Software Scientists

It seems every week brings word of another blockbuster acquisition in the business software industry: IBM buying Cognos for $5 billion, SAP buying Business Objects for $6.8 billion, Oracle, which bought Hyperion for $3.3 billion earlier this year, trying to buy BEA Systems for $6.7 billion.

For solution providers allied with acquired and soon-to-be-acquired software vendors, these are uncertain times. But they can also be times of opportunity.

As has happened with PCs, servers and other segments of the IT industry, the maturing business software arena is consolidating down to a relative handful of major vendors, with IBM, Microsoft, Oracle and SAP as the leading players. And all indications are that current trends will continue.

"I think you'll see continued industry consolidation and more vertical integration, not less," Hewlett-Packard Chairman and CEO Mark Hurd predicted in a keynote speech at the Oracle OpenWorld conference last month. "Only a few companies are well-managed and have great people. In the end, math wins."

The "Big Four" will never be the only software vendors on the planet, of course. Major companies such as CA and Symantec are still around, as are channel favorites like Sage Software and Intuit. HP is becoming a software force through its acquisitions of Mercury Interactive, Opsware and others. And companies like Salesforce.com and NetSuite are the vanguard of a whole new generation of Software-as-a-Service application vendors. Even Oracle CEO Larry Ellison acknowledged during a Q&A session at OpenWorld that his company would always have competition from smaller companies no matter how aggressive Oracle's acquisition strategy.

But there's no denying that the business software space is undergoing some serious rearchitecting. And solution providers are doing some serious rethinking about whom they partner with and why.

Industry consolidation means the major software vendors are now vertically integrated as never before. SAP, once an applications vendor, now offers the NetWeaver application integration platform and Business Information Warehouse data warehouse system (with Business Objects soon to extend its business intelligence offerings). Oracle, whose roots are in database software, now offers its extensive Fusion Middleware product line and multiple application suites—thanks in large part to 41 acquisitions in the past 45 months (see cover story, p. 28). IBM, while once vowing not to get into applications, has added content management to its software repertoire by acquiring FileNet and is in the process of buying business intelligence software vendor Cognos. Microsoft, of course, has always taken the approach of offering everything from applications down to the operating system.

As software vendors become more vertically integrated, solution providers that have offered, say, financial applications from multiple vendors may find that strategy a more difficult road. Oracle channel partners planning on reselling the company's next-generation Fusion applications, for example, will also have to work with Oracle's Fusion middleware that the Fusion applications will rely on for business intelligence, security and other core functionality. "It's becoming more of a platform play," said Gartner analyst Kimberly Collins.

For solution providers, that could mean tying themselves more closely to a single vendor and their entire software technology stack. One Hyperion channel partner, who asked not to be identified, said he's already feeling some pressure to sell more Oracle products. The question for resellers is whether they have the breadth and depth of technical expertise to work with such a range of technology.

Solution providers may opt to ally with a certain vendor based on the reseller's target vertical markets and the vendor's areas of strength. SAP is dominant in manufacturing and chemical industries, for example, while Oracle is firmly entrenched within financial services companies, Collins said.

Next: Industry ConsolidationIndustry consolidation has undoubtedly created opportunities for many solution providers, however. Re-Quest, a Naperville, Ill.-based solution provider and Oracle partner, has deep experience working with Oracle's middleware and database software. So even though Re-Quest resells Oracle's Enterprise Business Suite applications, Oracle's acquisitions of PeopleSoft and J.D. Edwards—and the ever-tighter integration of those applications with Oracle's middleware and database products—provides Re-Quest with potential customers for its system integration and technology management services, said CEO Ron Zapar.

Re-Quest also has begun reselling business intelligence and performance management software from Hyperion. "Lots of customers are talking to us about Hyperion," Zapar said.

And Oracle's acquisition has created opportunities for Hyperion's 500 channel partners as well. "We were concerned about not being diversified enough," acknowledged Dan Gudal, president of Vertical Pitch, a Golden, Colo., solution provider that previously focused exclusively on Hyperion's product line. Vertical Pitch can now resell anything from Oracle—but is under no pressure to do so, Gudal said—including the Oracle Business Intelligence Suite Enterprise Edition and analysis software from Oracle's Siebel acquisition.

Hyperion channel partners have been adjusting to some changes since Oracle completed its acquisition in April. Where resellers previously obtained Hyperion products directly from the vendor for resale, they now must go through value-added distributors Arrow, Avnet, Ingram Micro and Tech Data. "We're simply plugging [Hyperion] VARs into our standard procedure," said Doug Kennedy, Oracle senior vice president of worldwide alliances and channels. Oracle has also been merging Hyperion channel partners into the Oracle PartnerNetwork program—only 30 percent belonged to OPN before the acquisition—and aligning partners with the company's technology (database) and applications sales organizations.

Just what lies ahead for Business Objects and Cognos channel partners under SAP and IBM, respectively, is less clear given that neither acquisition is a done deal. (Both are expected to be completed in the first quarter of 2008.)

Thanks to existing alliances, Business Objects products are already integrated with SAP software and Cognos products work with IBM software. But one of the key selling points of Business Objects and Cognos business intelligence products is that they work with applications, databases and other systems from many vendors. SAP and IBM will have to step lightly and not overintegrate the acquired technologies.

When SAP and IBM announced the deals, they said it was their intention to operate Business Objects and Cognos as relatively independent organizations: Business Objects led by CEO John Schwarz as a separate business unit and Cognos led by President and CEO Rob Ashe as a group in IBM's Information Management Software Division. Todd Rowe, vice president and general manager of worldwide midmarket business at Business Objects, said working groups had been established to figure out how to integrate the company's sales, marketing, channel and product development organizations with those of SAP.

"I don't think they would spend $7 billion on a company just to tear it apart," said Taylor Courtnay, vice president of sales at Decision First Technologies, an Atlanta-based solution provider and Business Objects channel partner. He thinks SAP will be true to its word to operate Business Objects and other acquisitions as a portfolio of independent products. "That will be good for partners," he said, adding that the SAP acquisition also exposes Decision First to new potential customers and provides it with an expanded product line. "It definitely gives us somewhere to grow," he noted. "As a partner, you never want to go stale."