Positive

Cognos' ultimate success is dependent on its customers' willingness to embrace Cognos 8 as an enterprisewide business intelligence (BI) and performance management platform. By the close of its 2007 fiscal year (1 March 2006 to 28 February 2007), Cognos reported 2,900 supported Cognos 8 customers and had closed 59 deals, worth over $1 million — a 48% increase over the preceding fiscal year. This statistic underscores Cognos' high proportion of enterprise standard deployments. This success in mind and market share, coupled with strong technology improvements, makes Cognos a likely shortlist candidate for BI platform and corporate performance management (CPM) suite vendor selection decisions. While selecting Cognos technology is a popular decision, it is not risk free. A significant number of customers have complained about Cognos 8 support issues and poor query performance when deploying Cognos products in the absence of a well architected performance layer. Despite its large number of enterprise reference accounts, customers and prospects must remain diligent in the proof of concept and pilot phase to ensure Cognos' software will meet project requirements.

Cognos is a leader in the BI platform and CPM markets. But to maintain its leadership position, the company needs to improve customer support and provide better guidance in using Cognos against large amounts of detail data with good performance.

Virtually all of Cognos' investments, from both an R&D and acquisition standpoint, are focused on delivering a comprehensive BI and performance management platform that integrates reporting, analysis and planning. Cognos' exclusive focus on BI and performance management could be considered cautious compared to some of its direct competitors. With the exception of MicroStrategy, Cognos is the only major BI platform not significantly bolstering its data integration capabilities. Unlike some of its direct competitors, such as Business Objects and Oracle, Cognos is more cautious about making acquisitions. The recently announced Applix acquisition will bolster some technical capabilities, but it won't push Cognos beyond its core markets. Focusing on its core BI platform and CPM suite, while leveraging partners to tap into ancillary markets, may be the right strategy, particularly if Cognos could establish itself as a best-of-breed vendor, offering technology that is demonstrably superior to market competitors. However, that is increasingly unlikely. The virtual parity of the BI platform market has been well documented (see "Market for Business Intelligence Platforms: Round Two of Consolidation Begins"). Cognos 8 is a strong BI platform, but it isn't demonstrably superior to competitive offerings. Moreover, Cognos' overriding focus on its latest architecture over the past five years caused it to fall behind in offering some of the emerging BI technology, such as interactive visualization and in-memory analytics. ReportNet offered ground breaking Web-based report consumption and authoring, but the advent of rich Internet application standards, such as Ajax and Flash have enabled other vendors to surpass Cognos' front-end capabilities. In the CPM market, Cognos initially made some bold moves with the Adaytum and Frango acquisitions, but lately its competitors have been grabbing the headlines with bold acquisitions that are moving their product portfolios forward. We expect the CPM market to continue to build in financial governance and business process management capability, to support such initiatives like the "Last Mile of Finance," which includes close management and reconciliations management functionality. We would expect Cognos to exploit these opportunities; however, it has remained publicly silent on these initiatives.

We believe Cognos has made the right decision by not capriciously buying its way into several new markets outside its comfort zone. However, its strategy to focus on its core CPM and BI platform products needs more emphasis on providing true best-of-breed capabilities. Branching into domain-specific analytic applications, which dovetails off its thought leadership around performance management, is the best strategy for Cognos to maximize its value proposition. Cognos' industry performance blueprints, prepackaged data models and business content that give organizations a quick start when building performance management applications, are a good start on this strategy. However, vendors such as Oracle, SAS and SAP have a significant lead, offering packaged solutions both in comprehensiveness of vertical/industry-specific offerings and customer adoption.

We therefore rate the company's strategy as positive.

Cognos' revenue from its last fiscal year was just shy of $1 billion, with a 12% operating margin. Also, with $654 million in the bank it has significant cash reserves. Moreover, its massive installed base of over 23,000 customers gives Cognos a good opportunity to grow profitably by upgrading customers to the latest offerings, cross-selling CPM into the BI base, and collecting profitable maintenance revenue from customers running legacy products, such as Impromptu and Powerplay.

We therefore rate the company's financial viability as strong positive.

Cognos is one of the most-visible brands in the BI platform market and has worked hard to create a strong marketing presence in the CPM suite market. It has a large "ecosystem" of partners, including numerous OEM relationships and strong alliances with the major system integrators. Cognos consistently communicates its messages about BI and performance management issues in numerous high profile outlets, including Web seminars, conferences and white papers.

