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Cognos’ Enterprise 3.0 Strategy Missing

Posted on Monday, Sep 10th 2007

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.

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Hi Sramana,

Just wanted to clarify a few points for you and your readers on this blog:

First – Cognos didn’t reluctantly join Appexchange. Cognos joined Appexchange to highlight our Salesforce connector to Cognos 8 BI and then we acquired Celequest (a Bay area company) who already had a hosted BI solution for Salesforce on Appexchange.

We joined with great anticipation – not reluctance (although our competitors might say that 😉 )

Second – Cognos has a Partner strategy for hosted BI that has been very successful. We have well over 50K users and 300 companies running Cognos BI in a hosted model through a number of partners. The attached link provides more details:

https://www.cognos.com/news/releases/2006/0613_1.html

-Mychelle Mollot
VP Market Strategy

Mychelle Mollot Tuesday, September 11, 2007 at 9:24 AM PT

Hi Mychelle,

Thanks for the note. I will look into Celequest.

Sramana

Sramana Mitra Tuesday, September 11, 2007 at 2:45 PM PT

Hi Mychelle and Sramana,

I wrote about Cognos’ SaaS/On-Demand moves as part of a few research derivatives that can be found at http://www.aberdeen.com.

While they have not conceived of an On-Demand initiative to the extent of BOBJ, Cognos definitely has a unique offering with CognosNow! (via the Celequest acquisition.) To my knowledge, it is the only integrated BI appliance (hardware and software) being offered from one provider.

-Dave

David Hatch Tuesday, September 11, 2007 at 4:44 PM PT

David,

What about SAP’s BI Appliance?

Sramana

Sramana Mitra Tuesday, September 11, 2007 at 7:27 PM PT

Hi Sramana, thanks for doing this Blog, I quite enjoy it.
You say “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?”
Just to clarify, BI did not (and still doesn’t) forecast the future – maybe if you add predictive analytics to your definition of BI – but I would say the connection to the future (through plans, budgets, and forecasts) is in the domain of Corporate (or Enterprise or Business) performance Management. I think that is what’s causing the buzz to get louder. When Hyperion (known in 2003 for it’s OLAP engine and Financial analytical apps) acquired Brio in ’03, that was arguably the beginning of bringing together OLAP, Analytical Apps, Financial Apps, and BI under the CPM/EPM/BPM umbrella. Cognos is also expressing that vision by adding TM1 to it’s suite of BI and Financial Apps.
So we have the domain of BI (answering the business questions “what happened, and why did it happen?”) finally interconnecting with the domain of Enterprise modeling & planning (answering the business questions “what do we WANT to happen, and how do we go about doing it?”). Closing that loop (from strategy to execution) is what interests most CIOs (and CFOs, CEOs, COOs, etc). IMHO.
Best,
-Ron

Ron Dimon Wednesday, September 12, 2007 at 9:15 AM PT

You are absolutely right, Ron. Many of the bridges that were missing previously are coming together, and that’s what’s finally extracting the value out of BI.

Sramana Mitra Wednesday, September 12, 2007 at 6:48 PM PT

Hi Sramana —

The traditional enterprise BI vendors are having a very tough time truly embracing the SaaS model. Not surprisingly, currently they’re just dipping their toes into the shallow end of the on-demand pool.

There’s good reason for this. First, there’s the ever-present threat of cannibalizing their own customer base. Management doesn’t like this, and neither do their sales people. Second, they are addicted to the heroin of software license fees, and the ability to recognize all the revenue up front. Wall Street doesn’t like it when they have to instead recognize revenue over the period of the contract. Third, it creates huge amounts of friction with their distribution channel and their integration partners, both of whom generate a lot of revenue selling software licenses and then charging to install the software.

Watch as all the traditional vendors move to a hybrid model (offering on-premise and on-demand) and promote the “customers want choice” message. What it really means for enterprise software companies is that they want to do the old “bait and switch” and move on-demand customers to on-premise software as soon as they can, which is really a path to the nightmare of managing what is the equivalent of your own nuclear reactor, messy upgrades, two year release cycles, and an army of consultants.

These vendors talk about on-demand being the “on ramp” to get to full enterprise BI. There is a path between on-demand and on-premise, but in my experience the on-ramp goes the other way. People get fed up with their on-premise solutions, and realize that they want something that’s simple to set up, simple to use, and headache free.

Ken Rudin Friday, September 14, 2007 at 8:39 PM PT

Hi Ken,

The move from license revenue to subscription revenue has been going on in various segments of the software business for a while now.

Overall, I think, once a reasonable transition is completed, Wall Street actually likes the predictable revenue streams on an ongoing basis.

However, the transition itself is a huge pain, and yes, at the moment, the BI vendors are struggling with it.

There is also a change in the customer mix with On-Demand BI, and that throws a monkey-wrench in the sales force’s expertise. Smaller deals to smaller customers, and more of them is key.

But companies like Cognos cannot possibly sit out the trend.

Sramana

Sramana Mitra Saturday, September 15, 2007 at 11:57 AM PT

[…] BI players in the market include, most notably, Canadian company Cognos, whose On-Demand / Software-As-A-Service (my definition, Enterprise 3.0) strategy is less concrete. […]

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