FSN: $3.3 billion Oracle-Hyperion takeover will create "Big 3" of BPM vendors

$3.3 billion Oracle-Hyperion takeover will create "Big 3" of BPM vendors

5th March 2007
Thursday's announcement that Oracle is to acquire Hyperion for $3.3 billion has been on the cards for some time. However the transaction may not deliver all of the strategic benefits that Oracle is expecting. At a stroke, the deal is likely to drive SAP more tightly into the arms of Microsoft and promote SAS as the other obvious global BPM provider. Cartesis is likely to gain from the transaction but Business Objects and Cognos could be exposed. Gary Simon, FSN's managing editor gives his initial reactions to the deal.

It had to happen. ERP vendors generally have made a hash of Business Performance Management over the years. Indeed, Oracle has had a couple of previous attempts at providing statutory consolidation and financial reporting software without gaining great traction with the CFO. SAP similarly has had mixed success in this segment. The fact that Hyperion, a specialist vendor provides software to 91 of the Fortune 100 speaks for itself.

The root cause of the ERP vendor's woes is not that they cannot develop great software but rather that they do not have what is fashionably described as “domain expertise”. By this transaction Oracle not only acquires market leading applications but also the most concentrated body of expertise in financial management applications anywhere in the world. Add that to the formidable array of Oracle capability and one is forced to concede that Larry Ellison, Oracle's CEO is right when he remarked last week that, “ Hyperion's EPM (Enterprise Performance Management) software coupled with Oracle's Business Intelligence (BI) tools and analytic applications form an end-to-end performance management system that includes planning, budgeting, consolidation, operational analytics and compliance reporting. " Oracle does indeed have formidable firepower, including data integration tools (ETL tools), databases (relational and OLAP), scorecards, dashboards and reporting tools.

There are probably only two other companies in the world who can match Oracle for scale and breadth of solution, namely; SAS (believed to be the world's biggest privately owned software house) that has been building up its performance management capability over the last two years and of course Microsoft that has similar technology capability but has recently announced PerformancePoint – its BPM offering (see this week's other feature).

For Oracle the transaction certainly makes sense. Apart from the performance management applications and domain expertise it acquires a huge customer base (although there must be considerable overlap at the top end) and the opportunity to displace Essbase, a legacy OLAP product that probably had a limited shelf life.

Where Oracle's strategy may come unstitched is in its SAP ambitions. "Hyperion is the latest move in our strategy to expand Oracle's offerings to SAP customers," said Oracle President Charles Phillips commenting on the deal last week. "Thousands of SAP customers rely on Hyperion as their financial consolidation, analysis and reporting system of record. Oracle already has PeopleSoft HR, Siebel CRM, G-Log, Demantra, i-flex, Oracle Retail, and Oracle Fusion Middleware installed at SAP's largest ERP customers. Now Oracle's Hyperion software will be the lens through which SAP's most important customers view and analyze their underlying SAP ERP data."

On paper, the acquisition gives Oracle a greater bridgehead into SAP's customer base but will that translate into much greater cross selling opportunities? Clearly, Oracle will have some success but there is a possible flaw in their strategy. In large enterprises the people who buy Hyperion products (CFO's) are very often different from the people who would buy the ERP and other applications in the Oracle stable, i.e. the CIO and IT Directors. Traditionally, the group finance function has a very narrow IT focus which may not lead Oracle to all of the riches it expects.

Interestingly, with the launch of PerformancePoint later this year, Microsoft is also targeting the enterprise performance management space. They may not represent an immediate competitive threat but in the fullness of time they will be a worthy competitor to Oracle in the Enterprise performance management market. SAP already works closely with Microsoft, for example, project “Duet” which links Microsoft Office to SAP's ERP applications. So it is reasonable to assume that SAP customers will feel encouraged to choose from Microsoft or Hyperion applications for, say, budgeting, planning and forecasting.

In the short-term Microsoft and SAS are likely to be the beneficiaries of any staff fallout from the deal if it is consummated, as expected, in April 2007. People with a technical background may feel at home in Oracle but the finance types may not. With a global shortage of BPM skills Microsoft and SAS are likely to take the opportunity to build their resource. The “Big 3” will secure their position.

So where does this leave Cartesis, Business Objects and Cognos? Cartesis will be sitting very pretty. It remains the obvious other choice of financial management/consolidation expertise at the high end of the market and will be able to trade on the back of the inevitable market uncertainty over the next 18 months. On the other hand it could become a victim of its own success. Its consolidation engine, expertise and customer base could be attractive to Microsoft to strengthen its PerformancePoint offering in this area.

As for Cognos and Business Objects the future looks more uncertain this week. Without the advantages of a proprietary technology platform, principally databases and ETL tools, or an ERP base, they look exposed in a market that is consolidating around fewer suppliers doing more of the work. There is also a shortage of ‘marriage partners', with the possible exception of IBM. It will be interesting to see how they respond.

The issue remaining is will Hyperion customers benefit? If Oracle can hang on to some of the most skilled BPM resources in the market then Hyperion customers may benefit from Oracle's immense technical capability. As with all mergers it depends how deftly management brings the parties together. FSN will keep you posted!

About Us