On IBM buying Cognos

November 18, 2007

News:

I.B.M. Acquires Cognos, Maker of Business Software, for $4.9 Billion

Cognos, the last major independent producer of software that companies use to analyze mountains of data, agreed on Monday to be acquired by I.B.M. for $4.9 billion in cash.

The takeover of Cognos, which is based in Ottawa, followed last month’s acquisition of the French company Business Objects, another maker of business intelligence software, by SAP of Germany for $6.8 billion. In March, Oracle bought Hyperion, another competitor of Cognos.

Software that sifts through data to tease out things like a customer’s buying habits or a corporation’s inefficiencies is hardly new. Cognos itself was founded in 1969. But several factors have prompted the recent interest in this market segment from larger software companies and led to Cognos’s relatively high price tag.

If the deal is approved by Cognos’s shareholders, I.B.M. will pay about 5 times the company’s annual revenue and 39 times its annual net earnings of about $126 million. Takeover speculation has driven the value of Cognos shares up in recent weeks. The I.B.M. bid of $58 a share represents a 9.5 percent premium to its Friday closing price.

But many analysts anticipate that the business intelligence software market is about to enter a period of significant demand from companies and government agencies.

“I.B.M. had nothing in this area,” said Colleen Graham, research director at Gartner, a technology consulting firm. “I.B.M. had to do something. But because it didn’t move fast enough, it paid a premium.”

The acquisition of Cognos will present I.B.M. with some unusual integration issues. Business intelligence software has traditionally been intended to be compatible with a variety of computer applications from a wide number of software companies.

Doing that requires cooperation from those other companies on technical issues. But Sanju K. Bansal, the chief operating officer of MicroStrategy, a relatively small maker of business intelligence software, anticipates Cognos may find those companies less helpful after it becomes part of I.B.M.

“Those vendors don’t want to cooperate with I.B.M. because they compete with I.B.M. every day,” he said.

There may also be conflicts with companies like Accenture that include Cognos software when they sell large data systems to corporations. Those firms are also direct competitors to I.B.M. in many areas.

But Bob Djurdjevic, president of Annex Research, a consulting firm, said Cognos would find it relatively easy to recover any lost business once it is part of I.B.M.

“Cognos will have a distribution system it could only have dreamed of,” Mr. Djurdjevic said.

In a conference call with reporters, Rob Ashe, the president and chief executive of Cognos, said he would continue to run the company from Ottawa. While I.B.M. intends to maintain the Cognos brand name, the company will be an I.B.M. unit rather than a stand-alone entity.

Like most business intelligence companies, Cognos software has a following among many retailers including Home Depot, Amazon.com, American Eagle Outfitters and 7-Eleven. Harrah’s, the casino operator, similarly uses loyalty programs and Cognos software to tailor incentives for gamblers.

Ms. Graham at Gartner said that the stricter financial reporting requirements imposed by the Sarbanes-Oxley Act were having the unintended side effect of increasing interest in business intelligence software.

Meeting the new regulatory requirements has forced many companies to clean up their computer systems and databases, a process that often involves purchasing large packages of programs from companies like SAP, Oracle and I.B.M.

“When they go through all that effort, many of them consider adding B.I. software to see if they can get some additional cost benefits from the process,” Ms. Graham said.

News from other sources:

IBM Takes Cognos for Next-Gen Business Intelligence

IBM said the acquisition of Cognos will help it deliver the “next generation” of BI (business intelligence) tools that customers will require as markets become increasingly global and competitive.

More specifically, IBM senior vice president Steve Mills said that Cognos technology is focused on processing information innear-real-time, rather than retrospectively.

Cognos BI applications are consistent with “a real-time, prospective approach to business analysis,” Mills said during a conference call with reporters to discuss the acquisition.

Cognos and IBM have partnered for more than 15 years, but Mills said that the acquisition will help IBM develop applications that customers will want in the future.

In an answer to a question from eWEEK, Mills noted that “the quantity of data [customers are] going to want to analyze is going up.” He asserted that independent companies are less able to produce “the next generation of business intelligence capabilities” that customers require.

He cited previous IBM acquisitions of Ascential and Rational as examples of where IBM acquired business partners to deliver greater value to the market.

Cognos is the 23rd IBM acquisition in support of its Information on Demand strategy, which is intended to help customers deliver more business insights to a broader set of people across an organization.

Other strategic acquisitions in support of IBM’s Information on Demand initiative include Princeton Softech (data archiving and compliance), FileNet (enterprise content management), Ascential Software (information integration), DataMirror (changed data capture), SRD (entity analytics), Trigo (product information management), DWL (customer information management) and Alphablox (analytics).

IBM has identified BI as an important growing sector of the enterprise software space. Using numbers from IDC, the company said BI Tools represent a $7.8 billion opportunity in 2008, growing at almost 12 percent per year. It added that the overall market opportunity for BI software and services is expected to be $30.6 billion for 2008.

IBM‘s $5 Billion Cognos Offer Signals Shift Beyond Middleware

Cognos offers business intelligence tools, like its Cognos 8 suite, that let users generate reports, charts, and other tools through which they can quickly get a handle on metrics such as sales, inventories, fulfillment rates, and the like. The Ottawa-based company’s customers include corporate giants like BMW, Bank of America and Dow Chemical.

For its part, IBM — in part through acquisitions — has been building a strong portfolio of middleware that can extract raw data from various departments within an enterprise and feed it to business intelligence tools like those offered by Cognos.

In recent months, IBM has bought out middleware vendors Ascential Software, FileNet, Trigo, and others.

By adding Cognos, IBM would be in a position to offer customers a complete information management platform that begins with its DB2 database line, runs through its middleware offerings, and extends out to Cognos-powered dashboards and reports tapped by line-of-business end users.

The battle for business intelligence

Business-intelligence software allows companies to mine and turn overwhelming amounts of data into coherent information that could be used for a wide range of business tasks, such as monitoring sales or keeping track of inventory.

The market’s grown in response to the explosion of information that’s ensued as businesses began producing massive amounts of data over the last decade.

“They are producing so much data and they are inundated with it,” said Gary Beach, publisher of CIO Magazine, which is geared toward chief information officers. “Business intelligence is a solution to massage that data for business purposes rather than have it sit in silos.”

“It’s like Google Maps for business data,” he added. “It allows you to monitor data to minutiae levels. If you work for Wal-Mart, you can drill down on a region, a store, an aisle.

Smaller, pure-play software companies, such as Cognos and Hyperion Solutions Corp., had been the key players in the business-intelligence market. But as the software became a more critical tool in the business world, the big guns have taken notice.