We therefore rate the company's marketing as strong positive.

Cognos has been a well managed company, with a solid senior management team. However, we have observed numerous changes in management positions at Cognos as well as reorganizations of its sales force. For Cognos to receive a strong positive rating it will need to demonstrate more management stability.

We therefore rate the company's organization as positive.

Cognos significantly improved its BI platform with the release of Cognos 8, particularly from an integrated infrastructure standpoint, by creating one product that leverages the same security model, metadata, Web services framework and query engine for its five authoring studios: report, query, analysis, event and metric studio. In particular, customers praise the Cognos Framework Manager environment to create a single metadata model or package that spans disparate data sources and can be leveraged by all five authoring studios. With some exceptions, such as MicroStrategy, Cognos is one of the few large BI platform vendors to have an organically integrated platform. However, the Celequest and Applix acquisitions, while they do provide new mid-market opportunities, innovative technologies and much better event-level monitoring, forces Cognos to integrate a third-party vendor's code. This will hamper Cognos' messaging about a fully integrated BI platform sold as a single product. Moreover, while they can be used as a data source, Cognos' CPM products are not completely integrated with the Cognos 8 BI platform. Release 8.2 of the CPM applications does increase the level of platform services in common with the BI platform. For example, Framework Manager now provides the base models for Planning and Controller, and the initial data source for those applications. However, these applications still maintain distinct data models and calculation engines required to perform their focused functions.

Cognos 8 offers a robust set of information delivery capabilities including production reporting, parameterized reporting and self-service ad hoc query, as well as dashboards and scorecards. However, its analysis capabilities are lacking in the areas of predictive modeling and interactive visualization. Powerplay, a well regarded and easy to use online analytical processing (OLAP) tool, was not initially integrated as part of the Cognos 8 architecture — although it can be used as a data source by Cognos 8 Analysis studio. Users should note that the majority of Cognos 8 deployments are using the Report and Query studios. Fewer customers are using Analysis studio as a front-end OLAP tool for slicing and dicing multidimensional data. Customers should test this feature thoroughly in the pilot phase, particularly if Analysis studio will be front ending a third party cube from vendors such as Hyperion, Microsoft, or SAP.

We therefore rate Cognos' overall BI platform as positive.

Cognos was one of the first BI vendors to acquire products in the CPM space. An early acquisition was of a product that became known as Cognos Finance, providing planning, financial reporting and financial consolidations functionality. Today, Cognos Finance still has a significant user base and is continuing to be developed, although not at the pace of other Cognos CPM products. Despite this, the Cognos Finance product did not prove to be a leading contender in the CPM space, and Cognos subsequently bought Adaytum, which was, at the time, a major innovator in the CPM market, concentrating on planning/budget functionality for the Office of Finance. The product (now known as Cognos Planning) continues to demonstrate innovation in the CPM market by providing planning scenarios inside and outside of finance, to support the broader performance management market. Cognos Planning is one of the leading planning products for Tier 1 and larger mid-market companies. Its forte is the ability to collect and manage low-level budget records, provide a workflow approval process to facilitate the planning process, and rationalize higher-level business plans with lower-level budget entry. Cognos has been able to rally many of the leading system integrators, such as Accenture, to provide implementation services for Cognos Planning and subsequently, this product has become the centerpiece of many companies' finance transformation/re-engineering initiatives. On its own, Cognos Planning warrants a strong positive rating, based on its flexibility and market presence. However, its underlying technology is starting to show its age and will face increased challenges in the future.

In September 2007, Cognos announced that it is acquiring Applix, an established player in BI and CPM. Applix has demonstrated that its strong in-memory platform provides a compelling unique proposition to large and midsize enterprises. Cognos has recognized this, and is in the process of snapping up the vendor for $339 million, and we believe that its own disjointed and mature CPM portfolio will be based on this advanced analytical platform in the next 18 to 24 months. This acquisition reaffirms Cognos as a front-running CPM provider, as Applix nearly doubles Cognos' CPM customer base, and increases execution capability with skilled staff and additional channel partners. But most importantly it provides additional analytic and reporting capability and a high performing and scalable OLAP engine offering read/write interactivity that is highly suited to financial applications and capable of underpinning the future CPM portfolio.

