Computer Business Review caught up with business intelligence firm Cognos’ CEO, Rob Ashe, just three weeks before IBM announced its intention to buy the company for $5bn on November 12. In an extraordinary interview given its timing, Ashe argues the case for remaining an independent, standalone BI vendor.
After the deal was announced, Ashe explained the key was to remain standalone from ERP vendors – IBM does not have its own ERP applications – rather than striving to remain completely independent.
Q. The average tenure of a technology firm CEO is around three years – I think you’ve already gone past that.
A. Yes I’ve been in the job three and a half to four years. I made it.
Q. And how would you characterize business at Cognos today?
A. Business is good. Demand for what we do is good. I think we have good prospects in business intelligence and performance management, both of which are still very important in the enterprise. I think recent changes in the market [SAP’s acquisition of fierce Cognos rival Business Objects for $6.8bn] are also helpful for us, because we are now clearly the leading independent vendor in the space [a claim that will last until IBM closes its acquisition of the company.]
Q. Was SAP’s move to buy Business Objects a surprise?
A. No. It had been rumored for about a month. SAP’s solution in the space is not great, and for some time Business Objects has had challenges growing its core business. Our immediate reaction was that this creates an opportunity.
Q. What makes you say that?
A. In surveys, respondents say they want an independent or pure-play vendor by two-to-one. With the ERP approach, the pure-play gets aligned with the ERP. We re-engineered our core platform three or four years ago. For us there is a pretty linear strategy. For SAP or Business Objects customers there is going to be a lot of disruption.
Q. SAP would argue, I’m sure, that business intelligence needs to move closer to the process in order to deliver the kind of real-time analytics that many businesses want today. Surely that means an ERP firm buying business intelligence will be good for customers?
A. I guess our fundamental belief is that BI is not about being sucked into core processes. It’s a different domain. It’s about thinking about the business like it is a model, doing different scenarios, changing the price, looking at different outcomes.
The vast majority of our customers are looking at doing BI across their whole business. I would accept that about a third are trying to do what you just said, and that is something we have to think about: that is one of the merits of an integrated solution. But I think we have a pretty good track record there too.
Q. I take it you are not dismissing then the threat from a combined SAP and Business Objects?
A. No. We have to acknowledge that they have big, successful customers. We need to promote what we do, and what we are good at.
But SAP has invested heavily in NetWeaver and told customers for years that they do not need any more BI. I think SAP customers have grown a bit weary of that. I acknowledge that they have a lot of influence. But there must also be some trepidation at the strategy. Even now SAP is saying it thinks Business Objects should be quite independent. What we are saying is that if you want independence you should go to a pure-play.
Q. We’ve talked about SAP, but they are certainly not the only threat to Cognos. Oracle, to name one firm, is also making a lot of noise in BI…
A. We certainly want to fight the Fusion confusion [Oracle’s BI portfolio is aligned with its Fusion Middleware strategy]. We want to fight that with our one, clean, pure solution. There is a lot of applications complexity in the enterprise: customers typically have a mixture of salesforce.com, Siebel, Oracle, and SAP.
Q. You need to have good hooks into the applications though to get valuable insight into the processes.
A. We already have good relationships with those guys. Infor already resells Cognos; we have a good relationship with salesforce.com and it will probably get better [after SAP bought Business Objects].
We already work with Teradata, HP, Infor, IBM: there are a lot of places where we are now really the only choice. But we do need to make customers more aware of that, I accept that.
Q. Did SAP look at you [as a potential target] too?
A. You’ll have to look at their official filings to see the history of the transaction.
Q. OK what about your own platform. Last time I met you, you had just launched Cognos 8, integrating BI and reporting.
A. We’re very pleased so far with 8. We have been through a transition year, a ‘rookie’ year. Customers have been trying to understand the migration. But 8.3 is in beta and it will ship soon. Customers are no longer trying to figure it out. 8 is now around 80% of our revenue.
Q. But isn’t that mostly new customers?
A. About 15% of [existing] customers have migrated. Many are running both. 8.3 makes it even easier for them to upgrade. It introduces Transformer too. But we think this is a fundamental difference from BOBJ [Business Objects]. They still have this fundamental problem between BI and reporting. They have done some wrappering, but at the core it is still the same stuff. We’ve already done our heavy lifting work. We show up with a clean SOA platform while they turn up with product roadmaps and the prospect of rationalization.
