Cognos’ Enterprise 3.0 Strategy Missing

The view from the top is getting clearer. The Business Intelligence companies that are relatively big and have strong appetite to digest acquisitions are either filling gaps in their product lines or expanding market share.

COGN makes Business Intelligence and Performance Management software and has over 23,000 clients worldwide. Cognos’ (NASDAQ: COGN) latest buy, Applix (NASDAQ: APLX) for $339 million, is one such market share expanding move, just as Nsite’s acquisition by Business Objects (NASDAQ: BOBJ) was triggered by a surge for on-demand BI with SaaS as a delivery model, otherwise known as Enterprise 3.0.

APLX is strong in financial performance management, and though it’s pricey (5.5 times revenue) compared to BOBJ’s Cartesis buy (2.4 times revenue), it surely must be a good fit as a niche product in COGN’s scheme of things. Of course, it must have helped that APLX COO Michael A Morrison was an old COGN hand before 2004.

So why is the Business Intelligence buzz getting louder by the day?

BI is no longer a prized trophy to be showcased on company shelves. CIOs have come to understand that BI increases growth, cuts costs and improves the bottom line. Further, BI helps to review current performance, assess past performance and forecast the future.

The question is didn’t BI do all these earlier? Sure! But BI has long suffered from an expert-friendly positioning inside the enterprise, and have not seen strong adoption.

Enter On-Demand BI as a vehicle that attempts to bring “BI to the masses”. The hypothesis is, that this would increase adoption and make BI user-friendly. It also makes BI accessible to the Small-Medium Enterprises (SME), which I have said repeatedly, is a splendid, untapped market opportunity.

So where is Cognos’ SaaS strategy? They, somewhat reluctantly, joined the Salesforce.com AppExchange, but without a clear commitment to Enterprise 3.0. Perhaps they should acquire Lucidera to plug the gap, since the longer they sit out the SaaS game, the further they would fall behind. The worst would be if their targets end up in the lap of Oracle, cornering them out of an important market trend.

Nonetheless, COGN is widely expected to ride the same BI buoyancy that earlier propelled BOBJ’s Q2/07 growth. Its latest stock price ($41.07) at a P/E multiple of 29.73 seems to be trending towards the 52-week high of $45.30.

COGN’s Q2/07 results are due on Sep 27. Will it generate the same euphoria that BOBJ has created? Time will tell. If Cognos announced an On-Demand Business Intelligence acquisition, it would certainly get a bunch of upgrades from analysts who track the market and who know what they are talking about.