by Frank Sparacino

Despite extraordinary swings in overall sales and market share standings since the end of 1999, leadership within the query and reporting (Q&R) segment of the business intelligence (BI) market remains unchanged. From a market share perspective, as measured by North American software license revenue, Brio Software, Business Objects, and MicroStrategy were at almost identical sales levels (in the $75 million range) at the end of their respective calendar or fiscal 1999 (Note: the fiscal year for Brio ends March, while Cognos ends February). All three vendors trailed Cognos by a wide margin, which was more than double the sales of its nearest competitor. Since that point in time, Business Objects has emerged as the clear number two, due in part to a host of different issues at both Brio Software and MicroStrategy, with 2001 North American software license revenue of $98 million, followed by MicroStrategy at $49 million and Brio Software at $39 million. Cognos remains the number one vendor by a comfortable margin with $135 million in sales.

Calculating market share is not an exact science for several reasons. In order to make an apples-to-apples comparison, we have attempted to account for the effects of normal quarterly revenue distribution (i.e. the fourth quarter typically accounts for 30%-plus of full-year revenue) and other factors. For example, to approximate North America software license revenue, we are assuming the overall software/service mix reported by the major vendors is consistent across all geographies. This assumption is critical because the major query and reporting vendors do not provide a detailed breakdown of license revenue by geography. Our results suggests significant market share gains in North America for Business Objects and a substantial closing of the gap in 2001 relative to Cognos. However, during the last two quarters of 2001, the gap between Cognos and Business Objects (Cognos is nearly 1.5 times the size of Business Objects in North America) appears to have even increased in favor of Cognos. Based on renewed momentum at Cognos, which we believe is being driven by major product enhancements such as Series 7 released in January, it will be difficult for Business Objects to gain market share.

The dramatic swing in IT spending is evidenced by the following: the aggregate year-over-year software license revenue growth for our business intelligence universe (additional names include Actuate, Hyperion Solutions, and Infromatica) declined from positive 46% in the first quarter of calendar 2000 to negative 15% in the first quarter of calendar 2002. As unattractive as these numbers may seem, the industry has outperformed other, more highly publicized sectors of software, including customer relationship management (CRM) and supply chain management (SCM), partial evidence that business intelligence is grabbing a larger portion of IT budget dollars and business intelligence is a strategic investment for companies. The numbers supporting our claim are based on software license trends in the first half of 2001 versus the second half of 2001. License revenue for our 7 major business intelligence vendors declined 14% from the first half of 2001 to the second half. This compares with the 8 major SCM vendors including i2 Technologies and Manugistics, which were down 27% over the same period, and the 8 major CRM providers including Siebel Systems, which were down 41% over the same period.

While it appears the business intelligence industry is at or near a bottom in terms of sales, any meaningful (which we define as 5%-plus sequential software license growth) recover will not be apparent until the fourth quarter of 2002 at best. We estimate the aggregate quarter-over-quarter software license revenue growth for the industry will be flat for June and September 2002 quarters and display the usual December quarter spike.

About the Author

Frank Sparacino (fsparacino@firstanalysis.com) specializes in research and investment at First Analysis, an integrated, research-driven investment firm. His area of expertise is infrastructure software, with a focus on business intelligence.