Indeed, the IBM deal is the third major acquisition of a business-intelligence company over the past eight months.

In March, Oracle Corp announced a plan to buy Hyperion for $3.3 billion, a move that analysts predicted could trigger a domino effect.

That prediction is proving accurate, as borne out by last month’s announcement by Oracle rival SAP for $6.8 billion — and now by the IBM deal.

The large vendors are looking to take over the business-intelligence territory and carve it between themselves,” said Colleen Graham of research firm Gartner.

“Tell me your BI plan”

Beach said the tech giants have to have a business-intelligence tool as part of their portfolio in order to be competitive.

“They need that arrow in their quiver to put in front of customers,” he said. “Customers are smart. They’ll say, ‘Tell me your BI plan.’ They need a direct answer to that.”

Graham cited the example of Oracle. Chief Executive Larry Ellison has been making good on his vow to lead the consolidation of the corporate software market.

“Oracle clearly wants to own the whole stack,” she said. But until it purchased Hyperion, she added, Oracle didn’t have much to show in terms of business-intelligence tools.

Similarly, Graham added, IBM’s decision to buy Canada’s Cognos is also a move to address a “competitive hole” in Big Blue’s corporate software portfolio.

Beach said the recent deals underscore the difficulty that smaller software companies are having competing in business intelligence.

“It’s getting increasingly difficult for best-of-breed vendors to get a seat at the table,” he said.

But Russ Cobb, a vice president at SAS, one of the remaining stand-alone players in the business intelligence market, said the recent acquisitions of its rivals have created opportunities for the Cary, N.C.-based company, which also offers data integration and other business-software products.

He said that the Hyperion and Business Objects acquisitions have led to periods of distraction for the acquired companies, and he expects the same thing to happen with the IBM deal. “We expect this one to be similar to the other two, giving us opportunities in the market,” he said.

IBM to buy Canada’s Cognos for $5 billion

“This is the end of business intelligence as we know it. The IBM move is evidence of the domino effect that’s affecting the sector,” he said.

IBM has long said it wanted to develop its business-intelligence products internally, but the latest deal is the 23rd acquisition over the past year and a half to support its so-called Information on Demand strategy. Analyst Boris Evelson of Forrester Research said the Cognos deal shows that “organic growth is not happening fast enough.”

The goal of the strategy, first unveiled in February 2006, is to provide a complete suite of software to help companies manage heir data and run their businesses more efficiently. Cognos helps fill a major gap in IBM’s portfolio.

The acquisition is expected to close in the first quarter of 2008 after a “plan of arrangement” is completed. Under that type of merger approval, a special meeting of shareholders is set up and two-thirds of the votes cast must favor the transaction.

Largest IBM Deal Ever: $5B for Cognos

IBM Corp. is making its largest acquisition ever, a deal announced Monday to buy Cognos Inc. for $5 billion in cash in hopes of keeping up with rivals in “business intelligence” software.

The acquisition would follow similar moves in the same market this year. SAP AG recently linked up with Business Objects SA for $7 billion and Oracle Corp. grabbed Hyperion Solutions Corp. for $3.3 billion. Cognos shares had soared recently on expectations that it, too, would be acquired. They leaped another 8 percent on Monday’s news.

Business-intelligence software helps big organizations gather data in “dashboards” that can be used to model such things as the financial impact of staffing changes or marketing moves.

Because that capability meshes with other things business software does, big vendors like SAP, Oracle and IBM have moved to include business-intelligence applications in their product packages.

But their challenge will be to technically integrate business-intelligence offerings in a way that is easier and less expensive for customers. David O’Connell, a senior analyst with Nucleus Research, said he was skeptical that will happen with IBM and Cognos.

“I’m not sure it will become more than a bolt-on,” he said.

Forrester Research’s Paul Hamerman agreed that it could take time for IBM to produce compelling technological linkages, but he added, “I don’t see any downside for customers.” IBM and Cognos already had a business partnership.

IBM has been on an acquisition tear in recent years to build out its software portfolio, because software generates much fatter profit margins than IBM’s sprawling technology-services business. IBM had been primarily a provider of “middleware,” which connects various kinds of software applications, but its recent push has led the company to expand more into the business of selling applications as well.

Cognos will be added to IBM’s information management software division. Cognos CEO Rob Ashe is expected to remain and report to the group’s head, Ambuj Goyal, after the deal is completed in the first quarter of 2008.

ANAYLIS

Cognos Buys More Pipe for IBM

Guy Creese, an analyst with Burton Group, said IBM’s acquisition of Cognos fits in with IBM’s information management initiative and “they get a company with $1 billion in revenue.”

Creese said that by gaining access to the Cognos customer base, IBM also gains “entree into companies that have already committed to BI. And with IBM using information as a service, they want to own that whole conduit.”

The conduit or “pipe” Creese is talking about is the data pipeline that runs from the database, which IBM owns through DB2, to the transformation phase, which IBM owns through Ascential, to the reporting, which IBM will own through Cognos.

“So the idea is when you go to IBM [or Oracle or Microsoft] you buy a piece of information infrastructure that they’ve connected all together,” Creese said. “You just add the data. You historically had to go to three different vendors for this, but that has changed over time.”

Meanwhile, said Creese, “the part they’re not talking about is that the dance floor is quickly getting empty. After Cognos, SAS is the only big BI player left, but they are privately held. IBM realized if they didn’t buy Cognos they wouldn’t have a whole lot of options.”

Boris Evelson, an analyst with Forrester, said he believes both IBM’s acquisition of Cognos and SAP’s acquisition of Business Objects are defensive moves, “since both companies have been telling us for years that they prefer to grow their BI portfolios organically, with smaller tuck-in acquisition.

“However, organic growth is not happening fast enough, and giving in to sideway pressures from Oracle [with two top of the line BI products from Siebel and Hyperion] and upward pressures from Microsoft [after the Proclarity acquisition and with significant Performance Point market momentum], IBM and SAP had no choice but to react.”

With the proposed acquisition, Cognos customers will benefit from the depth of IBM’s service and support, observers said.

Creese noted that both Business Objects and Cognos have boasted of being agnostic, “but now as part of IBM, will Cognos make sure DB2 is the first version they ship,” he asked. Creese said he did not believe IBM would function that way. IBM’s Mills acknowledged that it would not.

Evelson said many questions arise from the IBM/Cognos deal. “But the main one that puzzles me is, will IBM completely deviate from their strategy of not being in the ‘apps game’ now that it will be competing head to head with Oracle, SAP and Microsoft on BPS [Business Performance Solutions]? What’s next, an ERP acquisition of Lawson or Infor? Or a CRM acquisition of Salesforce.com playing on IBM’s latest Information On Demand strategy?”

