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.