Speculation surrounding Business Objects ended when SAP announced that its plans to acquire it for $6.8 billion. Who’s next? It appears investors have voted by raising Cognos (COGN) stock 13.6% October 8 on trading volume of 6 million shares versus its average of 1.1 million shares. Other competitors’ stocks rose slightly but it is Cognos that investors have their sights set on.

What is the impact on Cognos from SAP acquiring BOBJ, and is Cognos next?

Impact on Cognos

First, at least in the short-run, investors are happy with an acquisition-induced stock bounce. Investors, however, are also feeling good about the solid quarterly results along with long-term company and business intelligence industry prospects. There were some downgrades to Cognos stock October 8, but they were based on valuations, i.e. acquisition bounce, rather than any company specific or industry issues.

Second, after this acquisition announcement, competitors of SAP and BOBJ will likely use the FUD (fear, uncertainty & doubt) factor to portray themselves as the safe haven for customers that would like an independent business intelligence software company and not go through all the product disruption caused by the acquisition.

Cognos, specifically, now holds the distinction of being the largest pure-play public BI company.  (Although SAS is larger it is private and not truly a pure-play since much of their revenue is from their statistical applications.) This distinction may be very attractive to many BI customers but, as a counterpoint, other customers may prefer the software titans’ "platform approach" or one-stop-shopping.

While techies may debate the merits of these contrasting approaches, it’s the customers who will vote with their BI purchases. To date, customers have voted by spending billions of dollars from independents (or formerly independents) Business Objects [soon part of SAP], Cognos, Hyperion [now Oracle], MicroStrategy (MSTR), SAS (private), Actuate (ACTU) and others over the years. But those sales are the reason why the titans are buying the independent BI and data warehousing (DW) software firms.

Will Cognos be gobbled up?

Software titans are again examining whether they should purchase Cognos or another BI/DW firm. Let’s have fun and rate the potential acquirers:

IBM (IBM):

[Pro] Rumors of this acquisition have surfaced repeatedly. Despite IBM’s strategy to avoid application-related acquisitions, software is becoming IBM’s top business line and Cognos would be a great jewel to add to it.. IBM has been acquiring software firms, such as Ascential (with it’s product DataStage), not only for the software license and maintenance fee revenue but also for the excellent opportunity to cross-sell consulting services and hardware. Business intelligence, performance management and data/application integration are a perfect scenario for major software and services deals. It may be time for IBM’s application neutral stance to be altered with the competitive pressure from Oracle and now SAP with their own software and services offerings.

Almost every software company it acquires gets a great sales pop when the IBM sales force works their accounts and Cognos would be no exception. Also, how long will (or can) IBM sit on the sidelines while its rivals gobble up ERP, BI, data integration, CPM, and other data warehouse independents?

[Con] IBM has avoided purchasing BI and application vendors in order to maintain the appearance of vendor-neutrality. Ranking [A]

Microsoft (MSFT):

[Pro] This would be a great opportunity for Microsoft to break out from their application developer, i.e. tools-focused approach, for BI and shift to offering a best-in-class BI software suite.

Cognos’s sophisticated solutions would position Microsoft for enterprise-class deployments just as the SQL Server database has reached that level of performance. The acquisition would be a quick way to get large enterprise-class customers without having to convince them to give up their best-in-class BI software for Analysis or Report Services (a very tough sell indeed.)

Acquiring Cognos would enable Microsoft to have a two-tier approach with its existing SQL Server/PerformancePoint/Office convergence for low-end implementations and Cognos BI for the high-end enterprise-class deployment.

[Con] This might disrupt Microsoft’s long-term path to expanding and integrating the SQL Server and Microsoft Office platforms offering its customers a cost-effective and resource-effective approach to information access and delivery. (However, if anyone has the resources for this dual-approach it is Microsoft.)

Microsoft has preferred smaller acquisitions, such as ProClarity, using a "tuck-in" technology similar to SAP’s stance prior to its acquisition of Business Objects. Just like SAP, it may be time to take a bolder, and quicker, path to becoming a major BI player. (Not counting Excel of course.) Finally, how would Cognos employees and customers perceive a Microsoft acquisition?