Another question is: “Will Cognos be a key component in IBM’s intent to highly optimize enterprises,” Evelson said. “Absolutely yes. IBM is likely to pour significant dollars and resources into making its overall BI [including Cognos] offering ‘process centric’—a key component in our opinion to ultimately optimized enterprises.”

The bad news, Evelson said, is that “all new BI behemoths—IBM, Oracle, SAP, Microsoft—will now be forced to spend more time on product integration, potentially pulling resources away from and reducing priorities of new functionality development.

“Watch remaining smaller pure plays [SAS, Microstrategy, Information Builders, Actuate] and Tier 2 BI vendors [Panorama, QlikTech, Jaspersoft, Pentaho, Logixml, Inforsense and many others] jump on that opportunity. Good news is that the BI market is very hot.”

Tony Baer, an analyst with onStrategies, said: “The other shoe has dropped. But it’s really no surprise at all. Just look at how investors have been bidding up Cognos’ stock since the SAP-Business Objects deal. Given the fact that Cognos is the only Tier 1 independent left, a 9 percent premium on the share price would have otherwise looked rather modest.”

Baer also pointed to a possible Web 2.0 connection.

“The deal does create room, maybe even a vacuum, for midmarket players to fill,” Baer said. “At this point there’s no clear anointed successor to pick up the mantle of BI 2.0: a dynamic, easy-to-use BI approach that’s highly dynamic, borrowing the best of Web 2.0 technologies with innovative approaches to smart data caching. Whoever rises to that challenge should find a very receptive audience.”

Gaurav Verma, product marketing manager at SAS Institute, said: “IBM just now gains business intelligence/query and reporting and financial performance management from Cognos. However, IBM still does not have predictive and advanced analytics or vertical-specific apps.

“SAS is the largest independent software vendor offering companies integrated business intelligence/query and reporting, data integration and analytic capabilities with a long line of vertical-specific applications.”

IBM Slips Further Into Apps Market With $6.8B Cognos DealAbsorbing midtier players lets IBM combine their products with its own in ways that are more seamless than what can be achieved through partnering, says Buell Duncan, general manager for IBM ISV and developer relations. “We can share technology road maps and work more closely day to day to build on each other’s strengths,” Duncan says. “You can do that if you’re one company much more quickly and capably.”

Duncan says IBM will continue to acquire companies whose products are natural extensions of its information management offerings, and whose software–like Cognos’–is built to live in service-oriented architectures. IBM isn’t shopping for a broad-based ERP vendor like SAP or a midtier one like Lawson Software, Duncan insists. “There’s no fundamental shift in our strategy that says we’ll be going into the business applications market,” he says.

Longer term, however, IBM may have little choice but to expand its software footprint to keep pace with major industry players–principally Oracle–that are acquiring more and more pieces of “the stack.” Oracle recently snapped up BI and performance management vendor Hyperion for $3.3 billion, while SAP has agreed to buy Business Objects for $6.8 billion–deals that left Cognos as the only major BI tools vendor without a dance partner.

Still, Duncan insists that IBM is committed to its existing ISV partner program and won’t plunge deeper into applications as a defensive measure. “We’ll continue to work closely with Business Objects” and other partners that have been bought up by rivals, he says.

But there’s another reason IBM may need to build out its app portfolio more aggressively: the growth requirements of a $90 billion company that has become more dependent on software for revenue since shedding big parts of its hardware business in recent years. Duncan is unphased. “We’re not on the same path as Oracle in terms of acquiring pure application vendors for the sake of expanding our customer base,” he says.

Of course, it was only four years ago that Mills told a group of journalists that “IBM is not in the applications business.”

IBM’s planned $5 billion acquisition of Cognos cements the inevitable: the days of buying business intelligence tools from an independent software vendor are drawing to an end. Within one year, the market for traditional, front-end BI software — the reporting and analysis tools used primarily by executives and financial and business analysts and managers — has undergone a major shift from one dominated by independent vendors to one that will soon be dominated by the world’s largest software companies. IBM’s planned acquisition of Cognos follows SAP’s pending acquisition of Business Objects for $6.8 billion and Oracle’s acquisition of Hyperion for $3.3 billion.

With this shift, half of the roughly $5-billion-a-year market for reporting and analysis tools will be owned by SAP, IBM, Microsoft, and Oracle. After that, share sharply drops, with SAS, MicroStrategy, and Information Builders each owning less than 6% of the reporting and analysis tools market, according to an IDC report based on last year’s sales.

The Cognos acquisition will leave privately held SAS as the only remaining independent BI vendor with annual revenues of more than $1 billion (it’s revenues hit $1.9 billion last year), but most of SAS’s sales come from the higher-end niche area of BI known as advanced analytics. Next in size among the independents would be MicroStrategy, which sells primarily reporting and analysis tools and reported revenues of $313.8 million last year.

Both benefits and cautions come with the shift in market ownership of reporting and analysis tools. With the consolidating software industry, CIOs and IT managers regularly cite the benefits of having fewer vendors to deal with and manage. If vendors do the integration work they promise, it might also prove beneficial to purchase front-end BI from the same vendors who sell the apps that contain core business data:Oracle, Microsoft Dynamics and SAP enterprise-resource planning applications, and Oracle, Microsoft and IBM databases.

Yet the remaining independent BI vendors like to argue those large software vendors’ ongoing acquisitions is creating stockpiles of un-integrated software, and could spell trouble for those vendor’s customers.

After SAP’s acquisition of Business Objects, for example, MicroStrategy issued a statement that “Business Objects needed to be acquired” because it was a company weakened by having accumulated so many non-integrated technologies through its own acquisitions, in a market where “organic technical integration” results in the best BI software. MicroStrategy also claimed that unless SAP maintains Business Objects purely as a portfolio investment, it’s likely SAP would change Business Objects’ architecture to improve integration with its ERP software, causing Business Objects customers to potentially undergo “major migrations.”

Cognos Gives IBM The Front-End Tools

IBM’s acquisition of Cognos is an extension of its database-oriented “Information On Demand” strategy it’s talked about over the past few years, which includes many investments in technologies to cleanse, organize and store data. Cognos completes the Information On Demand picture for IBM by providing the front-end tools for accessing cleansed and organized data.

