Microsoft Crowds Business Intelligence Space

Demand is rising, but the software giant should bring some formidable competition.
By Bill Snyder ,

The good news for pure-play business intelligence vendors is that demand for their products is rising. The bad news?

Microsoft

(MSFT) - Get Report

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) - Get Report

, 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.

Microsoft's big advantage in this arena is that it is Microsoft, a company that already reaches into a huge percentage of the world's businesses, and has enormous resources to throw at the problem. Its major disadvantage is that it is Microsoft, the No. 3 player in the database market with a share of just 13.4%, compared with

IBM

(IBM) - Get Report

with 30.6% and

Oracle

(ORCL) - Get Report

with 41.3%, according to market researcher IDC. And because BI software works closely with the database, being restricted to the least popular major one is a significant disadvantage.

However, there is significant disagreement over the quality of Microsoft's BI offerings and the extent of the threat it poses to the pure plays. "Microsoft tends not to be on the leading edge, but the fact of the matter is, it does a fine job. Customers are using it

BI and getting a real return on their investment," says Ian Campbell, the CEO of Nucleus Research in Wellesley, Mass.

But analyst Bert Hochfeld of the Hochfeld Independent Research Group, says, "Microsoft does not have the track record in complex high-end apps that suggest it could compete. Microsoft, he said in an interview, "is not the reason to be concerned about the near-term performance of Cognos." Hochfeld's company does not have an investment banking business.

Sherlund singled out

Business Objects

(BOBJ)

as a company that could suffer from Microsoft's increased BI efforts because its revenue is concentrated in query and reporting tools, segments that Microsoft is targeting, although the effect won't be immediate.

Not surprisingly, Rene Bonvanie, chief marketing officer of Business Objects, minimized the competitive threat, saying Microsoft's BI plans are a nonevent. "This is what we and other companies were talking about five years ago. It's like being in a time warp."

Moreover, his company works closely with Microsoft, and some of its products are embedded within Microsoft developer tools and collaboration products. "Millions of Microsoft users already have our product. They already use our product to bring BI to the desktop through Office and other software, something Microsoft is just promising."

Still, the most positive recent news for the BI companies is what appears to be a coming spike in demand. A survey by Goldman Sachs found that 59% of IT executives polled during a recent survey said they were planning to buy BI tools in the next 12 months -- and 61% of them plan to buy the software from a pure-play BI vendor. Goldman Sachs has an investment banking relationship with Business Objects, Microsoft and Oracle.

Loading ...