Another component of its CPM suite is Cognos Controller, which was acquired from Frango, a European-based financial reporting and consolidations vendor. Controller is a strong emerging solution in the consolidations market. It is a functional and competitive financial consolidation application, but it still not well known enough in the Cognos sales and partner channel. This warrants a promising rating. Cognos Controller should establish a stronger market presence within the next two to three years, as sales effectiveness improves and more system integrators provide implementation services. It appears that some of the large system integrators, such as Deloitte Consulting, are beginning to add support for Cognos Controller.

In the balanced scorecard area, as well as management reporting, Cognos provides leading functionality in its integrated BI and CPM platform, thus warranting a positive rating. It will be unveiling an authoring mode in Cognos 8 BI to support financial reporting that will provide a simplified user experience optimized for financial professionals, including capabilities key to financial formatting and reporting. This new capability will resolve many of the issues that finance organizations have with reporting credit-sign-based account reporting — for revenues and liabilities/equity reporting on income statements and balance sheets, respectively. For profitability modeling and optimization, Cognos has a partnership with Acorn Systems that has not generated significant interest. Acorn Systems has recently announced a partnership with SAP to become a significant component of its CPM suite. We believe that this will eclipse the Cognos partnership, leaving Cognos with an undifferentiated activity-based costing/management (ABC/M) offering, unless it chooses to develop this capability, or acquire a vendor in the future.

We therefore rate Cognos' overall CPM suite as positive based on the combination of capabilities across Planning, Consolidation, Scorecarding, Financial Reporting and Profitability Analysis.

Cognos offers a very mature technical architecture. In particular, customers provide positive feedback on Cognos' implementation of a service-oriented architecture (SOA) with a single set of standards-based Web services for peer-to-peer, self aware communication and a single application programming interface (API) that is open, interoperable and extendable. In addition, Cognos 8 can support multiple security systems simultaneously. Moreover, Cognos 8 provides a single report specification, common message bus and zero footprint client for report consumption and authoring. Its technical architecture improvement is one reason why Cognos has seen its OEM business increase dramatically in the last year. However, there are a few missing components that are worth noting, in particular the lack of extensive caching, database independent aggregate awareness, and true multi-pass Structure Query Language (SQL). All these components contribute to BI platform query performance. Gartner has received a significant number of inquiries from customers complaining about poor performance and scalability when using Cognos products. Some customers complain they bought too few CPUs based on Cognos scalability guidelines to handle the projected requirements. Others complain that it takes too long for reports to render. Much of this is due to the lack of caching which triggers a trip back to the database every time a report needs to refresh or change a calculation parameter. Cognos 8 does pre-cache a list of values used in report prompts, but the data values still must be fetched from the database. This problem is compounded by a lack of true multi-pass SQL, which would run multiple, separate SQL statements on the server and, as a result, bring less rows and columns back from the database.

Oddly, Cognos has an OEM relationship with Composite software, which provides sophisticated caching. As a result of the OEM agreement, every Cognos ReportNet and Cognos 8 customer has the rights to use Composite software. Composite requires its own metadata, but Composite services are viewed just as any other data source from a Cognos Framework Manager package. For some reason, Cognos has not promoted this option to customers experiencing poor performance. As a result, there is a lack of awareness and almost no Cognos customers use this functionality.

Cognos can point to many large reference accounts that have standardized on its BI platform. However, most of these customers have a well-architected data layer with an enterprise data warehouse, typically a star schema and performance layer using relational-based aggregates (for example, Oracle Materialized Query tables) or multidimensional OLAP cubes (for example, Cognos Powerplay) that pre-calculates the analysis in advance of the query. Cognos performs well against a well architected performance layer. Our research indicates all the complaints about performance are coming from organizations that lack this architecture. These customers are attracted to the powerful metadata modeling environment which enables the union of disparate data sources into an integrated logical metadata model. However, Cognos still queries the physical data source and if it doesn't have a performance layer, it typically renders the reports with poor performance.

To date, Cognos' policy is to encourage its customers to build a performance layer, which is typical best practice for a data warehouse methodology. But many organizations lack the labor and skills for this approach and are looking for a quick fix. Moreover, even organizations with a robust data warehouse will need to report against operational data sources. Cognos needs to clearly articulate its strategy for reporting against large amounts of normalized, detail data. There is a trend in the market toward loading this type of data into memory (see "BI Applications Benefit From In-Memory Technology Improvements") and Cognos' recent acquisition of Celequent and planned acquisition of Applix would indicate that is its direction. However, Cognos is positioning Celequest for business activity monitoring and real-time dashboards, and not as an alternative performance layer. Moreover, it would be difficult for Cognos to leverage the Cognos 8 platform if it were to completely embrace an in-memory model. Cognos 8 lacks a 64-bit architecture to provide a much larger addressable memory space, which will be required in big deployments. Applix, on the other hand, does support 64 bit. We believe Cognos should leverage Applix TM1 as a comprehensive in-memory performance layer for all BI and performance management studios including reporting, ad hoc query, analysis, metric, event and planning. Delivering on this option would take 12 to 24 months to accomplish and therefore isn't a short-term fix for current Cognos customers. But in the long term, it would free Cognos from its dependence on the database for improved query performance.

