Assessment

Business Objects announced July 20th that it would acquire SRC Software, a $25- to $30 million Portland, Ore. company offering an array of Excel-based planning, budgeting and consolidations products. SRC's offerings have been most successful with divisions of Global 2000 companies and larger mid-range corporations. Its marketing strategy has focusing on banking and financial services, as well as headcount-intensive vertical industries such as retail, health care and lodging and hospitality. Business Objects will probably increase spending on marketing the SRC products, which we expect will stimulate demand and accelerate adoption of dedicated planning and budgeting software to replace standalone spreadsheets, currently the most commonly deployed tool (we estimate 60 percent of the market uses this approach).

We think Business Objects' plan to extend its reach in the enterprise into the finance silo is sound. However, acquiring SRC only places a stake in the ground. For planning and budgeting software to serve as Business Objects' strategic entry into the finance silo, the company will need to spend heavily on sales and marketing to gain market share against well-entrenched players such as Hyperion and SAP. The choice of SRC instead of other independent budgeting and planning software vendors will make the job a bit more difficult, in our judgment. Management will need to address the mismatch between SRC's existing customer base and verticalized go-to-market approach and Business Objects' focus on large enterprise sales. This may involve investment in product development or the acquisition of other finance-oriented product lines aimed squarely at the Global 2000.

While having an "integrated BI suite" may have value in BI-driven sales to IT departments, our market research suggests it will not add much value in planning and budgeting sales to the finance people who typically drive this selection process. While some buyers place value on integration, most place the greatest weight on the capabilities of the software to execute the process in a way that best fits the needs of their company. Moreover, from a finance customer's standpoint, a "complete product" is one that integrates across finance functions, not just with analysis, query and reporting tools.

Market Impact

Ventana Research believes this acquisition will intensify the competition in the fragmented planning and budgeting software market. This is a market where Cartesis (through recently acquired INEA), Clarity Systems, Cognos, Geac, Hyperion and OutlookSoft are major players. In addition, both SAP and Oracle's PeopleSoft suite have had traction among the ERP vendors. The Business Objects-SRC deal will have a modestly negative impact on Longview, which has partnered with Business Objects.

SRC will benefit Business Objects in situations where lacking an integrated Performance Management solution or budgeting and planning application would have caused it to lose strategic BI deals. This acquisition also will place SRC in financially stronger hands. However, we think the Business Objects brand will not enhance the perception of the SRC offerings among finance organizations.

Recommendation

Ventana Research advises companies that might have considered SRC before the pending acquisition was announced to continue to keep it on their short list. Note, however, that while the Business Objects acquisition puts SRC in stronger financial hands, the potential exists for the organizational disruption that can occur in any instance when a small company becomes part of a large corporation. For Global 2000 corporations looking at dedicated planning and budgeting applications, we continue to stress the importance of using references from similar organizations and using rigorous "boardroom demos" (i.e., highly scripted demonstrations of how a software package handles specific, important processes) in the selection process.