Key acquisitions vaulted Oracle and SAP atop the corporate performance management (CPM) software market, according to Gartner Inc.'s latest CPM Magic Quadrant report.
Recognizing an underserved market when they see one, large software vendors like Oracle, SAP and IBM are bolstering their CPM offerings through strategic acquisitions, said Nigel Rayner, co-author of the report and research vice president with the Stamford, Conn.-based analyst firm. Vendors are looking to take advantage of rapidly growing market demand for comprehensive CMP suites, he said, as more companies look to move beyond traditional business intelligence (BI) capabilities and isolated CPM applications.
"There aren't many software markets that are growing at 20% per annum [like the CPM market]," Rayner said. "The big vendors want a piece of that action before the market matures, and it's very competitive at the moment."
Gartner predicts that the CPM market will reach $3 billion by 2011, up from $1.5 billion in 2006, fueling further market consolidation. Rayner said any of the remaining independent CPM vendors -- Clarity Systems, Exact Longview, Rocket CorVu -- could be an acquisition target, with the likes of HP and even Microsoft the most likely purchasers.
Business executives and other corporate-level decision makers use CPM software for financial consolidation, budgeting, planning and forecasting -- areas where traditional BI falls short, Rayner said. Gartner estimates that 50% to 60% of large companies still use spreadsheets to manage their finances, a large and inviting pool of potential CPM customers.
"There's a very big unaddressed market out there," Rayner noted.
Gartner's Magic Quadrant evaluates the performance of the different vendors' CPM offerings, as well as their market strategies, and places each in one of four quadrants: leaders, challengers, visionaries and niche players.
Thanks to its recent acquisition of Hyperion, Oracle led the way in the leaders' quadrant, defined by Gartner as CPM vendors that excel in both strategic vision and product functionality. Hyperion is the best-known CPM player in the market, Rayner said, on virtually every company's CPM evaluation short list despite its reputation for overpricing and even "arrogance." Since the acquisition, Oracle has shown flexibility on pricing and has simplified Hyperion's licensing model, he said, making its position in the market even stronger.
Also landing in the leaders' quadrant was SAP. The German software maker gobbled up two CPM vendors of its own in 2007, Pilot Software and OutlookSoft. The latter acquisition in particular -- a reaction to Oracle's deal with Hyperion, according to Rayner -- strengthened SAP's CPM offerings. Later in the year, SAP announced it also planned to acquire BI vendor and CPM player Business Objects. The proposed deal, which has yet to be finalized, is likely to prove a good one in the medium to long term, but could pose short-term problems for SAP customers, Rayner said.
Short-term pain equals long-term gain
OutlookSoft and Business Objects have a number of similar CPM offerings, and SAP has yet to articulate a clear roadmap explaining how it plans to reconcile the overlap. Once SAP makes its intentions clear, probably after the acquisition is finalized in early 2008, it will still take some time for SAP to complete the integration of its various CPM technologies, a challenge also facing other large vendors such as Oracle and IBM.
"Part of what these bigger vendors are trying to do is to push people to take more of their stack," Rayner said, "but it's going to take them 18 months to three years to sort through their roadmaps, put these things together, and get that consistent stack offering out there."
Cognos, currently being acquired by IBM, rounded out the leaders' quadrant. IBM may be spared some of the difficulties SAP is sure to experience, the report said, because there is little product overlap with Cognos' CPM offerings.
Microsoft made its first appearance in the report this year, in the visionaries' quadrant, thanks mainly to the recent release of its own CPM suite, PerformancePoint Server. Rayner said Microsoft faces significant challenges, both overcoming its better-known CPM competitors and adjusting to the direct-sales model common to the CPM market, but he still expects the software giant to make an impact.
Other visionaries, which Gartner classifies as those vendors with better vision than actual product functionality, included Clarity Systems, SAS and Exact Longview. Infor was the lone vendor in the challengers' quadrant, while Targetik and Rocket CorVu were named niche players.
Buying advice: Focus on the here-and-now
Companies evaluating CPM suites should focus on vendors whose current offerings meet their business needs, rather than banking on future developments by some of the bigger vendors.
"Don't be seduced by the promise of what the vendors are putting together," Rayner warns.
Instead, users should evaluate CPM suites based on best fit-to-business requirements and should justify investments on a three- to five-year payback period, the report says. By then, product overlap and integration issues now confronting vendors like SAP should be resolved.
If a CPM suite from the likes of SAP or Oracle "does what you need to do, then the promise of what they're going to do in the future is potentially just going to add value to their offering," Rayner said. "But if it falls short today for some key functionality, then you may be better going with a more practical solution that's a better fit-to-business requirements."
Rayner also stressed that when negotiating CPM contracts, companies should be sure to include provisions that allow for automatic upgrades if and when vendors unveil new CPM products based on acquired technologies. Otherwise, companies could be forced to buy the product again rather than just paying for new functionalities.
Whichever vendor is chosen, companies that "haven't yet started a CPM project and are still using spreadsheets for planning and budgeting and have a mishmash of management reporting tools … need to get their act together," Rayner said. "[They should] take a look at what CPM is all about and seriously consider implementing CPM solutions, because they'll get some real business benefits from it."