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Analysis: Behind Oracle’s $3.3 Billion Bid for Hyperion

There’s a lot of overlap between Oracle and Hyperion, but there’s at least one segment where there isn’t much overlap -- BPM.

Few would call Oracle Corp.’s acquisition of business intelligence (BI) and performance management (PM) giant Hyperion Solutions Corp. surprising. Sudden, yes. But surprising? Not entirely. At last month’s TDWI Winter World Conference, for example, several industry watchers suggested that Oracle might make a big BI play of some kind—it just remained to be seen on which Big BI play Mr. Ellison and company would ultimately pull the trigger.

Hyperion gives Oracle a best-of-breed OLAP engine—which it arguably already has, both in the form of its Express OLAP technology (which Oracle acquired a decade ago), as well as in the OLAP capabilities it built into Oracle 9i. Hyperion also gives Oracle best-in-class operational and multidimensional reporting capabilities—which it doesn’t necessarily already have, but toward which it has been punctiliously striving, both with Fusion and by virtue of its acquisition of the former Siebel Systems Inc. Hyperion also brings a credible dashboard component and respected master data management (MDM) capabilities to the table, too. In both respects, Oracle’s existing solutions might be said to lag.

The point, analysts say, is that there’s an awful lot of overlap between Oracle and Hyperion on the technology front.

“The greatest overlap in product inventory is at the top end of the technology stack, with BI tools for reporting and performance management. But there’s more overlap just below that with OLAP,” says Philip Russom, senior manager of TDWI research, pointing to Oracle’s acquisition of Express from the former IRI Software. “After that, Oracle extended PL/SQL and other capabilities of the Oracle Data Server to provide OLAP and multidimensional capabilities in the database. The Hyperion acquisition now adds Essbase—similar to Express—to the OLAP inventory, again muddying the product inventory waters.”

Industry watcher Mark Peco, a principal with BI consultancy InQvis, commented on the overlap between the two companies: “Most of the Hyperion product line seems redundant with the advertised functionality of Oracle’s existing BI suite. Either the Hyperion products are superior and will replace the Oracle tools or they will be retired from the market.”

Because there’s so much overlap, industry veteran Mark Madsen, a principal with BI and data integration consultancy Third Nature, predicts that Oracle will have to make cuts either to its own or to Hyperion’s redundant parts. “I'm expecting retirement of some Hyperion products—[such as] Brio for instance,” Madsen says. The upshot, he predicts, is the elimination of at least one OLAP and ad-hoc query tool—along with a host of new additions to Oracle’s queue of soon-and-inevitably-to-be-integrated technology assets.

“Oracle is certainly no Cisco when it comes to acquiring and integrating other vendors and technologies,” Madsen concludes.

If there’s so much overlap, why, then, did Oracle pull the trigger on the acquisition? For a number of reasons, industry watchers say.

For one thing, there’s at least one segment in which there isn’t much overlap—or much meaningful overlap, in any case: financial reporting and performance management. That’s the conclusion offered by author and industry watcher Jill Dyché, a principal with Baseline Consulting, a BI and data integration consultancy.

“It really is a natural decision. Hyperion has added some impressive capabilities to its functional suite, including search capabilities—via Hyperion System 9 Smart Search—and master data management via the Razaa acquisition,” says Dyché, whose most recent book, Customer Data Integration, was published last year by Wiley & Sons. “More to the point, the company has become the go-to vendor for CFOs, for everything from chart-of-accounts maintenance to M&A analysis. This acquisition gives Oracle access to an audience it never really secured with its Oracle Financials suite.”

Industry veteran Mike Schiff, a principal with BI and data warehousing consultancy MAS Strategies, agrees. “I believe Oracle is acquiring Hyperion for its strong financial analytic applications and the company’s credibility with CFOs,” Schiff comments. “I haven’t delved into Hyperion’s financial statements and SEC documents in a while, but I suspect that the plurality of its revenue—and perhaps as much as half—comes from the financial analytic applications and a much smaller percentage derives from the BI tools.”