IBM’s Information On Demand has largely been a strategy of acquisitions: data-integration vendor Ascential for $1.1 billion; content management vendor FileNet for $1.6 billion; metadata management company Unicorn; natural language search company iPhrase; customer data integration company DWL; and identity resolution company SRD. Some of that technology, particularly what IBM got from Ascential and Unicorn, make up IBM’s Information Server, a package comprising several WebSphere application servers that conduct various data-integration tasks.

Yet even as they acquire, the big vendors are also making efforts to keep BI choices open to customers. IBM, for example, was likely already engaged in acquisition talks with Cognos when it announced last month a deal it reached with Business Objects, which will soon be owned by SAP and is Cognos’ top competitor. Under that deal, Business Objects will distribute and resell IBM DB2 Warehouse with Business Objects XI and CFO Performance Management software, and IBM will distribute a limited license of Business Objects XI with DB2 databases and warehouses.

Solo BI Vendors Have Something To Offer

With IBM now acquiring Cognos and SAP in the midst of buying Business Objects, the world’s four largest software vendors–IBM, Microsoft, Oracle, and SAP–will soon control more than half of the business intelligence software market. But it’s a mistake to ignore what’s happening in the other half of what IDC reckons is a $7 billion-a-year market for query, reporting, analysis, and advanced analytics software.

Consider part of the reason Business Objects and Cognos are no longer going it alone: Each lost market share last year, according to IDC, and their BI tool sales grew slower than the 12% market average. Most of their revenue comes from tools that run queries against data and generate reports, functions that are becoming commodities. Sales of cheaper Microsoft BI tools, recently rebranded PerformancePoint Server and given an Excel interface, grew 28% last year while gaining a point of market share, to almost 8%, IDC says.

Once IBM completes its $5 billion acquisition of Cognos, announced last week, the only really big BI company left will be SAS Institute, whose revenue will exceed $2 billion this year. Chief marketing officer Jim Davis insists the company–still two-thirds owned by CEO and co-founder Jim Goodnight–isn’t interested in being acquired. It’s among the fastest-growing BI vendors because it dominates the market for advanced analytics, including predictive analysis, and has a loyal customer base. This highly sophisticated (and pricey) form of BI constitutes about 25% of SAS revenue and drives other areas, including data integration software (55% of revenue) and query and reporting tools (10%).

MicroStrategy is the next biggest BI independent, at $313.8 million in revenue last year. CEO Michael Saylor, in a letter to employees last week, predicted that Business Objects and Cognos will veer off on “proprietary strategic trajectories, which place them in a conflict of interest with large segments of their own customer base.” MicroStrategy COO Sanju Bansal predicts the acquired BI vendors will get less cooperation from important allies such as data warehousing vendors. “It’s hard to believe the Teradata folks will open up their technology plan to IBM,” he says, “because the two are mortal enemies.”

But the success of smaller independents such as Information Builders, MicroStrategy, and myriad niche suppliers depends on whether they can provide enough differentiation to be worth the added integration effort. Privately held Information Builders does about $300 million in revenue, but growth sputtered last year as it transitioned from mainframe-oriented BI tools to new markets such as mobile BI access. Revenue is tracking 10% higher this year, says chief strategy officer Michael Corcoran, and its labs are working on user interface technologies that deliver more visual capabilities, including animation, to BI reports. Information Builders also sees opportunity partnering with niche software vendors that compete with the likes of SAP and Oracle–a specialist in ERP for retailers, for example.

Customers will be demanding. Transplace, a provider of supply chain software to the transportation industry, recently bought BI tools from Microsoft, deciding early on that Business Objects and Cognos were too expensive, says Cindy Winkel, director of BI and data warehousing. Microsoft beat out Oracle because it had a package starting with SQL Server 2005 for data warehousing and extending up to OLAP cubes and dashboards, and the ability to view it all in Excel.

Transplace’s decision-making shows the challenge ahead: BI vendors outside the big four still have a lot to offer, but they’ll have to fight that much harder to get considered.

Business Intelligence Consolidation Won’t Kill Innovation, Claim Execs

In a few months, after IBM and SAP will have completed their acquisitions of Cognos and Business Objects, the world’s four largest software vendors will have control of more than half of the $5-billion-a-year business-intelligence software market.

The obvious endgame for IBM, Microsoft, Oracle, and SAP is to sit down with customers and sell them as much of the BI-related software “stack” as they can, extending from databases and warehouses up to the reporting and query tools that sit on users’ desktops. This may appeal to IT managers looking to deal with as few software vendors as possible. But it would be a mistake to ignore what’s happening in the other half of the BI market.

First, consider why Business Objects and Cognos decided to no longer go it alone. Both companies’ market share dropped last year, and both their BI tool revenues grew slower than the market average of 11.6%, according to IDC. Most of their revenues are derived from tools that run queries against data and generate reports, both quickly commoditizing functions in the evolving BI market. Microsoft has been acquiring and improving its own BI desktop tools in the past few years — recently rebranding them all, including Excel, under the name of PerformancePoint Server–and is rapidly gaining share in the BI market. Competition is coming from everywhere: even Google’s enterprise search appliance, in a sense, is a data query tool.

Once Cognos is acquired, the only “large” company left in BI (not including those that sell the deeper data warehouse layer) will be SAS Institute, which will exceed $2 billion in sales this year. Chief marketing officer Jim Davis insisted in an interview Monday that the company isn’t interested in being acquired. Even so, CEO and co-founder Jim Goodnight could easily set his own terms should he ever have a change of heart, and SAS isn’t subject to a hostile takeover: Goodnight, recently cited by Forbes magazine as having a net worth of $8.7 billion, owns two-thirds of the company. SAS is among the fastest-growing BI vendors because it has a near-lock on the market for advanced analytics, including predictive analysis, and a loyal customer base, some of whom have already invested millions on SAS technology. This highly sophisticated (and typically expensive) form of BI makes up about 25% of the company’s revenues and drives other areas, including data integration (55% of revenues), and query and reporting tools (10%). The remainder of the SAS’s business comes from services.

Among the independents, next in size after SAS is MicroStrategy, which reported revenues of $313.8 million last year. In a letter sent internally to staff Tuesday — a copy of which was provided to InformationWeek — CEO Michael Saylor predicted Business Objects and Cognos will veer off ” off on proprietary strategic trajectories, which place them in a conflict of interest with large segments of their own customer base.”

Saylor predicted to his staff that Hyperion and Siebel Analytics development teams will favor Oracle over DB2 or Teradata; Business Objects will be tailored more for SAP apps than Oracle Financials; and Cognos to be “less aggressive” in support of Teradata, Hewlett-Packard, Netezza, Sun, Oracle, and Microsoft.

