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SWOT: IBM’s Pending Acquisition of Cognos

What does the IBM/Cognos agreement mean? Analyst Mike Schiff explores the news from four angles.

• By Mike Schiff
• November 14, 2007

The signing of a definitive agreement for IBM to acquire Cognos, one of the industry’s BI leaders, provides yet another example of the ongoing consolidations in the BI industry. Coming just two months after SAP’s announcement that it would be acquiring Business Objects, the news provides additional evidence of the growing dichotomy between BI specialists and database and/or enterprise applications vendors wishing to augment their analytical capabilities by acquiring their own BI technology.

Strengths:

• The acquisition of Cognos will greatly augment IBM’s business intelligence portfolio and allows it to offer end-to-end data warehouse solutions encompassing data integration, database, and business intelligence tools and applications.

• It supports and enhances IBM’s Information On Demand initiative to help companies “unlock the business value of information.”

• Cognos recently acquired Applix and its in-memory OLAP technology, and earlier this year acquired Celequest for its dashboarding and Software-as-a-Service capabilities. These offerings will now become part of IBM’s technology portfolio.

• Cognos will become a new unit within IBM’s Information Management division which the current Cognos CEO will lead.

• Cognos, established in 1969, is a well-known and profitable BI tools and applications vendor with a 25,000+ customer base. It has partnered with IBM for over 15 years.

Weaknesses:

• IBM has a very strong partnership with Business s (soon to be acquired by SAP) and in October 2007 announced an agreement which included the bundling of Business s’ BI technology with its IBM DB2 and IBM DB2 Warehouse. Cognos and Business Objects are major competitors; how this will ultimately play out remains to be seen.

• Until the acquisition is completed (expected in Q1 2008), Cognos is likely to experience a sales slowdown as prospects delay commitments and wait to see IBM’s plans for the acquired Cognos technology portfolio.

• There is some product overlap as Cognos has its own data integration technology as a result of its 1999 acquisition of UK-based Relational Matters. However, this may be somewhat academic as Cognos has not aggressively marketed its own ETL capabilities and has focused on partnerships with companies such as Informatica and IBM (Ascential) instead.

• While IBM and Cognos have been long-time partners, IBM also partners with many other BI specialists who may not appreciate now being in direct competition with IBM. Cognos also partners with many other systems integrators who will also not appreciate being in direct competition with its acquirer.

• The acquisition is not yet a done deal and is subject to regulatory and stockholder approvals.

Opportunities:

• IBM will be able to position itself as providing a single source for data warehouse solutions that include data integration, database, business intelligence, as well as hardware and consulting services.

• Rather than relying on partners for robust BI technology, IBM will now have its own and thus be able to determine future product directions.

• Cognos’s financial planning and consolidation analytic applications should appeal to the CFO organizations of its customers and prospects. Its other analytic applications will appeal to organizational units including sales, procurement, and manufacturing.

• For many years IBM has focused on the middleware market (which to IBM also includes the database) rather than on applications. At the risk of alienating some of its application partners, IBM may be considering the increasing its presence in the applications market, even if analytic rather than operational.

• Many of Cognos’ 25,000 customers are not necessarily IBM hardware or DB2 database shops. IBM will have the opportunity to cross-sell the Cognos installed base on its full range of products and services that include software, hardware, and consulting.

Threats:

• IBM will need to explain why, less than one month before moving to acquire Cognos, it announced that it would bundle Business Objects software with DB2 and DB2 Warehouse.

• Cognos’ competitors can be expected to create market fear, uncertainty, and doubt about how Cognos’ products will soon be optimized for IBM’s databases. It would not be unexpected for BI competitors to aggressively target the Cognos installed base and offer “Cognos Migration” programs.

• SAP will soon acquire Business Objects. By acquiring a competitor to Business Objects, IBM may weaken its existing relationship with SAP.

• IBM has strong data integration technology in part due to its acquisition of Ascential Software in 2005. Cognos’ data integration partners, in particular Informatica, are likely to now feel threatened and favor or even recommend its other BI partners such as MicroStrategy instead.

• Cognos has global alliances with many major consulting and systems integration firms including Accenture, BearingPoint, CapGemini, Deloitte, EDS, KPMG, and PwC. These companies will also not appreciate that IBM, with its Global Business Services organization, is acquiring Cognos.