With last year’s spate of acquisitions and financial tumult in the business intelligence (BI) market, many experts predicted that another wave of consolidation would wash over the industry. Yet, the reality is that there are four separate financial trends afoot, not one. 

In 2016, financial news dominated the BI headlines. Qlik was acquired by private equity firm Thoma Bravo for $3 billion, while Informatica and Syncsort were also acquired by private equity firms. Meanwhile, OpenText, Hitachi, BIME, Platfora, and Revolution Analytics were bought by other software vendors. In addition, negative financial results plagued market leaders: Microstrategy laid off 20% of its staff, and Tableau’s stock dropped 50% last February.

Given these events, some experts believe we’re due to repeat the rapid-fire consolidation that happened in 2007 when BI market leaders--Business Objects, Cognos, and Hyperion--were snapped up by mega software vendors, SAP, IBM, and Oracle respectively, each of which spent $3 billion or more to buy their way into a front-runner position of a market growing 30% a year. 

Today’s market leaders, Tableau and Qlik, have reached the same financial heft as their BI forebears; each is valued at $3 billion or more. Qlik has already been acquired and Tableau’s financial footing in 2016 was quite rocky.  So, is it logical to expect another round of consolidation like 2007? 

Perhaps. But things are different today. For one, market growth has slowed considerably, from 30%+ a decade ago to about 10% today. However, the size of the market today is much bigger, estimated to be $187 billion by 2019, according to IDC. Second, there are three other trends affecting the financial fortunes of BI companies, namely the rise of private equity,  the appetite of software vendors to embed data analytics, and interest among software vendors to enter the data analytics market. 

The Rise of Private Equity

In recent years, private equity firms awash with capital in an age of zero interest have been looking further afield for opportunities to invest. Global private equity deals reached a high of $350 billion at the end of 2015 and have slowly declined since then. 

At the same time, the increasing popularity of software as a service (SaaS) has played a factor in several private equity deals. Public companies that face Wall Street scrutiny are bound to feel backlash when they abandon lucrative perpetual licensing models in favor of subscription-based licenses which accrue revenues over a much longer period of time instead of receiving sales revenue up front. So, it comes as no surprise that some companies have embraced private equity to help make the transition to the cloud. 

Informatica cited the need to transition to the cloud as one reason why it sold to a private equity firm. Qlik also needed space to transition to the cloud as well as make good on its investments in its new flagship product, Qlik Sense. In an interview with Eckerson Group, Lars Bjork, CEO of Qlik, said, “it is easier to change business and sales models in a private setting”. 

Analytics Players Beef Up Their Portfolios 

To keep ahead of market demand, some data-oriented, public software companies decided to go into the market and buy analytics capabilities rather than build them organically. For example, in 2015, OpenText purchased Actuate, Hitachi purchased Pentaho, and Microsoft purchased Revolution Analytics. 

In the case of Microsoft, Revolution Analytics makes using the R programming language fast and scalable so it is easy to use with the largest data warehouses. Microsoft plans to integrate the technology into its  platform so any user in any environment can analyze large sets of data and use R for application development.  

Likewise, Pentaho provides Hitachi a rich big data analytics platform, consisting of big data integration, data quality, and data visualization technologies, while Actuate brings OpenText a rich set of data analytics and reporting tools to complement its document and content management solutions. 

Software Companies Embed Data Analytics 

Other BI acquisition have been driven by large, fast-growing software companies eager to enhance their existing products with data analytics.  For example, Zendesk, which provides customer support software, bought the innovative French analytics company, BIME Analytics; human capital management solution provider, WorkDay, bought big data analytics provider Platfora; and Salesforce bought next generation language leader, BeyondCore.

“Data and analytics are hotter than ever”, says Wayne Eckerson, founder and principal consultant of Eckerson Group, which provides research and consulting services to BI and analytics leaders. “We are at a point where every software company needs strong reporting and predictive analytics capabilities to compete in the marketplace. Public companies flush with cash and under growth pressure are more apt to purchases these capabilities than build them.” 

The Tableau Conundrum

Then there’s Tableau. The fifty percent stock drop Tableau experienced in a single day in February 2016 threw many for a loop. Some attribute the stock fall to overly high expectations and limited stock distribution. Others have claimed hasty hiring of sales representatives in 2015 led to poor execution of sales and pricing, but a number of other plausible theories exist. 

Josh Parenteau, former research director at Gartner and now the Competitive Intelligence Product Manager at Tableau, pointed to increasing competition in the industry. Microsoft, Qlik, and Microstrategy have all introduced competitive products, challenging Tableau’s offering. With many options, sales cycles have slowed, especially as customers pursue large enterprise deals worth seven-figures or more. 

BI companies that succeed selling desktop and departmental software always stumble when they try to become enterprise software providers,” says Wayne Eckerson. “Usually, these firms must redesign their architecture from the ground up and add a ton of features and functions that enterprise customers demand. This makes the tools heavier, costlier, and harder to implement and use, undermining their initial value add to the market. Tableau is in the midst of this phase of its evolution.” 

Business Objects, Cognos, and Hyperion went through a painful revamping and then were subsequently acquired by bigger vendors. The only BI leaders who escaped acquisition were private companies, Information Builders, and SAS Institute, as well as MicroStrategy, which even though it’s a public company, is effectively controlled by its long-time CEO, Michael Saylor.

Frank Sparacino, Vice President at First Analysis Corp., has a different theory. According to him, “Hyperion and Cognos both petered out at $250 million in revenue and Tableau, which is as successful as both companies were ten years ago, has seen growth slow at $250 million”. This similarity suggests there may be a market ceiling and Tableau’s survival and others’ depends on the ability to expand the market.

And that is certainly possible, according to Boris Evelson, vice president and principal analyst at Forrester Research. “Only 59% of enterprises consider BI their top priority, an average enterprise still leverages less than 50% of structured and less than 25% of unstructured data for insights and decisions, and 66% of Forrester clients report that more than 50% of BI content is still sitting in shadow IT applications mostly based on spreadsheets.” (1) Nonetheless, Evelson believes consolidation is inevitable. “No market, even a $16.5 billion market, can support 73 vendors. Make vendor viability a key part of your evaluation and selection criteria.” (2) 

Multi-faceted Consolidation 

A hot industry, like BI and analytics, begets a multiplicity of start up firms using new technologies and techniques to gain a sliver of the market’s growth potential. Few will emerge as public companies; most will be acquired by larger software companies who need to beef up or offer analytics capabilities to their customers. Just as in 2007, the market leaders have no guarantee of independence, especially if they stumble on their way to providing enterprise class software, as market behemoths make acquisition offers that their boards and investors can’t refuse.  

But unlike previous waves of consolidation, this one is more multi-faceted. Consolidation is happening in many different ways. With private equity firms and big software vendors prowling the sidelines looking for value, BI and analytics vendors are being swooped up and reconstituted to serve a variety of purposes. Gone are the days when every BI vendor chased an initial public offering; now there are many ways to reap the rewards of innovation and hard work. 

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(1) Forrester's Global Business Technographics Data And Analytics Surveys, 2016 https://www.forrester.com/data/business/dashboards

(2) Vendor Landscape: Forrester's 13-Step Methodology For Shortlisting BI Vendors https://www.forrester.com/report/Vendor+Landscape+Forresters+13Step+Methodology+For+Shortlisting+BI+Vendors/-/E-RES113285