“Integration and synergy with the parent company will outweigh customer-driven requests for more features, more performance, and more support for existing applications in the current IT production environments,” he added. “We see the chaos and confusion inherent in these mergers as creating a vacuum in the market, and we intend to fill it.”

Microstrategy COO and co-founder Sanju Bansal reiterated the company stance in an interview Monday. “History has shown us CIOs prefer an open stack versus a proprietary stack,” Bansal said. “The second point is there may be conflicts of interest that keep vendors form working together. It’s hard to believe the Teradata folks will open up their technology plan to IBM, because the two are mortal enemies.”

Dave Menninger, VP of marketing at Inforsense, a $7 million-a-year BI company, is among several independent vendor execs claiming that consolidation could actually drive innovation in the BI market.

“If you look at the market as a changing, living organism there’s a process that continually happens,” Menninger said in a Wednesday interview. That starts with small companies that sprout up with good ideas, grow into something successful, often go public or get acquired. But not long after, the best and brightest often split. “When companies get too big, people who are creative and innovative find that constraining,” he said. “They then go to places where they can express their ideas and bring them to market in less than a three-year period.”

Inforsense’s technology, sort of a hybrid of query tools and advanced analytics, is popular among pharmaceutical companies for drug discovery and patient demographics analysis.

Information Builders, a privately held company with about $300 million in annual revenues, also took a positive spin on the consolidating market. “We’re feeling pretty exited about the market, as it seems there will be no slow down in BI as a focus technology in three to five years,” said chief strategy officer Michael Corcoran in a Wednesday interview. “Our focus will be multi-platform-agnostic. As an independent vendor, we have a much better capability to innovate.”

Information Builders’ growth sputtered to a halt in 2006 as the company began transitioning away from mainframe-oriented BI tools to modern-day BI products including more cutting edge areas, such as mobile BI access. The shift is paying off, and revenues are on target to rise 10% this year, Corcoran said. The company is working on user interface technologies in its labs that will deliver more visual capabilities, including animation, to BI reports, he added.

Information Builders also sees an opportunity to build up its channel sales through niche software companies. A developer of customized ERP applications for retail, for example, may prefer to offer its customers Information Builders for analyzing their retail data, rather than SAP-owned Business Objects, noted Corcoran.

The independent BI vendors raise some good arguments. IBM software senior VP Steve Mills, however, claims no such thing will happen with the Cognos acquisition. Just as Cognos will have to continue connecting to non IBM databases, Mills said in a Monday interview, IBM will continue to support other flavors of BI. That, he said, is a given in the “heterogeneous world” of software.

On Cognos:

Cognos Incorporated, a Canadian corporation founded in 1969, is a provider in business intelligence and corporate performance management software solutions. The Company’s solutions helps in improve business performance by enabling planned performance management, supported by effective decision- making at all levels of the organization through the consistent reporting and analysis of data derived from various sources. Its integrated solutions consists of its BI components, performance management solutions, and analytical applications. Its integrated solutions consist of BI components, performance management solutions, and analytical applications. These components are supported by software services for administration, deployment, integration, and extraction, transformation, and loading. In the solution for CPM, it offers products that address the need for organizations to link reporting and analysis to organizational goals and strategies. These solutions span Company functions and processes and define the parameters for performance in scorecards, plans, and budgets. They also help structure, automate, and control processes that relate to governance and compliance such as consolidation and financial reporting. Its software services consist of the Administration Services, Deployment Services, Integration Services, ETL Services.The Company’s worldwide sales and marketing organizations are led from Burlington, Massachusetts location. The Company has global customer base with over 23,000 customers located in more than 135 countries. Its primary target market is Global 3500 companies and large public sector organizations. Cognos, the Cognos logo, Axiant, Cognos DecisionStream, Impromptu, NoticeCast, PowerHouse, PowerPlay, and Cognos ReportNet are trademarks or registered trademarks of Cognos Incorporated in the United States or elsewhere. As of February 28, 2006, the Company had 3,516 full-time permanent employees.

More on Cognos

Cognos to Acquire Applix for $339 Million:

Applix, of Westborough, Mass., will complement Cognos’ latest BI software—Cognos 8 Planning, 8 Controller and 8 Business Intelligence—by bringing additional capabilities for analysis and optimization of complex financial performance management, officials said. Applix will bring finance self-service modules with a business rules engine, as well as Applix TM1, the company’s 64-bit in-memory multidimensional OLAP (online analytical processing) server.

“This acquisition is a terrific strategic fit for Cognos. Applix will broaden our solution offering and provide Cognos with an innovative, 64-bit, in-memory analytics capability,” Cognos CEO Rob Ashe said in a statement. “It will also bring into the company a very strong employee and customer base that has been committed to performance management through high-impact analytics. This is another major step forward for Cognos in delivering leading performance management solutions to finance and across operations.”

Cognos, IBM Team Up on Bank Risk Management

The Cognos-IBM Risk Adjusted Profitability Blueprint, announced Aug. 22, is geared toward helping companies—mainly banks—better integrate risk information with revenue and expense planning data.

The goal: to help banks maximize risk-adjusted return on capital, striking a better balance between aggressively expanding their businesses and controlling risk exposure.

Risk factors for banks include risk-adjusted return on capital and economic capital, probability of default, loss given default, and expected loss.

The co-developed blueprint combines Cognos 8 Planning and Cognos 8 Business Intelligence with IBM Banking Data Warehouse. It also brings in financial services expertise garnered through IBM Global Business Services.

Overall, the combined reporting environment includes functionality for integrated risk-adjusted planning and forecasting across multiple dimensions with built-in risk factors. Also included are activity-based management and costing for customer, product and business segments, which provide profitability planning and reporting data.

A multidimensional scenario-planning module incorporates activity costs—data that allows users to compare the financial impact of several business options and take action.

The Profitability Blueprint, available now, is not the first bank-related Blueprint Cognos has developed. The company also developed blueprints for branch performance, corporate and retail banking, customer segment performance, and insurance product profitability

Cognos Now Is Newest Member of Cognos BI Family

Cognos announced May 14 a new family of appliance-based performance management and business intelligence software. Cognos Now also is available as a service.

The appliance consists of operational BI—a sort of generalized roll out of BI and analytic capabilities designed for the everyday user. Users are able to create self-service dashboards, analyze data and write reports with minimal to no IT input. The software also includes in memory 64-bit computing capabilities culled from Celequest’s patent stable, and data integration or ETL (Extract, Transfer, Load) functionality.

On the hardware side of the Cognos Now appliance, the company has bundled a rack-mounted server with a J2EE open-source application server and a meta-data repository.

