Is BI a Commodity

I was recently at a SAS event in which Jim Davis, their Chief Marketing Officer, described the commoditization of BI. He described their sales efforts for these applications as low and the price sensitivity as high.

I gasped (silently of course), thinking of the many customers I speak to and work with who spend months evaluating software, sending vendors painfully detailed RFIs, and diligently conducting proof of concepts. Some of these customers already own BI tools or will evaluate tools despite what’s being offered to them for free.

So at first I thought SAS’ comments were in isolation and only relative to their efforts to sell analytic applications (which do command a higher price and take more sales efforts.) But then I saw another reference to commoditization of BI in a CIO magazine. And someone referred to this commoditization as a fact at a seminar I recently taught.

Is my head in the sand here? Or are forces at work to give buyers the wrong impression?

A commodity is anything for which there is supply but without much differentiation. Without a differentiation, vendors are forced to compete mainly on price, putting pressure on margins.

So is that where we are today?

In terms of differentiation, the strategies that several vendors are pursuing are quite similar. Several are pursuing end-to-end BI from ERP to ETL to BI tools, analytic applications, and performance management. Note though, that IBM/Cognos doesn’t compete in the ERP space. SAP/Business Objects doesn’t compete in the RDBMS space. Some vendors such as SAS, MicroStrategy, Information Builders, and Qliktech take a more narrow focus of BI. So there are strategic differences.

In terms of product capabilities for BI tools, on the surface all of the vendors now offer a broad spectrum of solutions that include reporting, business query, OLAP, Office integration, and dashboards. Several years ago, vendors competed in only a single segment of the BI spectrum, so indeed, on the surface, the spectrum of offerings seems similar. But this is where the difference ends. None of the vendors are great at all these modules. Instead, they continue to have their strengths and weaknesses in specific modules. Add emerging capabilities such as BI search, mobile BI, rich reportlets, as well as integration with advanced visualization and predictive analytics and the products differ still more.

Price is a slightly different story. Operating margins have declined somewhat in recent years, but not drastically. Microsoft’s increased presence in the BI market helps drive prices downward. Software heavy weights Oracle, SAP, and IBM may further affect BI pricing as these vendors can more readily bundle BI with bigger ticket items, whether the operational apps or the database, but that’s not yet happening. BI needs to become more affordable for it to become more pervasive. Vendors, however, are not yet competing on price alone as they would with something that has been commoditized. Customers continue to be willing to pay a premium for better or unique product capabilities.

So where is this commoditization perception coming from? Perhaps it’s a prediction for the future. Or perhaps some vendors want you to think BI is commodity so you’ll buy from whoever already has a foothold in your company.

I’d welcome your comments on how important price has been in your BI buying … and how well you think the vendors are articulating their differentiators.

Sincerely,

Cindi Howson, Founder,

BIScorecard, a web-site for in-depth BI product reviews

Author: Successful Business Intelligence: Secrets to Making BI a Killer App

Comments

[Shyam Varan Nath]

This is a really interesting topic. Next week at Collaborate (the largest Oracle users community event) there will be a debate on "Are Pureplay BI Vendors on way to Extinction?" Some of the views expressed in the above article kind of address that point that as the big players are are gobling up the niche BI players (such as Oracle bought Hyperion and Siebel, Cognos became a big blue - IBM and the Germans bought the French - Cognos is now a SAP company), its creating unique opportunities for the players like Informatica, Information Builder, Microstrategy and even the open source players like Pentaho. When the small and mid-size IT shops invite these niche players they know that these vendors will demonstrate their core product and will be out the door rather than the infrastructure company BI vendors who will try to sell everything they can rather than just what the customer wants.

[Anthony Deighton]

An interesting post/question... I would add two points.

First, I think there is a difference between traditional OLAP technology (ala Cognos, BO, Hyperion, etc.) and next generation BI tools such as QlikView. The underlying technology in OLAP is a commodity because the concepts of pre-calculating aggregates and storing them on disk are well understood. This is proven by the presence of open source vendors in that market. QlikView is in-memory *associative* analysis which takes an entirely different approach to the analytical challenge.

Second, I think software cost is largely irrelevant in this market. The real cost is the implementation after the software purchase. And, in fact, traditional BI vendors "hide" software cost in implementation. They artificially lower the cost of their software, hoping to make it up in services. This is why services represent more than 50% of their total revenue. The question customers should be asking is how many of a vendor's customers implement the software *themselves* without (or with minimal) help from the vendor.

[Cindi Howson]

Hi, Anthony, some interesting comments, but ones that I only partly agree with.

Indeed, the OLAP approach is a differentiator but I would say it's not well understood. People still don't understand how Cognos, Business Objects, and MicroStrategy's approaches differ. The market understands even less about how Qliktech differs, and I will admit, it didn't make sense to me until I actually tested your product.

Second, I can see where QlikView has a fast implementation time, but your specifics in services as a percent of revenue are incorrect. For most of the publicly traded vendors, the services is only about 20% of total revenues. I would say that most of the BI vendors prefer to have only a limited service offering - enough to ensure a dialog with customers and understand how the products are used - but otherwise tend to rely on partners for the bulk of needed services. As Qliktech is privately held, I have no insight as to what your portion is.

Regards,
Cindi