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6/28/2004
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Look Who's Calling

An examination of three BI vendors, and where resellers can make money in a market that is literally knocking at their door.

When Joe Guerra attended Business Objects' annual partner conference last month, he noticed a significant change in the business-intelligence (BI) software company's mindset toward partners. A year earlier, the company appeared to have little use, if not outright disdain, for solution providers like Guerra, director of business intelligence at Andrews Consulting Group. That was especially true after Business Objects bought Crystal Decisions, which transformed the former into the industry's largest provider of business-intelligence software.

After the deal, Guerra was told by a company insider to prepare for some unpleasant changes, especially in the way it dealt with partners. Now that Business Objects was the leader in its space, the company could conduct business any way it chose, Guerra was told. What a difference a year makes. Gone is that executive who warned Guerra to brace for changes, and so, too, is the company's poor attitude toward partners. At least for now, partners are critical to Business Objects as it looks to expand in one of the fastest-growing enterprise-software categories, insists chairman and CEO Bernard Liautaud. With only 15 percent to 20 percent of the market covered, he believes Business Objects needs to expand its partner base.

"Business intelligence has always played to companies of all sizes, and there's still a huge opportunity in midsize businesses, where direct reach is never enough," Liautaud says. "The VAR has a gigantic opportunity in the SMB market working with Business Objects."

And possibly others, too. Rivals Hyperion and Cognos are also both looking to add partners and grow their indirect revenue. Cognos' Robert Ashe, who becomes CEO on July 1, recently told VARBusiness that his partner strategy is one of four top priorities this year. Over at Hyperion, chairman and CEO Jeff Rodek is trying to leverage his vast partner experience to transform his company.

"We have become much more partner-friendly in the past three years," says Rodek, former president and COO of Ingram Micro. "As we've built our executive team"and we've had a pretty much wholesale change in the exec team since I joined"we've brought in executives who are much more channel-friendly. As a result, we've been moving to a much more partner-friendly business model."

In this detailed look at the BI market, we examine the strategies of these three leaders, which compete with MicroStrategy, Information Builders and others, and outline where you can make money in a market that is literally knocking at your door.

Sizing Up the Market

Business intelligence is the ability to query multiple data repositories and allow individuals to create their own reports. According to Gartner, the market for BI and analytics software will be $2 billion this year, and is expected to grow 8.5 percent annually.

Corporate-performance management (CPM) is expected to account for $525 million in revenue this year, according to preliminary estimates. On top of that, the market for adding ancillary services and infrastructure to support these rollouts is many times the licensing revenues.

Cognos and Hyperion Solutions, according to Gartner, are among the leading providers of CPM tools, which extend BI into real-time performance monitoring, allowing executives to use dashboards, or scorecard interfaces, to view the financial performance of their organizations. That can be achieved by looking at the profitability of customer types, geographies or other variable attributes. With the new Sarbanes-Oxley regulation, every public company must provide accurate and timely financial data or face stiff fines or even jail time, creating increased demand for solutions built using these and other tools.

Clearly, business-performance management is a hot button in the CIO and CEO suite. While Gartner says Hyperion was out in front of the CPM wave, a slew of software vendors have various efforts in place to bring solutions aimed at helping executives build dashboards that can drill into many different silos within an enterprise. Cognos has made some key acquisitions, such as Adaydum, to get to a true CPM offering. Business Objects offers its Dashboard Manager, and even BI vendors that had little or no CPM story to tell are jumping in. MicroStrategy, another major supplier, has been touting CPM as of late. And at its annual user conference last month, Information Builders launched the WebFocus Performance Management Framework"WebFocus Express"intended to help VARs build CPM solutions.

There are a slew of other types of vendors that see CPM as the next big wave. PeopleSoft and SAP are the most obvious contenders, according to Gartner. Siebel is also touting new CPM tools that are separate from its CRM offerings. And Oracle will move in later this year when it replaces Oracle Financials with its Enterprise Budgeting and Planning (EBP) suite, which the company describes as a complete CPM offering.