Cognos will offer three configurations: one for the lower end of the market, a standard edition and an enterprise edition. What varies among the three editions is the amount of CPUs utilized and the amount of memory installed. The enterprise edition also has some capabilities for integrating to other applications such as SAP’s Enterprise Resource Planning transactional applications.

The company also will offer different variations of the appliance.

The first, available now, is Cognos Now for Salesforce, geared towards customers who need to monitor performance against their Salesforce.com data.

The idea with an appliance-based BI is to enable companies or divisions without a lot of IT support to create their own dashboards, modifications and watch points without having to involve IT, according to Jim Hare, vice president of Product Marketing and Business Development, Cognos On Demand.

“The idea is to enable [users] to make changes without having to go to IT,” Hare said.

Both the appliance and SaaS capabilities are lifted almost entirely from Celequest, a company Cognos acquired in January. Celequest had developed a BI appliance called Lava that included ETL, streaming OLAP analytics, self-service visual dashboards and a built-in rules engine for event-driven analysis. On the hardware side, Lava took advantage of multi-core processes for the standard editions. The higher-end enterprise edition included two multi-core CPUs, up to 16 gigabytes of memory, hard disk drives and was pre-wired for network infrastructures.

Cognos has tweaked Lava to include newer Web 2.0 concepts such as Google maps. It’s also interoperable with Cognos 8 Business Intelligence, which provides a more comprehensive BI platform.

Like Lava before it, Cognos Now is available as an appliance or through the Software as a Service model. The appliance (and SaaS) model represents a cheaper, albeit scaled down BI tool for some users. However, some critics warn that a pre-configured appliance can only be used for its specific purpose; it can’t run any other applications in the same box.

Nonetheless, Cognos is not alone in its pursuit of appliances that pre-configure software and hardware for a specific need. SAP announced its BI Accelerator last year and it’s largely anticipated that its new A1S mid-market suite, in the works now, will be available on demand, with some functionality pre-configured and bundled on an appliance.

Earlier this month, BI software vendors MicroStrategy and SaS confirmed that their BI software is being tailored for HP’s NewView appliance, according to media reports. In March, Business Objects unveiled its Open Appliance Initiative that amounts to partnerships with data warehouse vendors—IBM, Netezza, DatAllegro, Greenplum, HP, RPath, Teradata (a division of NCR) and VMware—which will pre-install Business Object’s BI software on its hardware to create mid-market geared appliances.

Cognos Acquires Celequest to Speed BI:

By adding privately held Celequest to its roster, Cognos will achieve several objectives: a longer reach into channel markets, a better breadth of offerings for midmarket and on-demand customers and, at the end of the day, faster business intelligence capabilities.

Celequest, based in Redwood City, Calif., develops a BI appliance that utilizes in-memory, or streaming data, technology that stores data in memory rather than at the database level. The result is much faster query times on BI requests, with the capability to support thousands of concurrent users with little latency of information. Since the capability, dubbed Lava, comes in the form of an appliance—essentially hardware that plugs into a network—users are able to deploy BI functionality in a short time frame (days, according to Celequest’s Web site).

There are three versions of the Lava appliance: an SMB (small and midsize business) edition, a standard edition and an enterprise edition. Each includes performance dashboards, an application workbench to set up data integration and an analytics server that houses the in-memory technology.

Cognos Search Tool to Support New Enterprise Software Offering from IBM and Yahoo

Cognos, Panorama Launch New BI Platforms for SAP

Cognos Gives Banking Industry BI Blueprint

Cognos to Add Search to BI Platform

IBM, Cognos Look to Ease SOA Deployments

Cognos and FileNet Agree to Integrate Products

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Building Effective Communities

October 13, 2007

By Daniel W. Rasmus

Question

Why do virtual communities on some web sites work and others do not?

Answer

The success of a community is based on the creation of complex social structures that require a thorough understanding of constituencies in order to work toward a directed business purpose. Communities usually form naturally, given an open infrastructure, such as those found in Web-based communities and newsgroups. Although the membership of a business-oriented community may not always be planned, the community itself must have an initial plan that answers several questions in a positive manner in order for the community to succeed.

The success of a community must be determined not by a generic external criteria, but by internal goals. If the goals of the community are met, the community is successful, even if it is eventually dismantled. Activity within the community will be determined by the perceived needs of the community to share information and the value of the virtual community relative to other information sources and support organizations available.

It is important to note that like physical communities, virtual communities may be cyclical or temporary, but if this is understood at the outset, success is determined within these frameworks, so periods of sparse participation are not seen as failure. Managers must resist using reporting features to berate communities for lack of activity, but should rather encourage them to publish their frameworks and expectations so that those coming to a community clearly understand its purpose and its agreed-to social norms.

Communities must also define type of community they are as part of their formation. A community of interest is very different than a community of task or a community of practice. A community of interest may have social interests as a primary driver, while a community of task (sometimes called a community of purpose, or just a team) is focused on execution of a particular assignment. Communities of practice are usually long-term learning and sharing bodies.

Finally, communities must deliver on expectations or they will dissolve rapidly. How quickly responses are made, the level of response, the number of responses and the appropriateness of a response are common characteristics related to these behavioral expectations.

Web community organizers must remember that Web communities do not differ much from physical social communities. Virtual communities rely on purpose and relationships (which embody trust, identity, safety and a sense of belonging) in order to succeed – other questions and factors are designed to assist in creating an environment where members with a trusted relationship can fulfill its purpose.

Questions that must be asked before starting a community

  • Is there a natural constituency that will be attracted to the community, at least initially, so that the community has a chance for formation?
  • Does the community have a role within the context of the larger organization?
  • Do the participants have sufficient technical competency to use the community tool?
  • Does the community have a sponsor or leader that can facilitate the formation of the community?
  • Does the community have an agreed-upon charter and purpose? When the community starts, does the constituency agree to the charter? This point leads to questions of appropriateness of membership and making sure the community continues to meet its purpose by maintaining relationships only with members that are not detrimental to the purpose.
  • Does the community understand the type of community being established?
  • Have the community members agreed upon the value proposition for the community?
  • Does the organization permit or encourage participation by giving employees sufficient timeto participate in the community?
  • Has the community published its agreed-upon purpose, expectations and social processes so others wishing to join the community can be aware of these agreements before joining? Does the community augment this with historical perspective, such as publishing accomplishments, agreements or insights?
  • Do the members of the community trust that the membership will continue to fulfill agreements, meet expectations and maintain confidences?
  • Do the members of the community have a persistent identity?
  • Does the community create a sense of belonging?
  • Does the member feel the community is a safe place to express opinions?