Q. Tell us about your acquisition of Applix [which gave Cognos in-memory BI capabilities and arguably, an out-of-the-box BI system for SMEs.] I know at least some analysts’ eyes watered at the price you agreed to buy them for [$339m].
A. Beauty is in the eye of the beholder. Today we can do consolidation, planning, forecasting. With [Applix] we add analysis and optimization. The price is based on our ability to create even more value. Four times revenue is not unreasonable, and it will be accretive in the first year, which I think is more than reasonable.
Q. We have already featured a Q&A with [Applix CEO] David Mahoney. I asked him, but I am also asking you: will Applix’s TM1 supplant any existing Cognos products?
A. So the Applix product continues to go forward. We will also make Cognos 8 a better citizen there. See if there is more value that TM1 can exploit. I don’t think it will subsume any Cognos products but complement what we have.
Q. There’s no overlap with your PowerPlay technology?
A. Applix is optimized for read-write. PowerPlay is optimized for lots of readers. We already have Cognos Planning, but Applix enables us to take that data and do centralized analytics.
Q. How much overlap is there between Applix and Cognos customers?
A. A very small percentage of our customers have Applix. About 30% of their customers have Cognos already. We have a Customer Advisory Board that will look at how the two companies’ portfolios best fit together for customers. Jason, we don’t buy for bulk. We compete on innovation and the execution of our strategy. The question at the forefront of my mind is: ‘can I tell them why it is good for them?’
Q. And in this case, how do you answer that question?
A. It extends our capabilities in complex, deep analytics. It gives us very high-scale writing of in-memory data sources, which is a more and more common requirement. Companies want to work at the ‘speed of thought’. If there is four hours between insight then you have missed it.
Q. Knowing what Cognos’ marketing has suggested in recent times, I still find it hard to believe there are few overlaps.
A. On the edges are there overlaps? Yes. There are some overlaps in planning, financial reporting, yes. But they are on the edges. We have 6,500 customers in the office of finance to whom we can provide a broader solution.
Q. I’m waiting for you to say, like so many in the industry after an acquisition, that ‘it is a case of one plus one equaling three’, or any number greater than two.
A. I’m beyond the one plus one equals three catchphrase! I believe there is real strategic value that these companies can bring together. I believe our visions are similar; they are very passionate about their solutions and we like passionate people.
Q. It will not be news to you that after Business Objects’ acquisition there has been a lot of speculation that Cognos will also be acquired by a larger player. I know as a CEO you have a fiduciary duty to shareholders to consider any buyout proposals, and there is probably not much you can say on this, but would you like to add anything at all?
A. What I would say is that we intend to be a consolidator ourselves. Cognos 8 slowed us down on the acquisition front as we had to get that working well. But Applix was an important signal to the market that we are willing to invest. We generate good cash flows and can draw on cash, stock or debt.
Q. Have you been surprised by the pace of consolidation in your sector? Oracle buying Hyperion, SAP buying Business Objects.
A. No, I thought there would be consolidation. I said there would be three key players, and Hyperion went first.
Q. Taking a step back, it is not only BI that has seen dramatic consolidation. Who five years ago predicted that leading players in their sector, like Veritas in storage management and backup, would succumb to acquisition?
A. I think what changed is that software companies started to generate huge amounts of cash. So people willing to finance software companies with debt came about. The capital structure of software companies has changed a lot.
Q. I have heard from more than one CEO that all of this change has put much greater demands on a tech CEO in terms of communicating with the analysts?
A. There are 42 analysts that track Cognos. If we are to compete, we need that community conversant in what we are doing.
Q. But do the analysts get it, or are they focused on each quarter’s numbers?
A. The whole idea behind it is that there is liquidity of information. But you’re right, the biggest challenge is that it all tends to get focused on 90-day results. Some are focused on whether you missed expectations by a cent. But I think you earn the right to execute your strategy when you show you can operate tactically.
Q. There is speculation Cognos will also be acquired very soon.
A. We don’t comment on speculation. What I will say is that our strategy, based on independence, is quite valuable. We think if we run the business well the stock will follow.
Q. As you say, you have outlived many CEOs. I am assuming you could retire comfortably tomorrow if the notion took you. What keeps you at work?
A. I still love it. I think it’s terrific that customers are doing very interesting things so it is still interesting to be a part of it.