Business Objects rides consolidation wave

Business Objects is buying enterprise reporting software company Crystal Decisions in a deal worth $820m, making it the largest Business Intelligence (BI) company in the US and Europe.

Steve Broughton, UK managing director at Business Objects, claimed that the deal gives the company "a clear market leadership position", making it 33 per cent bigger than its nearest competitor, Cognos.

"The marketplace is relatively crowded and our view is that what customers want is clear leadership. They are fed up with buying tools from 10 to 15 vendors," he said.

Broughton insisted that there is potential for further growth. "Our belief is that there is only 15 per cent market penetration at the moment," he said, adding that further consolidation by rivals is likely.

The BI market breaks down into three areas: ad-hoc query and reporting; online analytical processing; and enterprise reporting, which is the broadcast of information to large numbers of users.

The products of the two companies are complementary, and Business Objects sees opportunities to cross-sell products to customers.

Business Objects has previously focused on ad-hoc query tools, while Crystal Decisions is strong in enterprise reporting, the fastest growing part of the market.

In a research note, analysts at Credit Suisse First Boston (CSFB) said: "We would argue that Business Objects is now offering the strongest solution in the first layer [data integration] and second layer [business intelligence] of all the BI vendors."

CSFB explained that the deal is part of a wave of consolidation, and that the acquisition prevents a big player such as Microsoft "swallowing" Crystal Decisions, which could have undermined the long-term prospects of the pure-play BI vendors.

It said that the deal was motivated by the need to become a single point of contact at a time when customers are trying to reduce their list of software vendors, and to be the predator rather than the prey in any industry consolidation.

Customers generally prefer to deal with fewer vendors, and Business Objects can spread research and development over a larger customer base and save costs by cutting product development overlap. The companies expect to save £25m in 2004.

CSFB warned that the deal with Crystal Decisions could possibly lead to product delays, but Broughton said: "We've got the new product out there right now [Enterprise 6.0] and the next two releases are set in stone."