Ranking [B+] This would be a terrific acquisition for Microsoft, but is it inclined to pull the trigger?

Hewlett-Packard (HPQ):

[Pro] HP has been expanding its software business just as IBM has. HP has dipped into BI by developing Neoview (its DW appliance and services offering) and through its acquisition of consulting firm Knightsbridge.

Cognos enables HP to expand its services business more aggressively into BI, DW and Corporate Performance Management (CPM) projects beyond its traditional infrastructure-type services. This expands both their software and services businesses without cannibalizing any of their existing businesses. No integration product roadmaps or FUD could be thrown its way which would be refreshing for customers making BI purchase decisions.

[Con] This would be a large software acquisition for HP and may take them out of their comfort zone of infrastructure-related software.

Ranking [A-]

This is another solid acquisition but they might not be inclined to take the stretch.

Oracle (ORCL):

[Pro] Larry!

[Con] How many overlapping companies can Oracle absorb without having customer too afraid to buy? Is the product overlap with Hyperion, Siebel Analytics and other Oracle BI tools too great to really create synergy? You could make the argument and create a product roadmap showing how nice all these products fit together, ain’t marketecture grand! But there is a difference between PowerPoint slides and implementations with many BI tools. Can you say "silos?" Ranking [C+] But don’t count Larry out.

EMC (EMC) or Sun (JAVA):

Will either jump into the BI game?

[Pro] EMC has been expanding its software business and Sun should.

[Con] This would be a significant new direction for either of these companies and may not be on their radar for a strategic move. Ranking [C-] But surprises do happen.

SAS (Private):

They do not seem to be playing in the M&A market but what a time to come out of their shell! Ranking [D+]

Teradata (TDC):

They just had their coming out party, i.e. trading as an independent company last week, are they ready for a major acquisition? Maybe a less expensive pure-play BI firm would be easier to handle. Does it even fit their strategic direction?  Ranking [D-]

Informatica (INFA):

No, not to acquire them but how about an alternative scenario with Cognos and Informatica merging? There already have been rumors about Cognos acquiring Informatica, although that might have been stoked by their negotiations regarding their recent strategic licensing agreement regarding Informatica’s data quality product.

Merging the largest publicly traded independent BI vendor and largest independent data integration company may make sense. As each gets boxed out of the platform strategies of the software titans – Oracle, SAP, Microsoft – what better way to respond than by creating an independent platform that customers see as an alternative to the titans’ platforms?

There is minimum overlap in their product lines with Cognos BI software suite and Informatica’s data integration suite. They already have that strategic agreement and plenty of joint customers. The only product overlap is in ETL but quite frankly that should not be a deterrent. Despite the rather impressive gains Cognos has taken with regards to ETL, its offering is still a weak competitor to Informatica both in terms of technology (a complete and comprehensive data integration software suite) and the scope of its customer implementations.

What they can offer joint customers and those looking for a independent platform is an integrated platform with data integration, data profiling, data quality, reporting, OLAP, dashboards and corporate performance management (CPM) across a common infrastructure and metadata framework (read auditability, traceability and compliance), all without any ERP applications. Of course, the platform does not happen without some product integration but with Informatica’s commitment to SOA and both companies’ previous M&A experiences, integration should proceed smoothly.

Why a merger rather than Cognos simply acquiring Informatica? These are several benefits to a merger rather than an acquisition: financially a merger allows a stock swap, thus avoiding a debt offering; organizationally a merger would cause less disruption than an acquisition; and, for customers it sends the message that both BI and data integration will prevail in any product roadmap. The merger enables a quicker time-to-market for independent platform from the new Cognos-Informatica company. Ranking [A]

This would have to happen before one of the titans acted to acquire either of these companies.

Wrap-up

Will Cognos get acquired? Being acquired or merging with another firm is a likely event given the industry’s consolidation trends. Remaining independent is viable, and maybe desirable, from a business and industry perspective but Cognos may be confronted with an "offer they cannot refuse."  My techie side would like to see them remain independent (although they will continue to grow by M&A activity), but the business side understands that the titans may have other ideas.