Business Objects yesterday announced
its intent to acquire privately held Cartesis,
a corporate performance management (CPM) software provider, for approximately
$300 million in cash.

Headquartered in Paris (a
few miles from Business Objects’ Paris headquarters), Cartesis had sales
of approximately $125 million in the trailing 12 months with 1,300 customers. A
large portion of their customer base is located in Europe but they have been expanding into
North
America and other international markets.

Why Cartesis, why now?

CPM is a growing market,
but it is still relatively immature. Almost two thirds of the money spent on
CPM is in services rather than software. One of the inhibitors to CPM, from a
software solution perspective, is that most companies offering solutions have
business process specific applications, in some cases a lot of them, but they
are not really enterprise-wide in scope. A company cannot get all their CPM
needs from one vendor and that has put a constraint on wide adoption. This
phenomena is spurring CPM vendors to expand their offerings either organically
(developed internally) but more often then not they have done so by
acquisition.

Business Objects
previously bought CPM providers SRC and ALG Software to jumpstart its CPM
offering. Cartesis expands on this theme. Cartesis itself acquired INEA and Advance
Info Systems to speed along its CPM offerings.

Cartesis’ CPM offering is
concentrated on financial reporting, consolidation, planning and compliance
management. These applications, targeting the CFO, are the CPM offerings that
are showing the greatest growth. There are strong business drivers along with a
long history of CFOs struggling to gather integrated enterprise-wide data that make
this the sweet spot for CPM.

Tactically, this is also
Business Objects answer to Oracle’s
acquisition of Hyperion, which is arguably the 800-pound gorilla in the
financial-oriented CPM space. Hyperion is often considered a key partner in
corporate CFO offices.

What is the impact?

The pecking order in the
consolidating software market is ERP vendors & IBM at the top of the food
chain, then BI vendors and, finally, many market niches such as CPM and other
emerging solutions.

The small fish gobble up
the smaller fish until the bigger fish (relative to them) gobbles them up.
Niche CPM vendors are not likely to stay independent as the CPM market expands
and then inevitably matures. They will need to grow and then be acquired for
their technology to endure in any substantial way. That doesn’t mean that there
won’t be many CPM vendors left in the years to come, but just like the BI and
ETL marketplace, there is only a certain size that these companies can grow to
when facing software behemoths.

We have discussed in other
blogs and articles (here,
here,
and here)
that the BI pure-plays are themselves acquiring smaller software firms and then
they are being acquired by the software behemoths.

Business Objects is over
a billion in sales and is truly a market leader from many perspectives. CPM is
certainly the solution umbrella that companies are using to support many
business initiatives nowadays. Regardless of whether that CPM solution is
bought off-the-shelf as a CPM software package or it is a homegrown solution
using BI technology, Business Objects stands to gain from expanding their CPM
portfolio.

As an aside, I read in a
number of articles in the last 24 hours how CPM consolidation is being driven
by customers and not the software vendors. I both strongly agree and disagree
with that statement. Yes, companies want more comprehensive CPM offerings,
which would lend truth to the statement that customers are driving this
consolidation.

BUT let me turn the
customer desire around. What about SOA and web services? Don’t we read in the
literature from the same vendors selling CPM solutions that SOA will enable you
to pick and choose what components you use from what vendor or even homegrown
applications? Customers want to be able to select a portfolio of CPM
applications, but does it have to be from the same software vendor?

Actually wouldn’t it be
great if SOA did allow you to pick and choose (I digress!) The reality is that
CPM consolidation is being driven by software vendors that want to expand their
offerings and their revenue (nothing bad about profit motive), as well as
maintain their existence (or increase their buyout price!)

Thumbs up or down

Business Objects has an
excellent record of absorbing companies and their technologies from a customer
perspective. Two acquisitions that have bolstered Business Objects’ solutions are
Crystal Reports for production reporting and Acta (now Data Integrator) for
data integration. Both products filled in holes that were critical long-term
for their CPM offerings.

There is potentially
overlapping functionality between Cartesis and Business Objects’ current CPM
offerings, especially in the area of Planning and Budgeting. In addition,
Cartesis has some partnerships with competing BI vendors that will most likely
be discontinued after a while. But this overlap or conflict will likely be
handled smoothly by an acquiring company with the experience and depth of
Business Objects.

Will the Cartesis acquisition be as successful in the
marketplace?

Oracle/Hyperion and
Cognos have a head start, particularly in the financial-oriented CPM space.
SAP, Microsoft and other ERP vendors are also expanding their offerings in BI
and CPM and are likely to be formidable competitors. In this market, though, it
certainly made sense for Business Objects to be an acquirer.