No matter how you slice it, there is an immense opportunity facing partners today. Yet BI vendors have a checkered history of embracing the channel, as Guerra and others have come to experience.

"With a bunch of these guys, when they are expanding and when they've got lots of deals, they are just as partner-friendly as they can be," says Gartner analyst Brian Wood. "As soon as that new license revenue starts to decline or flatten out, all of a sudden services become an important part of their mix."

But, clearly, these vendors are trying to change their ways. In an interview with VARBusiness last year, Cognos chairman and CEO Ron Zambonini said his company was looking to expand its indirect revenue to 40 percent from 30 percent. But Cognos, a former BI leader in terms of revenue prior to Business Objects' acquisition of Crystal, has a problem, observers say: It has yet to effectively deal with channel conflict.

Consider the case of ISA Consulting, which started out as a Cognos partner and has had a more contentious relationship with the company of late.

"Yes, we're consistently hearing from the marketing sides of these firms that partners are important and that they are trying to push more and more our way to make us more successful," says Colleen Pietrobono, director of ISA Consulting's Hyperion practice. "But we have to compete with them for the services business, even if we are integrally involved in the sale."

Cognos' Ashe admits his company needs to do a better job at working with solution providers. "We haven't been as partner-friendly as we have the potential to be," he says. "Whether it be sales conflict, the way we've built our products or the way we've looked at our strategies, I think if you look at recent product introductions and our investments in the channel, [you'll see] we've taken a number of steps to do a better job."

Hyperion is the one company that appears to have the most consistent track record with the channel during the past three years. Perhaps that should come as little surprise considering the time its leader spent at Ingram Micro. (As part of an executive overhaul, Rodek left the company to run Hyperion.) Most of his energies have been spent on internal matters, including mergers and acquisitions and product development.

For example, beat out by Business Objects to grab Crystal last year, Hyperion snapped up another provider of front-end reporting tools"Brio. Meanwhile, Hyperion has established Essbase, its server-based data-analysis engine, as a leader in that space. The company has quickly emerged as a leader in CPM and is planning on releasing a successor to its Essbase tool. Internally known as Project Ukraine, Hyperion is hoping to raise the bar on the number of calculations it can handle in a faster amount of time"addressing a key need among customers"to get more data in real time. Hyperion is also set to release an integration tool that simplifies connectivity to other data sources beyond Hyperion's core base of financial-information systems.

With those efforts well under way, Rodek says his goal now is to expand Hyperion's sales through partners. Rodek kicked off that strategy three years ago, culminating with the appointment of experienced channel executives including president and COO Godfrey Sullivan, who worked his way through the ranks of Apple's channel organization years ago, and vice president for the Americas John Pierson, who, until February, was Hyperion's vice president of worldwide channel sales and who grew indirect revenue from 19 percent to 25 percent.

To further Hyperion's commitment to partners, Rodek stopped paying commission to its direct sales force for consulting and services, a move that forsook $20 million in revenue. The goal: Let customers decide if they want to use Hyperion's services organization or that of a partner. Rodek says the intent was to reduce channel conflict.

"If they want to use us, great. If they want to use a partner, great. If they want us all to work together, great," he says. "But let the customer choose"don't be in there just aggressively selling against the partners."

Long-Term Prospects

Whether BI vendors' embrace of the channel is for the long haul remains to be seen. Some wonder whether they truly understand the channel. Andrews Consulting's Guerra was quite surprised when Business Objects showed up at its annual partner conference last month with a more conciliatory, if not humble, embrace of its solution-provider partners. As top executives extolled their need for the channel, they mentioned that half of Business Objects' revenue was coming through partners. That turned more than a few heads.

"Everyone kind of looked at each other funny and said, 'Who's getting [the business?]'" Guerra says.

Turns out much of that business was actually generated by OEM partners, including SAP and PeopleSoft, which bundle Crystal's reporting interface into their own products. Nevertheless, Guerra left the conference convinced that Business Objects was sincere in its embrace of partners. He attributes the new attitude to the company's failed attempt to build a larger services organization and a whopping 63 percent decline in net income for the first quarter, despite an 84 percent growth in revenue contributed by the addition of Crystal. After lowering its outlook for the next several quarters so that it could concentrate on integrating Crystal, Business Objects' stock plummeted. Shares, for example, are off 50 percent since the beginning of the year. Analysts describe the integration of Crystal as "chaotic," but remain bullish about the company's long-term prospects. Why? Because BI and CPM are among the hottest growth areas in the enterprise application-software business.

