Industry consolidation forces IBM to acquire business intelligence software major Cognos

15 November 2007

One of the hottest segments of the tech industry, business intelligence software, is going through a major phase of consolidation as one major player after another is acquired by larger companies.

At one time, the software industry had hundreds of small and medium ''best-of-breed'' companies. But midsize companies find it very difficult to compete against the giants because large corporations prefer to buy their technology from a few strategic suppliers rather than a lot of smaller companies.

Not surprisingly, the field is now dominated by a handful of giants, including Microsoft, IBM, SAP, and Oracle, all of which have vast product portfolios. Two independents, BEA Systems (BEAS) and Sybase (SY), are being seen as likely takeover targets.

The Cognos acquisition is a continuation of IBM''s inorganic growth strategy through mergers and acquisitions, launched in February 2006. The software giant has bought 23 software companies as part of its ''information on demand'' offering; software and services that help corporations get the most out of customer data.

Cognos is a good buy, because the two companies have been working together closely for more than 15 years. Their technology is compatible. Both have standardised the Java programming language. Besides, Cognos has integrated its executive dashboard and business data analysis programs with IBM''s DB2 database and its WebSphere technology for weaving together complex business applications.

IBM should have little problem in swiftly merging Cognos into its existing operations and selling its products through its over 10,000-strong software sales force. One of the top companies in the business intelligence arena, Cognos reported a net income of $115.7 million in fiscal 2007 on sales of $979.3 million up 11.6 per cent from the previous year.