While shares of software's giants remain stuck in first gear, lesser known

MicroStrategy

(MSTR) - Get Report

and

Business Objects

( BOBJ) have moved into the fast lane and are still accelerating.

Since the tech rally started in mid-April, the two vendors of business-intelligence software have appreciated by 44% and 23%, respectively.

The

Nasdaq

, meanwhile, is up just 16% and software, as measured by the Goldman Sachs index of 45 companies, is up 12% through Tuesday's close.

Neither company was hurt by its performance in the just-reported June quarter. MicroStrategy grew revenue by 32% year over year and posted EPS of $1.12, which was 23 cents better than Wall Street had expected. Business Objects also was solid, if less spectacular, beating EPS expectations by a nickel, growing revenue by 18% and boosting maintenance revenue by 33%.

MicroStrategy no longer gives guidance or hosts a postearnings conference call, but Business Objects forecast a profit that would be as much as 3 cents a share above consensus.

What's driving growth for these two companies? In a word, demand. Information technology managers, even those who don't expect to boost their budgets much, are willing to buy software that will give employees the tools to extract useful data from their company's mountainous databases -- without writing a program or even leaving their desks.

Goldman Sachs, for example, found in its periodic technology spending survey that 79% of respondents expect to buy business-intelligence tools or applications in the next 12 months -- the fourth straight survey in which interest in the software rose.

Microsoft Watch

Gartner, an IT research and consulting organization, says the market for business-intelligence tools hit $2.1 billion in 2004 and should grow 62% by 2009. Rival researcher IDC, which uses a different methodology, says the market in 2004 grew by 11% to $4.7 billion.

In a study published in June, IDC found that Business Objects held a market share of 17.3%, the largest of the 20 leading companies surveyed, while MicroStrategy's fifth-ranking share of 4.4% made it the fastest growing of the top 10 business-intelligence vendors.

Notably absent from IDC's chart was

Microsoft

(MSFT) - Get Report

, which has included business-intelligence tools in its SQL Server product for some time. But that may well change.

Microsoft is adding significant new business-intelligence capabilities to SQL Server 2005, and it's taking dead aim at smaller and medium-sized businesses.

Microsoft would quibble with that characterization, saying the company's new tools are equally useful for large businesses, but most analysts figure that large enterprises need the kind of high-end tools that pure plays such as Business Objects or Cognos

( COGN) are better equipped to supply.

"Microsoft is coming on very fast," says Gartner analyst Colleen Graham. "As customers in smaller and midsized companies that haven't used business intelligence get more knowledgeable, they look toward in-house vendors like Microsoft."

How concerned should investors in Business Objects and MicroStrategy be about the 800-pound gorilla plunging into the business-intelligence pool?

"It is a concern," says an analyst for a fund that holds more than $3 million in Business Objects shares. "But I'm not sure investors have to lose a lot of sleep over it."

Microsoft isn't alone in eyeing the business-intelligence market; other platform players, including

Oracle

(ORCL) - Get Report

and

SAP

(SAP) - Get Report

, are paying more and more attention to it.

Graham and other analysts figure the giants will never dominate the high-end. One reason: Many large businesses are loath to lock up their data in proprietary applications. Business-intelligence "is a heterogeneous world," says Rob Tholemeier, an independent analyst and investor who has followed the market for years.

"They (Microsoft, et al.) will never dominate, especially at the high end," says Tholemeier, who has positions in Business Objects and MicroStrategy.

Pure Growth

Even so, the giants will gain market share, making it that much harder for the pure-play vendors to grow, says Graham. In 2004, the nonpure plays held 19% of the market; by 2009 their share will likely increase to about 30%, she says.

How will Business Objects fend off the gorillas? In part, it intends to mine its already large customer base for new seats.

"There's a huge opportunity to expand in existing accounts," says Timo Elliott, the company's director of business intelligence strategy. Referencing a study by Forrester Research, Elliott says that only about 15% of the potential users in most businesses occupy a licensed seat.

"The main thing stopping deployments is that users lack the skills to use our software. That means, we have to make it easier," instead of trying to impress customers with the hippest new technology or a new way to visualize data, Elliott says.

Business Objects, which is known for its careful focus on core competencies, just announced that it is going to buy privately held

SRC Software

for $100 million. SRC sells software used in budgeting and forecasting and related business functions, areas in which Business Objects has not had a successful presence.

As for MicroStrategy, because the company gives no guidance and is generally unwilling to speak with reporters and analysts, its strategy is harder to gauge.

First Albany analyst Mark Murphy raised his target price to $98 after the company reported in late July, noting that MicroStrategy's operating income in the June quarter was up 89% over last year and well above his estimate.

Although that price target may seem high at first glance -- the company's shares closed Wednesday at $76.45 -- it represents a not-so-high multiple of 21 times 2006's estimated earnings of $4.66 a share.

In addition, it posted operating margins of 35% vs. 24% last year, roughly double the industry average, a reflection of its strong hold on a rather specialized niche.

The company bought back 2.5 million shares in the second quarter and just announced another share repurchase of $300 million. "This is clearly a strong vote of confidence by MSRT management," Murphy wrote in a note to clients. First Albany does not have a banking relationship with MicroStrategy.

MicroStrategy is volatile stock, and the quirks of its CEO puts some investors off. Despite its rapid growth, Business Objects has surpassed the consensus target price of $31.36, according to First Call.

But for now, MicroStrategy and Business Objects look like companies software investors need to watch.