And while Business Objects and Cognos own the traditional BI market, there are a number of other players of varying sizes moving in with CPM tools, such as OutlookSoft, SRC Software, Geac Computer/Comshare, SAS Institute and Longview Solutions. Microsoft is also pushing the analytic services available in SQL Server. Just last month, the company added a Business Scorecards Accelerator and an Excel add-in module to its SQL Server Analysis Services. Still, the benefits the traditional BI vendors have to offer is that analytics aren't tied to any specific operating system or database platform, or applications such as SAP and PeopleSoft.

"I think the BI and CPM vendors will continue to prevail long term just because of their focus," says Tim Phelps, president of ThinkFast, an integrator that has partners with just about all the major BI vendors, as well as Microsoft and Oracle. But, Phelps says, it's not an either-or strategy. Many of the BI vendors have partnerships with ERP and CRM software suppliers, while at the same time they are competing with one another.

"If you look at the road maps of the major BI and CPM guys, a big part of their strategy is getting more integrated with the ERP vendors," Phelps adds. "I don't know who will win out in the longer term, but they are making it easier to work together." The reason is simple: In order to be able to provide operational metrics in a scorecard or dashboard application, the data must have rich connectivity.

The reason CPM is so hot is that many customers see it as a key enabler of reaching new levels of productivity. The ability to spot changing business conditions as they are happening and react accordingly can have a significant impact on corporate performance.

"Companies want to more easily set goals and build strategies, they want to be able to take those strategies and turn them into plans, and once those plans are out there, they want to be able to better monitor the execution, both financial and the operational performance," Rodek says.

New compliance regulations also mean companies can't afford to put these initiatives on hold. Perhaps the most noteworthy example is Section 404 of the Sarbanes-Oxley Act, which requires publicly held companies with a market cap of more than $75 million to include in their annual reports the controls they have in place for monitoring their finances. That rule, which was to take effect this month, has been pushed to November. Other components of Sarbanes-Oxley will be mandated over time as well.

"Compliance is table stakes for being a public company now," Rodek says. "So compliance and governance draws increased interest to what we do because of the products we sell. Faster reporting, more transparency, more dimensionality, higher expectations, but beyond compliance, good governance and great performance are what people want."

And that's a key opportunity for partners of Hyperion and other vendors with roots in BI. For example, Deloitte Consulting says it will offer a dashboard and integration services based on Hyperion's software set that provides monitoring and reporting of financial systems in compliance with Section 404. The dashboard will provide executives with improved decision support. Even during the downturn, companies have shown a willingness to invest in CPM, says Andew Rusnak, a partner at Deloitte, which maintained a 10 percent to 15 percent growth rate between 2000 and 2003.

"The growth rate is going to expand beyond that in the next few years because companies are reinvesting in information quality," Rusnak says. In addition to Hyperion, Deloitte has partnerships with SAP, Oracle and PeopleSoft. But the relationship with Hyperion is critical, Rusnak says, because its software represents the integration and presentation layers that bridge multiple systems.

Nevertheless, despite demand, it's still a tough selling environment out there. Just ask Guerra. He speced out a solution for a client with whom he had been in intense price negotiations for five weeks, and it appeared the deal was done. Then PeopleSoft's consulting organization came in and said it would beat Guerra's price by $50,000. Adding insult to injury, Guerra had to pony up three customer references and make several on-site visits. Did PeopleSoft have to do the same? No, Guerra says.

"The client says, 'They're the ERP vendor, so why would I go with you vs. them?' At some point, you've got to just say, 'You know what? The bleeding has got to stop. Go try to implement it and call me back in three months.'" History has shown that more often than not, the likes of Guerra will get that call. You could, too, if you set your sights on this market.

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