Microsoft Crowds Business Intelligence Space

The good news for pure-play business intelligence vendors is that demand for their products is rising. The bad news? Microsoft(MSFT) and other giant software companies, anxious to expand their offerings, are aggressively moving into the sector.

Although some analysts see the trend as old news, the market doesn't. On Tuesday, for example, a Goldman Sachs note exploring an upcoming Microsoft business intelligence announcement whacked much of the entire sector. Hit hardest were MicroStrategy(MSTR), off $3.93, or 6.6%, to $55.67, and Cognos(COGN) -- which reports fourth-quarter earnings Thursday. Cognos lost $2.47, or 5.6%, to close at $41.08. Cognos regained some ground during Wednesday's rally, but MicroStrategy lost another 70 cents.

"Microsoft's foray into the BI (business intelligence) market is not new, however, we expect that Microsoft is likely to become an increasingly formidable competitor in BI, particularly with small and medium-size business customers," wrote Goldman analyst Rick Sherlund in a note to clients.

Having a giant dogging your footsteps is never good news, but Sherlund sees a number of factors that could soften the blow -- at least for now. "BI is an area ripe for consolidation, and take-over prospects could provide a positive offset to potentially more negative investor sentiment possibly lurking over the horizon," he said.

Microsoft dropped the other shoe on Wednesday with an hour-long call with analysts to tout improvements to its business intelligence platform that will debut in the second half of the year as part of SQL Server 2005, Microsoft's new database offering. Many of the enhancements are fairly technical, but the overriding theme was summed up by Bill Baker, general manager of the SQL Server product group in a few words: "Business intelligence for the masses."

Although that may sound rather trite, it is, in fact, the heart of the issue. As corporate data proliferate, businesses need to extract every bit of value from it without the expense and delay of having the IT department write custom programs for every request. And that's where business intelligence software comes in. Under ideal conditions, BI applications allow employees to write a query and print a report from their own desk.