In the near term, Cognos needs to provide better guidance to its customers, particularly enterprises that lack a robust data warehouse infrastructure, on how to optimize performance and scalability. See Note 1 for query performance improvement options. See Note 2 for some performance improvements made in the Cognos 8.2 release.

We therefore rate Cognos' technology and methodology as positive.

With a few exceptions, feedback of Cognos' role-based pricing model has been positive. Having just one charge per user based on their role of administrator, author or consumer is simpler than some competitive approaches that have multiple charges per user depending on the number of products or features they use. The addition of a per-CPU option for the consumer role provides flexibility for larger deployments. However, many Cognos customers are not aware that a per-CPU option exists. Price discounts off-list have been reasonable and consistent. In general, Cognos is price competitive against most of the BI platform vendors. However, it is more expensive than Microsoft and some of the emerging vendors. The most significant concerns have come from some customers that have complained about the lack of clarity in mapping legacy products to Cognos 8 based on its current maintenance agreement. This has been a major industry problem recently with not just Cognos, but also Business Objects and Hyperion, as all three vendors released major new offerings in the last two years. Customers should insist on clear descriptions of product functionality written into the contract to minimize this problem in the future. Another concern stems from charges for development and test servers. Customers enrolling in an end-user license can use an unlimited amount of hardware for production hardware, but Cognos charges extra if the servers are designated for development and testing. Typically, this is a sales gambit by Cognos to increase the size of the deal, often at quarter end, by providing an incentive that throws the development server in for "free" if the customer meets a certain revenue target. Customers enrolled in a named user license should push back against this practice. The named user license should entitle unlimited hardware capacity whether the servers are for production or development.

We therefore rate Cognos' pricing structure as positive.

Complaints about support have spiked in the last 18 months as Cognos' customers transition to the new Cognos 8 platform. The migration from Cognos 7 and Cognos ReportNet has been difficult for many organizations. Some customers have complained they had difficulty finding a resource that could accurately diagnose and fix their problem. These customers felt support personnel were only able to follow a pre-defined trouble shooting script. Upgrading to Alliance support, a $40,000 investment, will improve response time by accelerating access to a more knowledgeable resource that can accurately diagnose the problem. However, some customers found even the improved resource was unable to fix the problem and frequently transferred the incident from technical support to Cognos' development team to render a bug fix in a future update. In particular, Cognos needs to improve its communication to make customers aware of when they can expect bug fixes to materialize in maintenance releases. Many customers have experienced quick resolution, but not in all cases. In one client's case, there were 28 open issues with an average life of 7.4 months — and only five of those issues had even had development begin work. Cognos 8.2 was billed as a "bullet proofing" release that patched many of the commonly reported bugs. Anecdotal evidence suggests the release has resolved many of the reported issues. In at least one case, however, the fix failed and the customer spent several hundred hours testing and then uninstalling the upgrade. In addition, customers have also complained about the lack of support for less-popular platforms. Customers running on less-popular operating systems such as Linux and Unix encounter more difficulty getting their problems fixed than those customers running on Windows. This is a result of less testing and Q&A work for Cognos 8 on these less-popular environments. Finally, despite its very strong network of direct sales representatives, resellers and partners, Cognos has had a higher than normal sales turnover in the last 18 months. As a result, some customers have complained about disruption in their account management team.

Cognos has made some organizational changes to its support operations recently, and this, along with increasing knowledge and experience with Cognos 8, has brought the number of weekly incidents escalated down from its peak. We believe Cognos needs to continue with this overhaul and significantly bolster the support organization, emphasizing a core focus on quality and problem resolution instead of cost and efficiency. In particular, there needs to be better communication between the support organization and the development team. When trouble tickets are closed because the incident is classified as a "bug" to be fixed by the development team, there needs to be some communication back to the customer when the patches will be available.

We therefore rate Cognos' sales distribution as strong positive, but its support/account management rating as promising.