Examples of community purposes that lead to successful communities:

  • Communities focusing on learning through exchange of lessons learned, best practices and success stories.
  • Communities that extend learning into a practice-based knowledge-sharing environment where people within a knowledge domain come for not only learning, but for social interaction, policy setting and other business functions.
  • Event-drivencommunities that focus on a transition to or from something or the accomplishment of something. Y2K communities are a good example of this.
  • Communities that are part of a larger offering such as those that connect members of a conference after the conference, or those associated with a subscription service.
  • Functional or skill-based communitiesthat provide value by answering questions in a timely way.
  • Customer feedback communitieswhere customers see value in influencing the future of product or service development.
  • Populations that share attributes or perspective on an issueusually drive communities of interest.

 

(A Forrester research)


Blogged Down?

October 3, 2007

By Carol Tice

Many are enchanted by the potential of social networking, file sharing and blogging. Decidedly outside this cheering section is former dotcom founder Andrew Keen, who decries the corrosive effects of anonymous internet posting in his book, The Cult of the Amateur: How Today’s Internet Is Killing Our Culture. Keen believes the biggest concern with Web 2.0 is that “anyone can trash your brand. A particularly militant blogger, Jeff Jarvis, got upset over Dell customer service and single-handedly launched a damaging crusade against Dell. Small companies aren’t targets as much, but a few negative posts could destroy you.”

To protect yourself, “don’t allow anyone to post on your site anonymously,” says the 47-year-old, an avid blogger himself (andrewkeen.typepad.com). “And remember, when you’re blogging, it only takes one [misunderstood] comment, one inappropriate joke, to have a negative impact.”

If you’re targeted, how should you respond? “Aggressively, but with civility, to protect your brand,” says Keen. “Launch a counterattack. Take it to the conventional media and develop your own network of bloggers, who will cite the lies and explain what really happened.”


Yahoo Tries Social Networking… Again

September 19, 2007

Bob Hof of BusinessWeek just got an invite from Mike Speiser, Yahoo’s VP of community, to join its newest social network, called Mash, which have an interesting wrinkle: Other people can add stuff to your profile. The service seems aimed at young people. Many people are suffering from social-network overload. Facebook for a general-purpose network and LinkedIn for strictly professional stuff. People will add more if the social networks are really focused on small, discrete groups.

At MASH

  1. You can make starter profiles for your friends. Think: “first round’s on me.”
  2. You can leave your profile open to contributions by trusted friends.
  3. You can customize your — or your friend’s ) — profile with modules from a growing gallery of apps

And of course, there are extensive privacy controls in Mash and you set the boundaries that you’re comfortable with.”

Other features:

Not only can you customize your page and add modules, you can also edit your friends’ pages (with their permission). That means if you were my friend, you would be able to pimp my profile and ‘Mash Pet’, move and add modules on my page, contribute to my ‘about me’ and ‘my stuff’, and vice versa. But again, this is only if I let you ). You also can keep track of all the activity that occurs on your profile.

The Blurt is like a status…Your My Stuff is basically a blank, html-friendly module that allows you to you put as much *whatever-you’d-like* in there—images, videos, music and all. You can also click and drag modules to rearrange them on your page.

Module Gallery allows you to see other modules you can add to your page and your friends’ pages! (PimpMyPet, Translucency and YouTube are some of my faves).

There’s no search by names yet, so the best way to find your friends on Mash is by email.

Link 1
Link 2


Flock: Social Network Aggregator?

September 19, 2007

The key features of Flock :

* People – Flock automatically integrates the user’s friends from services such as Facebook and Flickr, and pulls them into the browser so they can be accessed at any time. The user can see when their friends have updated their profiles and media, access their shared media, share web content with them, and communicate with them effortlessly across services.

* Media – Flock’s Media MiniBar presents a scrollable filmstrip view of photo and video streams from YouTube, Flickr, Photobucket, Piczo, Truveo and other services that provide a feed of media content. Users can drag and drop items from the media bar onto friends, blogs or email for immediate and effortless sharing.

* Share and Discover – Flock also helps people to discover photos, videos, feeds and people by detecting them on supported services where they can be activated or shared in some way. When any of these items are available, an icon in the browser lights up to show that Flock has sensed them, allowing the user to collect, favorite or share items of interest.

Flock essentially provides a layer on top of potentially many social networks so you don’t have to go to each of them individually to find out what your friends are doing. That alone could be very valuable in a time when there’s literally a new social network or two launching every day. It could even potentially change the game in social networking, which seems to depend on the old gambit of persuading people to flock, as it were, in a single walled garden.


Site of the Week: Terapad

March 30, 2007


Terapad isn’t the most advanced free blogging tool out there, but its business-minded features and 2GB of free storage might make it attractive to entrepreneurial bloggers.


Easy-to-use tools. E-commerce features. 2GB free storage. Static page editing. Good features for editing posts. Image galleries.

Free accounts display ads. Limited customization options. Unintuitive site navigation.


SiteJourney, Ltd.
http://www.terapad.com

Price As Tested: $0.00 – $5.00 Direct

Terapad.com’s tagline, “Beyond Blogging,” is fairly apropos. Many other free online apps, such as Blogger, Vox, LiveJournal, and WordPress.com, put their focus strictly on the act of blogging—other features are added only to enhance that experience. With Terapad, blogging is just one of its tools, which are aimed at helping you quickly and easily create an online presence. Depending on what you’re looking for, Terapad’s broader, more business-minded focus will prove either a blessing or a curse.

After a visit to the home page, however, you’d be forgiven for thinking that Terapad was primarily a blogging service. Like a traditional blog site, it lists links to blogs that have been created using the service, a searchable list of post tags, and links to image galleries. On a whole, the layout indicates a service that’s attempting to build a community, something that’s becoming more and more popular among free blogging services. It’s nothing like the social-networking features offered by the Vox or LiveJournal sites, but it is a quick and easy way to discover how others use the platform. Under Terapad’s surface is a good selection of tools that might help your very small business boost its online presence. More on these later.

Getting Started

A small link on the home page prompts you to sign up for an account. Strangely, there’s no log-in on the home page for current users—a big oversight. I found myself repeatedly checking my Terapad confirmation e-mail and using the link whenever I wanted to log back in. The account-creation process will prove a familiar experience for all of those who have tried this kind of service: You pick a site address (for example, ziffdavisiswickedsweet.terapad.com), a site name, an optional tagline, and one of six templates (a pretty paltry selection, though a Terapad representative told me that the number will increase to a far more respectable 26 on April 15). The whole process is simple and takes only a few minutes.