There’s a further wrinkle here, too, Schiff adds: Oracle officials—such as company president Charles Philips—specifically cited Hyperion’s popularity among SAP customers as one important driver for the acquisition.

“I think Oracle went after Hyperion to expand its applications business, not to augment its BI toolset,” he concludes.

For these and other reasons, TDWI director of research and services Wayne Eckerson says there’s a lot of upside to Oracle’s Hyperion purchase. “[Hyperion] fills a big gap in their application strategy, [especially with regard to] planning, budgeting, and consolidation. It gives them huge presence in the CFO's office, many more application sales feet on the street… and helps them better compete against SAP,” he points out. “They mentioned their SAP surround strategy in the briefing. Really BPM is the last big market for application software and Oracle wants to dominate that and provide top-to-bottom software stack for customers. Oracle expects accretive earnings fairly soon.”

Eckerson also contrasts Oracle’s $3.3 billion Hyperion acquisition with SAP’s acquisition just two weeks ago of strategy management specialist Pilot Software: “And if you look at the two BPM acquisitions in the past two weeks: Oracle buys Hyperion and SAP buys Pilot Software, also a BPM vendor of sorts—but more on scorecarding and metrics management than planning and consolidation—Oracle wins hands down,” he concludes.

And Russom, for his part, says it’s high time everyone stops thinking of Oracle as just a database vendor: “[T]hat’s no longer true, because the acquisitions of PeopleSoft and Siebel—coupled with the development of Oracle’s packaged applications—have turned Oracle into an applications vendor, first and foremost. In that light, it makes sense that when Oracle went shopping for a BI vendor, it chose one with a hefty applications portfolio.”

He suggests, however, that the addition of Hyperion and its hefty applications portfolio—on top of hefty applications portfolios from PeopleSoft and Siebel—will additionally confuse an already highly confusing situation.

“The Peoplesoft and Siebel acquisitions created a lot of confusion in the realm of BI. Applications users are still trying to figure out which Oracle, Peoplesoft, and Siebel BI products they should acquire or keep for BI, due to the significant overlap of products among these,” he concludes. “The acquisition … exacerbates the situation, by tossing Hyperion’s BI products and services into the inventory, including those Hyperion acquired from Arbor and Brio. Just as Oracle’s newly extended customer base was starting to understand the new road maps for Peoplesoft EPM and Siebel Analytics, the road maps will have to be rewritten to accommodate Hyperion products.”

Customers Guarded

Hyperion customers, on the other hand, probably aren’t all that concerned about the pluses and minuses of Oracle’s strategy. Hyperion BI customers, in particular, are most likely concerned about the future of bread-and-butter tools like Hyperion Essbase and Hyperion Intelligence.

In this last respect, there’s a lot at stake: Hyperion acquired Essbase nearly a decade ago; it picked up the reporting assets which comprise Hyperion Intelligence a mere four years ago (from the former Brio Software). At the time, Hyperion was perceived as a white knight of sorts: Brio was in dire financial straits, and Hyperion’s acquisition literally saved the company.

This time around, former Brio users are slightly more guarded in their assessments. “Will Oracle continue to support and develop Hyperion's BI tools … or will they phase them out in favor of Oracle's own BI tools?” asks Adam Franz, an independent Hyperion Intelligence consultant—and a former Brio technologist—based in the greater Boston area. “If the Hyperion/Brio BI tools are phased out, then those of us who specialize in working with those tools will have to master a completely different product suite and/or be looking for new lines of work. Not to mention our clients, the Hyperion BI customers, who have invested countless hours and dollars in their Hyperion BI setups.”

Even so, Franz says he’s choosing cautious optimism.

“I will choose to remain cautiously optimistic through this acquisition, just as I did through the Hyperion/Brio acquisition. I would like to believe that a company that has made enough good decisions to find themselves where Oracle is presently, would be smart enough not to toss out things that work and that make money, such as the Hyperion BI tools,” he concludes. “They must know that they would have a very difficult time forcing the former Hyperion customers to switch products entirely and that there is more money to be made by keeping a profitable and useful product than there is by eliminating it.”

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