An emerging software category called business intelligence (BI) is bouncing onto center stage. Enterprise software keeps the organization humming, everything from the plumbing of daily transactions to benchmarking competitors along key performance metrics. Big organizations run many software systems-but rarely in harmony. For most companies, different users (in different departments with different needs) and constant product updates conspire to create a frightfully diverse number of applications and databases.
The evolution of enterprise software sort of traces from an early focus on the back office (e.g., accounting, finance) and moved to the front office (e.g., sales) and, now, up to the executive suite. At first, organizations struggled to reengineer (streamline) business processes.
This was about translating functional, vertical silos like accounting, finance, and sales into customer-friendly, horizontal activities with purposeful goals. Enterprise resource planning (ERP) systems supported this because they connected the different back office systems. Three of the largest ERP vendors are now owned by Oracle (ORCL): Peoplesoft bought J.D. Edwards two years ago, and Oracle merged with Peoplesoft this year.
More recently the focus shifted to customer-facing or "front-office" functions. This is still enterprise software but supports sales, marketing and customer support and is generally called customer relationship management (CRM). ERP companies moved into CRM but other companies additionally gained a reputation for a CRM focus, notably Seibel Systems.
(Note: I recommended against investing in Seibel, for reasons too numerous to review, long before their announced acquisition by Oracle. Oracle has its problems too...) If you are interested in CRM, the likely disruptive winner in the space is Salesforce.com (CRM).
Of course, only two acronyms would be too easy! There is list of sub-specialties. For example, within CRM you have sales force automation (SFA), software designed to arm the salesforce with product information and contact management. Within CRM you have companies that publish software to track the all-important compensation incentive plans (known as enterprise incentive management, or EIM). This last category is too small to support publicly traded companies at the moment, but given the emergent criticality of motivating people in a world where people are the key asset, I wonder if this will always be the case?
Traditionally, vendors could be mapped to an organizational function; e.g., old ERP to accounting, SFA to sales, asset managers like Peregrine Systems (PRGN.PK) to inventory. But the next new thing is integration. The utopian vision is something like this: the CEO is able to view a real-time visual dashboard. It displays key performance metrics raises yellow/red alerts if something bad happens. And our CEO can pose whatever question she wants to the dashboard, the question to be answered "on demand." Although oceans of data are dispersed into different places and formats (i.e., some in this database, some in that spreadsheet), the data is managed by a business intelligence capability that coordinates the data with the ultimate goal of helping our CEO make good decisions.
Like all of our favorite themes, business intelligence is not an easy investment sector to bound. Microsoft (MSFT) of course has their tethers into the space, even if they don't yet have a strategy. They have a great advantage because they can effectively sneak in through a side door with their wildly popular Excel spreadsheet. Hyperion claims to lead a sector called business process management (BPM). If you are not sure of the difference between BPM and business intelligence, you are not alone.
Both are concerned with harnessing organizational data to inform better decision-making and improve business performance. Clearly Oracle and SAS (privately held) are in this space as is SAP (SAP) to some extent. But in terms of pure-plays (or nearest to) in business intelligence, I find the following five companies: Business Objects (BOBJ), Cognos (COGN), Hyperion (HYSL), Microstrategy (MSTR) and Actuate (ACTU). As a group, they have turned in a great year and a great third quarter. It will be hard to predict the winner, but you are going to have at least one super investment here and the cluster looks pretty good too. Check out the sales and earnings history (editor's note - click the white circles to see the data for each company):
After they turned in a sizzling third quarter and upped their guidance, Business Objects broke the $1 billion mark in trailing revenues. They have the inside track. They showed remarkably good taste in acquiring a small private company called Infommersion that publishes the software I used to draw the dynamic chart above. The idea is to present data in useful real-time dashboards. This is the essence of business intelligence: the data is somewhere but we are a long way from a state where relevant data can be demanded in real-time to make quick decisions. Many organizations are still doing it the old way: hire expensive consultancies to conduct lengthy studies.
But Cognos and Hyperion, as the second and third largest traded BI vendors look strong, too. Both turned in strong revenue and earnings growth for the quarter. Both also released major new upgrades. Microstrategy had a tough earnings quarter but they deserve a closer look because the underlying revenue trend is favorable. Actuate is the smallest of this group but they are exciting. They have smartly embraced open source (open source cannot be stopped so you better find a way to work with it...), and they offer some killer products. Normally, I try to parse the winners from the losers, but I can find something to like in each of these BI companies!