ETL). Then we did the single biggest acquisition in the category in buying Crystal Decisions for ~$1B in 2003.

I have often drawn parallels between BI and ECM consolidation. In both markets, the first consolidation wave consisted of the leaders in N sub-categories buying losers in the other N-1. (The one exception being Business Objects and Crystal which was a leader/leader consolidation.) See this post for my deeper views on parallels between ECM and BI.

There’s one huge difference, however. Generally speaking, I’d say that BI consolidation worked and ECM consolidation didn’t. I’m not even sure why. But to this day, you continue to hear grumbling about poor integration and worst-of-breedness in the ECM suites that you simply don’t hear about the BI ones. You continue to hear ECM analysts undermine the vendors “good enough” suite positioning by arguing that customers should combine best-of-breed elements from various suites (e.g., use FileNet for imaging, Documentum for document management, and Interwoven for web content management). You don’t hear those kinds of arguments in BI.

There’s one other difference, of course. ECM has already begun “wave two” consolidation — where the big guys buy suite vendors who survived wave one. For example, in the past year or so, Oracle bought Stellent and IBM bought FileNet. In BI, that hadn’t happened yet. Until today.

This acquisition may well set off a scramble for Business Objects and Cognos to quickly find the right dance partners. Or it might not.

There has always been the “Switzerland” argument in BI, meaning that you don’t want to buy BI from one of the big guys precisely because you want BI to work with everything. One would rightly assume that Oracle’s BI would work best with Oracle’s DBMS as would IBM’s or Microsoft’s. So given the transverse nature of BI (i.e., the need to consolidate information across systems) you would prefer to get it from a third party. I think the Switzerland argument is one reason why BI had yet to undergo wave two consolidation.

But all that changed today. Right now, if you’re Business Objects or Cognos and you look into your crystal (pardon the pun) ball, you need to think hard about which matters more: best-of-breedness and the Switzerland argument or good-enough-ness and size, scale, and distribution power.

Ultimately, that is the question that will determine the future of the BI market.