The sign-up process also includes a couple of unique options, including the type of site (Both Blog and Pages, Blog Only, Web Pages Only), and a list of optional site features, including News/Blog, Image Gallery, Forums, Shop, Events, and Careers. It’s through these optional features that Terapad’s “Beyond Blogging” concept comes into play, making Terapad as much a user-friendly small-business tool as it is a blogging platform.

The Blogging
Once you’ve created an account, you’re greeted with an intro page, featuring the word “Welcome!” next to a big smiley face. Terapad doesn’t have the sort of step-by-step instruction offered by Blogger and Vox, but it does give a few handy tips for getting started.

The top of the Terapad editor is lined with 15 tabs (fewer if you’ve deactivated features), with options such as Editors, Pages, and Forums. Terapad makes it pretty clear that blogging is not the site’s main concern, by hiding the “Add Blog Post” feature halfway down the Blog page, which can be found by clicking on the Blog tab, located on the second row of tabs.

The WYSIWYG post editor is a pretty straightforward proposition, with a good number of options, including a spell-checker, a handful of font and style options, and a feature that lets you insert basic tables. With Content Templates you can position the post’s text in three basic formats: Image and Title; Two Columns (of text); and Text and Table. Clicking Source allows you to edit the post’s HTML. Above the text editor are fields for assigning a post category and setting a date for the post to be published later. Below is a field for Tags and an option to make the post Sticky, keeping it static at the top of your blog, even as newer content is posted. The posting process is simple, and should be familiar to anyone who has ever used a word processor.

The layout options are limited unless you know CSS (if you do, you can edit at will). The layout of all of the current templates is the same—the key difference in each are the colors and graphics. No matter what you do with those variations, however, it’s going to be pretty clear to anyone who knows the service that you’re using a default Terapad template. That’s not the best way to differentiate your blog or small business. Among the free blog services that I’ve looked at, Terapad’s templates rank well below those offered by Vox and WordPress.com. The links that appear in your sidebar depend on the options that you clicked when starting out, though they can be changed at any time.

You can also integrate your site with a handful of third-party widgets, from companies such as Flickr, Google, and Meebo. The selection is a bit lacking at the moment, but Terapad says it’s in the process of adding more.

The only other customization option on the Layout page is the Sidebar Container option, allowing users to create basic text fields, which, along with your blogroll and widgets, appear below the large Google AdSense field. This means that unless your readers scroll down (sometimes way down) they might never see these widgets. Though the Google AdSense field is unfortunate, at least Terapad doesn’t force a big banner across the top of the page, as Blogger and LiveJournal do. There are also no obligatory social-networking portals on the side of the page—if you’re looking to hook up with fellow bloggers, LiveJournal and Vox are your best options.

The Google AdSense field can be deactivated only if you sign up for a premium account at $5 a month. That fee also gives you a whopping 20GB of storage space, though the rather impressive free amount of 2GB per blog will likely prove more than sufficient for most casual users.

Terapad for Business

Terapad has far and away the most small-business–minded features of any of the free blogging services that I’ve looked at. Given what initially seems to be a focus on the site’s blogging feature, I was surprised to learn from the company’s managing director, Stephan Tual, that Terapad actually began life as a CMS tool. The focus on blogging is new. Users and the press expressed interest in Terapad’s blogging abilities, so the company has shifted focus accordingly.

Its newfound emphasis on blogging aside, the site still seems aimed at helping you quickly create a full-fledged online presence. As with WordPress.com, you can build static pages that look aesthetically similar to the main blog. These pages, which are accessible through your site’s sidebar, are good for creating About pages or other similar informational resources for your site. You can also make them the focus of your site, eliminating the blogging feature altogether.

The Online Shop option, which lets you sell products through a PayPal store, makes Terapad an intriguing option for those with small retail ambitions: artists, perhaps, or eBay sellers. Terapad can even help you staff up, via a Careers option that lets you post your company’s open positions. For the time being, both these options are available only via your site, though Terapad has plans to create a large searchable database of all of the For Sale and Help Wanted listings. The tools are still pretty basic. If you’re looking for serious e-commerce tools, you’ll want to buy a dedicated app, or, even more likely, hire a Web designer to set up a site for you.

If you want to keep your small business or community organized, you can use Terapad’s events calendar, and you can stay in touch via a simple forum in addition to the standard post comments. There’s also an image gallery, which should help you use up some of that free storage. A simple stats page will help you keep track of your site’s performance. Though not as detailed as those offered by WordPress.com, the feature is a worthwhile bonus.

These features, along with its straightforward blogging solution, make Terapad worth a look for anyone who wants a quick and easy app for building an online business presence. There are certainly far more advanced SMB solutions around, but they’ll probably cost you more time and money. As far as free blogging services go, Terapad is good, but it lacks many of the specialized solutions many users want, such as the social networking. Small-scale entrepreneurs will appreciate the site’s unique combination of semipro tools and its generous free storage. Those looking to blog for blogging’s sake should take a look at Vox or WordPress.com.

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The Rise of Niche Social Networks and That Money Question

March 15, 2007

By Heather Green

With the phenomenal growth of MySpace, it makes perfect sense that over the past year, a host of niche social networks including Nike’s Joga soccer site, Dogster, and the boomer site Eons would pop up. It’s impossible at this point to beat MySpace in the general market, so go niche.

This morning, I spoke with the Michael Sanchez, who kickstarted the fastgrowing CafeMom social network late last November. The site has around 100,000 registered users and is expected to do 20 million page views in March, up from 1.8 million in December. Definitely impressive growth.

So the questions become, how big can a niche site get and how much money can you make? Of course, that depends on the demographic and interest and how effective you can be in coming up with smart advertising that has an impact for marketets. That can help you get higher CPMs. But the ultimate problem is the very nichyness of a niche site. As Brian Balfour points out, you need scale to justify paying your own ad sales to sell your advertising. He has a great point that maybe most niche sites only make sense if they can team up with other niche sites and sell advertising across them. That also means you need to get smarter about a broader set of data, if you’re going to pull together sites about dog lovers and moms, for instance.

Either way, it seems like it makes sense to create a joint venture of other sites, or simply to sell the niche social network to a bigger company, such as a Viacom or an iVillage, that can integrate what you have into what they have. If Cafemom can keep growing, it will likely be a good buyout bet. But in the meantime, because the company also runs an older more mature site called ClubMom, it already has an advantage in terms of economies of scale (ad reps, bandwith, etc) than most standalone niche sites.

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