Enterprise software is now gunning for the executive suite.
That Was Then
In the old days, enterprise software was easy to understand. It used to just refer to an enterprise resource planning (ERP) vendor like the German giant SAP (NYSE: SAP).
Purists cringe at the phrase, but we called ERP "back-office software" because it helped stitch together staff functions like accounting, payroll, and human resources.
In brokering dataflow between "vertical silos", ERP was the technology that armed process re-engineering, a cost-cutting approach that tried to flip vertically introspective companies into horizontal, customer-oriented process machines.
Oracle (Nasdaq: ORCL) bought up the all the ERP vendors, or at least it feels that way. ERP nowadays basically just refers to Oracle or SAP.
From ERP to CRM
More recently, the focus shifted to the front office: customer-facing functions like sales, sales support, and marketing. That's the domain of customer relationship management (CRM). Where ERP was touted to reduce costs, CRM is touted to increase revenue. The most visible CRM company was Siebel Systems, also purchased by Oracle.
Meanwhile, Salesforce.com (whose ticker is actually CRM!) proved that none of this needed to be delivered the old way; i.e., as discrete roll-outs with client installations (think pre-packaged software in boxes). Instead, as software-as-a-service (SaaS) most of these companies have started testing the waters with software delivered over the internet. As a continuous service, rather than a lumpy product. The licensing mimics the physicality: recurring maintenance fees replace new application licenses. For some of these companies, the Street wrongly prioritizes new application licenses due to old habits. But if SaaS is the future, maintenance fees are often better leading indicators.
This Is Now
Then it got interesting. From the back office (ERP) to the front office (CRM) to, currently, a focus on the executive suite. In trying to serve executive wants, business intelligence (BI) has become dramatically vital. Companies want to make quicker, better decisions based on all of this data.
The other stuff is still important, of course. Databases, into which these corporate transactions get filed, are a resurgent investment theme. Terabyte databases, unthinkably large, are unmistakably common. Oracle's grid computing has huge markets to look forward to, especially as rich media will be clogging the pipes.
Also, customer relationship management has specialized. CRM now breaks up into things like sales force automation (SFA) and, more interestingly, incentive plans management. Callidus Software (Nasdaq: CALD) makes software for compensating people. If you think about it, what could be more important than incentivizing people in a knowledge economy?
But with the executive suite in mind, the holy grail is now, "Okay, we are swimming in transaction data, can we use it to make decisions?" And so, what is (roughly) called business intelligence tends to be sliced into three to five functional layers on top of the database. At the "bottom" is what is called Enterprise Information Management (EIM). That's consolidating and scrubbing the data, getting it all together and clean for action.
Reporting Tools and Much More
Next are reporting tools. These still tend to be ad hoc, transaction roll-ups ("show me regional sales by product"), but they are becoming more about continuous monitoring. Above that (or alongside) are analysis tools for making queries, performing statistical analyses, and predicting the future. On Line Analytical Processing (OLAP) is a hot approach to analytics. OLAP is like Excel's pivot table, in multiple dimensions, on steroids.
And at the top is where you find that "holy grail", performance management solutions. At first, this was just dashboards, but the agenda has become more strategic: if a company can link dynamic dashboards to its strategy, performance metrics and talent requirements (human capital), it gets intelligent dashboards with intent.
When the vendors start calling stuff strategic, you know it's not ready for prime time. That's where performance management is right now. (There's lots of talk about linking metrics to human capital, but to my knowledge, it's mostly theory because the "soft side" of business doesn't have any Application Program Interface to plug into, much less useful metrics. Companies can't yet measure their "most important asset".)
Oracle's purchase of Hyperion is reducing the number of pure-play BI companies to three. Subsequently, there's plenty of talk of consolidation in business intelligence. This is a little weird to me only because BI is still so young. True, consolidation theory is based on the idea that IT buyers want fewer vendors ("this is great, now I can buy everything from Oracle!"), but that's dubious. When it comes to BI, many will want best-of-breed.
There's Still Plenty of Frontier Left
BI is just getting started. The top of the layer cake, dashboards, has yet to make a splash. The reason, I think, is simple: I've seen lots of demos, but they don't yet connect easily to the databases. One of the leading vendor solutions is unbelievably clunky. But web services will eventually change that. IDC predicts five years of 10% growth for the BI industry, but surely that's based on some rigid definition (or doesn't include all the disruptive web services based, they are coming).
In survey after survey, CIOs have signaled their intent to prioritize BI spending (after all, IT is becoming more strategic). BI reminds me of search. We all thought search was mature when Google (Nasdaq: GOOG) started ("another search? who needs that, I've got Yahoo!"(Nasdaq: YHOO)), and now you hear experts claiming search is only 10% penetrated!
And there are vast frontiers in business intelligence to conquer:
1) The incorporation of unstructured data.
2) The connection to external data (Bill Joy famously said, "Most of the smart people in the world don't work for you." There is an analogy in data, most of your best data is outside).
3) The corporate search has yet to be cracked. Most of these companies are working on a Google for inside the company.
A Few Pure Plays
The pure plays that remain in BI are Business Objects (Nasdaq: BOBJ), Cognos (Nasdaq: COGN), and MicroStrategy (Nasdaq: MSTR). It's possible all three are good buys (although I would never recommend buying merely on takeover speculation).
Okay, valuations are up, but they each have strengths. Based in France, Business Objects has a sharp strategic direction and market-leading products for the mid-market (companies with less than $1 billion in revenue). With its last quarter, Cognos showed strong organic growth (core licenses grew about 12%) and they've forecast almost 10% growth to break the $1 billion mark in revenue next year.
Meanwhile, the smallest of the three, MicroStrategy is clearly a fan favorite. While Cognos claims that "enterprise standardization" is a major theme (where you might think Oracle will only benefit), more companies are using MicroStrategy to standardize. Plus, they appear to have the lead in dashboards.
Keep your eyes open in this space, because as frontiers continue to be pushed back, opportunities for substantial gains will surely come about.
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