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Microsoft’s Strong Gains Portend Business Intelligence Superpower Status

Don’t look now, IDC’s Dan Vesset cautions, but Microsoft has the potential to radically reshape the BI landscape.

• By Stephen Swoyer
• August 2, 2006

Just what kind of business intelligence (BI) player is Microsoft Corp.? If new research from market watcher International Data Corp. (IDC) is any indication, it’s a hugely disruptive one. Microsoft’s BI revenue growth outpaced both its relational database rivals and its BI pure play competitors. In fact, Microsoft grew its BI market revenues by 25.5 percent—more than double the average rate of growth (11.5 percent) for the industry as a whole.

That was enough to make Microsoft the number four overall BI vendor in terms of market share, trailing only Business Objects SA (at number one), SAS Institute Inc. (at number two), and Cognos Inc. More suggestive, however, is a market trend in favor of database-embedded BI, which—at 19.9 percent revenue growth—nearly doubled the performance of standalone BI solutions (10.7 percent).

This could have implications for the BI pure play giants, says IDC’s Dan Vesset. Consider Business Objects, which—with 14 percent of overall Bi market share—finished 2005 as the dominant query, reporting, and analysis vendor. Business Objects has ambitious plans for growth, Vesset acknowledges, and—insofar as that company has demonstrated an ability to grow its market share both from within and by dint of acquisition—such plans aren’t unfounded.

But the competitive threat posed by Microsoft and Oracle Corp.—which grew its own BI market share by almost 14 percent last year—is real and daunting, Vesset cautions. “[C]ompetitive pressures, especially from database vendors, suggest that organic growth will not be sufficient to maintain even low double-digit growth rates for software revenue, which would make another acquisition an attractive option for Business Objects. Such an acquisition is unlikely to be in the company’s existing stronghold segment of query, reporting, and analysis but could instead involve adding advanced analytics, search, business process management, or packaged analytic applications products into its portfolio.”

IDC currently pegs the value of Microsoft’s BI tools practice at $353 million. On the surface of it, that’s still substantially behind third-place finisher Cognos (with $567.2 million in annual revenue), but—given Microsoft’s 25.5 percent year-over-year growth—isn’t an especially enormous gap. The big takeaway here, Vesset says, is that Microsoft has the potential to profoundly reshape the BI tools landscape.

“Microsoft’s impact on the BI tools market cannot be overemphasized. Currently this is especially true with respect to its Reporting Services and Analysis Services products,” he writes, noting that Microsoft’s acquisition of the former ProClarity Corp. helped up the ante in the BI front-end tools space, too: “However, the company is also going to have an impact at the ‘front end’ of BI in the coming years. Note that although Microsoft Excel is not counted as a purpose-built BI tool, Microsoft’s recent focus on promoting Excel as a key interface for BI is also going to have a negative impact on competition. Again, this impact will not create any sudden material shifts in the market, but an evolutionary change has been put into motion by the database vendors, and it will reshape the BI tools market over the next 15 years.”

One vendor that might be well-placed to deflect some of Microsoft’s momentum is SAS Institute Inc., which grew its market share last year by 13.2 percent. Some of this growth can be attributed to SAS’ expansion into enterprise BI, which helped account for 26 percent growth in its query, reporting, and analysis revenues. But SAS has a Microsoft-resistant buffer that Business Objects, Cognos, and some of the other BI powers that be don’t have: it’s long-standing strength in specialty analytics, which accounted for 59 percent of its revenues last year. This market—like most other once-specialized segments—could shift toward packaged applications over time, Vesset acknowledges, but SAS has proactively positioned itself as a player in the packaged segment, too.

“SAS is also continuing to find success in specialty analytic applications that take advantage of its advanced analytics tools. Examples include applications for various types of forecasting, optimization, and descriptive and predictive analytics. Although this revenue is not accounted for in the current BI tools study, it influences the company’s overall product mix and in aggregate has a tempering effect on BI tools revenue,” Vesset writes. “In the short term, IDC does not see any serious challenge to SAS’ dominance of the advanced analytics market and expects the company to continue to experience above-market growth rates for query, reporting, and analysis. However, at the same time there is likely going to be a long-term, continuous shift toward more packaged analytic applications.”

Other BI contenders include MicroStrategy Inc.—which grew its share by an encouraging 14.8 percent—and Information Builders Inc., which realized a blistering 21.4 percent growth in revenues. “MicroStrategy continues to deliver on a strong product suite, which remains an attractive option for many large-scale BI deployments that benefit from its underlying … ROLAP … infrastructure. Its reporting tool, general user interface, and development functionality remain at the forefront of innovation and usability,” Vesset says, conceding that MicroStrategy’s “phenomenal” growth rates (of 30 percent or more) “halved” last year “to a still respectable 15 percent.”

As for IBI, Vesset says much of its success can be attributed to continued uptake of WebFocus, along with—of course—the success of its iWay integration subsidiary. “[IBI] saw yet another shift in its product mix to WebFocus from Focus, which accounts for the strong growth of its BI tools in 2005,” he writes. “After 30 years, IBI remains a viable player in the BI market, with newproducts such as WebFocus ActiveReports, promising partnerships ... and the synergy between its own BI and iWay data integration business. IBI also remains one of the most scalable reporting environments on the market.”

Interestingly, the former ProClarity was tops among prominent BI pure plays, with 21.5 percent revenue growth. And SAP also emerged as a threat last year, growing its revenues by 19.4 percent and controlling 2.7 percent of the overall BI market. “SAP’s presence in the BI tools market is derived from tools related to itsNetWeaver platform that are primarily focused on the analytic server formerlymarketed as SAP BW,” Vesset concludes. “SAP is a significantly stronger player in packaged analytic applications. However, the company’s core applications business does require a supporting tools infrastructure, and increasingly, SAP does not want to relegate that opportunity to competitors.”