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Best of Breed: Have Reports of Its Death Been Greatly Exaggerated?

If the all-in-one BI platform is the thing, why aren’t best-of-breed vendors quaking in their Aeron chairs? Do they know something you don’t?

• By Stephen Swoyer
• February 22, 2006

The business intelligence (BI) powers-that-be—platform players such as Business Objects SA, Cognos Inc., Hyperion Solutions Corp., MicroStrategy Corp., and SAS Institute Inc., among others—are all agog over the all-in-one platform. And they’d like you to be just as enthusiastic, too. After all, these vendors say, best of breed is so last millennium: all-in-one convenience is the thing. It’s not clear that the triumph of the all-in-one BI suite is a fait accompli, however. For one thing, best-of-breed vendors don’t exactly seem to be quaking in their Aeron chairs. Do they know something you don’t?

The truth, many best-of-breeders say, is that customers just aren’t all that agog over all-in-one convenience. More to the point, some best-of-breed vendors argue, the convenience of the one-stop BI platform is offset by hidden costs: as companies that adopted ERP software in the late 1990s (or CRM software in the first part of the new millennium, for that matter) discovered, all-in-one synergy can come at enormous cost, especially in terms of people and process changes, implementation and integration difficulties, and other intangibles.

Take Actuate Corp., operational reporting mainstay, enterprise reporting power player, and prominent proponent of what at least one analyst has called a “better-than-spreadsheet spreadsheet” application model.

Actuate’s value proposition is simple: It provides the back-end plumbing—i.e., synchronization and replication, metadata management, security, and other essentials—for a rich spreadsheet-based client reporting experience. Over the years, the company has made a lot of hay out of Excel and its shortcomings. It pitches its e.Spreadsheet product, for example, by promising to reduce or eliminate “spreadmart hell” (i.e., the proliferation of multiple, unmanaged, un-reconciled spreadsheets based on (often) outdated source data). More recently, the company expanded into the performance management segment, too, with its branded Financial Performance Management (FPM) offering—yoked, not surprisingly, to its spreadsheet-centric value proposition, as well.

If the all-in-one BI platform wave is a bona fide trend, then, Actuate would probably be among its first casualties. You’d never know it to look at the reporting stalwart’s recent financial performance, however. In fact, Actuate recently announced glowing Q4 and Fiscal Year (FY) 2005 financials, including record operating margins and FY 2005 GAAP net income that far outpaced the company’s 2004 performance ($11.6 million compared to $1.3 million). True, Actuate’s revenue grew by a less-than-stellar 1.8 percent last year, but its operating margins remain robust and it also has $54 million in cash on hand.

Perhaps there’s something to what Actuate vice president of product marketing Mike Thoma told us last summer. The BI platform wave had all but arrived, with Business Objects and then MicroStrategy kicking things off (and similar platform releases expected from Cognos and Hyperion), but Thoma dismissed the threat posed by these vendors and other would-be all-in-one players.

“The net-net is that [Actuate’s customers] want the fastest and best [reporting] solution they can get. Most of them aren’t interested in ‘good enough,’” he said. Thoma also spoke to the longevity of Excel—possibly the most pervasive of all BI client tools—as another thing Actuate has going for it. “[Customers] want to use their Excel [client], because that’s what they’re comfortable with, that’s what they’re used to. They don’t care if [a prospective product is] ‘sort of’ like it [Excel], or if it’s ‘spreadsheet-like,’” Thoma maintained. “So we know [the BI vendors are] pushing these [platforms], but we think there’s just not going to be as much interest as some think.”

If the BI platform wave is gaining traction, Actuate competitor (and kindred better-than-spreadsheet spirit) Applix Inc. could also be steering a course for irrelevance. The company’s flagship TM1 offering is, after all, the very model of a best-of-breed solution: it’s an in-memory OLAP engine that delivers supercharged analytic performance. What’s more, TM1—like Actuate’s e.Spreadsheet and FPM offerings—taps the Excel spreadsheet as its client UI. That means it’s earmarked for obsolescence, right?

Not so fast, say Applix officials. Burgeoning BI platform juggernaut or no, Applix is having a pretty good run of it. The company recently reported record Q4 and FY 2005 revenues of $6.64 million—up 22 percent from its year-ago performance—along with robust FY 2005 revenue growth (up 20 percent year-over-year). Applix’ FY 2005 net income skyrocketed by more than 30 percent, exceeding $6.74 million (compared to $4.7 million in 2004). If anything, Applix officials say, these numbers will look even better one year from now. Dave Menninger, the company’s vice-president of worldwide product management, flags an important trend that he says will fuel TM1’s growth.

“BI often means using historical data to analyze information for decision-making across operations, finance, HR, customers and at the executive level,” he says. “But this view is short sighted: analysis on historical data simply does not meet today's demands to act and react quickly. Instead, BI needs to move into the real-time … or right-time category, [which is] essentially the ability to analyze information based on today's actuals, or last minute's actuals—not last month's.”

Or consider the case of statistical analysis and data mining specialist SPSS Inc., which—like Actuate and Applix—posted record Q4 and FY 2005 earnings. SPSS, in fact, is a particularly apposite example—in part because kindred competitor SAS has cast its lot with the BI platform crowd.

SPSS officials don’t seem to be sweating the company’s best-of-breed focus on predictive analytics and data mining, however. SPSS recently trumpeted Q4 profits that were up by nearly two-thirds (or 65 percent) over last year’s marks, as well as more modest revenue growth of 2.9 percent. For FY 2005, SPSS’ profit increased by almost 300 percent to $16.1 million (compared to $5.5 million in FY 2004), with revenue growth of just over 5 percent.

SPSS officials, too, might say that the sky is still the limit for best-of-breed. Spokesperson Marc Brailov, for example, sees a lot of upside to his company’s focus on predictive analytics, which has helped fuel its record earnings. “While business intelligence and predictive analytics obviously have similar roots, leading industry analysts are now viewing the two as distinct technologies,” he points out. “Predictive analytics essentially fills a critical void that business intelligence cannot—and data-driven organizations are the beneficiaries. BI software can glean insight from yesterday’s data and reporting formats. But increasingly today, there are too many new valuable data sources, and by the time a BI model has caught up, the information has changed again.”

Customers are embracing predictive analytics (which some analysts describe as a kind of applied data mining) because it can help them get a grip on the frenetic pace of information generation and consumption, says Brailov. This is a trend that isn’t likely to abate much in the future, either, he points out. “Such time constraints do not hinder predictive analytics. Because of its capabilities to extract insight from enormous volumes of disparate data and to reliably project future trends, predictive analytics software offers the missing link for companies to, once and for all, optimize the use of their data in key operational areas.”