FSN: Cognos’ acquisition of Applix to bolster high end Financial Performance Management (FPM)

Cognos' acquisition of Applix to bolster high end Financial Performance Management (FPM)

17th September 2007
Cognos' recently announced acquisition of Applix is unlikely to upset the applecart in the performance management market. As acquisitions go this one is relatively small scale. Nevertheless, its significance should not be underestimated. In the last three years, Applix has cleverly positioned itself in a slightly different space from other performance management vendors and with this acquisition we could see Cognos heading upstream towards richer pickings in more complex and higher volume applications. Gary Simon , FSN's managing editor looks at the issues.

At first sight the Cognos/Applix deal looks a little quirky – after all Cognos has a pretty comprehensive suite of business performance management (BPM) and Business Intelligence (BI) applications wrapped up in the popular Cognos 8 product range. Indeed, Cognos has been diligently building capability in this space for some years, first with the acquisition of Adaytum, a supplier of budgeting, planning and forecasting applications and more latterly Frango, a supplier of consolidation systems. So why did Cognos feel the need to buy Applix?

According to James Fisher, Director Product Marketing at Business Objects, the reasons are not particularly clear. He told FSN, “Rumours about this deal have been circulating for a considerable time so we are not surprised, but I'm not sure ‘we get it'. To us it seems a bit of a land-grab just to be seen to be doing something. Cognos has been relatively inactive for a while and I suppose this gives them access to a customer base. We don't really understand it because they have so much overlap technology.”

However, the acquired customer base is a significant issue. For a start, 3,000 acquired customers is a valuable asset but it is the nature of the customer base that is the key point. Since around 2003/4 Applix has been cultivating a reputation and capability around complex financial performance management applications, often involving high volumes. Furthermore, they have extended their reach beyond limited planning and forecasting applications into deep operational reporting and analysis. It is the provision of broader MIS (management information system) capability that underlines their positioning as a specialist in analytical applications.

It's an area of the performance management market that is relatively untapped, a position illustrated by Applix's 45% year on year growth in revenues to 30 th June 2007 and fairly even mix between services and licence fee.

Another possible reason that Applix has been able to leverage this more demanding segment of the market is that the Applix TM1 OLAP engine which underpins these advanced applications is built around 64 bit technology which together with “in memory” calculations i.e. calculations ‘on the fly', returns good performance in high volume applications.

David Jones, Director of Paragon Consulting a specialist implementer of performance management applications, agrees. He told FSN, “It's interesting to see Cognos adding to its extensive range of BI and BPM technologies, they have certainly chosen a proven and effective technology in the shape of TM1.”

But Jones has concerns about where Cognos' product road map is going. “I can't help thinking that this adds even more confusion to the Cognos product range. As well as the traditional Cognos BI reporting tools (Cognos and Impromptu), Cognos now have three major BPM tools in their kit bag: Planning for Planning and Budgeting (formerly Adaytum), Controller for financial consolidation and reporting (Formerly Frango) and now TM1. But each of these products has its own data storage model and underlying technology and any client using all three products will still need to push data between multiple cubes of data with differing structures, making for complex integration and application maintenance. On the other hand, perhaps we now see how Cognos plan to bring about a rapid re-engineering of the Adaytum backend, which is now very dated and unify it with Frango. Will we see both Adaytum and Frango re-engineered to utilize the TM1 in-memory OLAP server? I will await the roadmap from Cognos on how each of these products will develop and converge with interest!”, he told FSN.

“In the meantime, we would urge our clients to consider the merits of each of these tools against their competition by functional area and if they are considering the purchase of an integrated BPM suite to press Cognos on current product integration and the future roadmap for convergence,” says Jones.

Business Object's Fisher also sees potential for confusion. Commenting to FSN he said, “TM1 overlaps with other products and this raises questions about what stays and what gets replaced. I don't see this as a big strategic move.”

In the short term other suppliers like Clarity Systems will seek to benefit from the inevitable disruption that any acquisition causes. Mark Nashman, Technical Director for Clarity told FSN, “From Clarity Systems' perspective, the recent set of acquisitions is great news. Our competition is and will remain internally focused for some time, either reconciling competing product offerings or trying to integrate new products into their older ERP/BI frameworks. Even when they do reconcile their product offerings, they will continue to offer solutions built on disparate technologies with multiple user interfaces.”

However, what market watchers may have missed is that the $300 million acquisition of 3,000 FPM customers when added to Cognos' 3,500 customers in the financial performance management space gives Cognos a significant foothold in a rewarding segment of the market. Add to this Applix's 200 specialist employees that come with the deal and the acquisition starts to make a lot of sense. The combination of customer base, domain knowledge and well regarded technology may give Cognos renewed impetus, presence and competitive edge.

As for the technology road map that remains to be seen. The deal is a little reminiscent of Hyperion's acquisition of Arbor Essbase many years ago. At the time people wrote off Essbase but many people were proved wrong and Essbase remains a workhorse even to this day.

In a market that has been awash with large and daring acquisitions it is easy to become besotted simply by scale. What Cognos is demonstrating is that carefully planned and executed acquisitions can be just as powerful.

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