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Disruption or Stupidity at Business Objects?

When I first heard of Business Object's acquisition of Crystal, I couldn't decide if this was a good move or a bad move. On the one hand, you have the problem of two BI products that do very similar things, a problem discussed in the book "In Search of Stupidity." On the other hand, it's a way to move down-market and address the problem of commoditization eating into the higher-end BI tool market, a problem discussed in the book "The Innovator's Dilemma."

There are a lot of positives for Business Objects. Crystal is decent report-writing software so it filled a gap in the Business Objects product line. The acquisition gave BO enough revenue to become the market share leader in the BI industry. The Crystal product line is down-market from existing BO products, so this provides a natural upward migration path within Business Objects and could make it harder for other vendors to sell into Crystal accounts. Crystal is also embedded into a lot of applications, which could provide opportunities for BO in the future.

There are also negatives. Buying market share rarely works unless you can hold the lion's share of the market. The practice is can be a way to prop up weak revenue growth and does not often make a lasting contribution to the bottom line. Customer defections due to acquisition problems can eat into the revenue that was purchased.

Integrating products with similar functions is a challenge, particularly when you want to maintain both products. The best case is that you develop a platform strategy for the technology and build both products off the underlying platform. The worst case is that you have two completely separate product architectures.

There's a potential for confusion by customers when the products are so similar. Which products fit where? This can be death to an entire product line if the product transition is handled poorly, something discussed in detail in "In Search of Stupidity."

After watching the acquisition play out, I believe it will work for Business Objects. The product lines are converging nicely, so they won't have the same architectural problems that Cognos has. Assuming all goes well, the platform build should enable easier migration or integration of BO and Crystal for the customers.

The main problem I see is that the transition planning for customers hasn't gone well. Customer are confused over where the products meet and diverge, what the upgrade paths are, and when to upgrade what. This was apparent at the annual BO conference, where we saw no clear message on product transition and the executive presentations were second-rate at best. It wasn't enough that customers were confused, but the analysts and major shareholders held similar views. Let's hope this gets cleared up as they push the next release, dubbed "XI".

The acquisition is turning out to be a good move to head off commoditization. While competitors have to worry about lower-end products eating into their product lines, BO has products to address the low end with a path into their more full-featured products. I'm optimisitic about the outcome. Smart strategy or dumb luck? We'll probably never know.

A video of an interview with the author of "In Search of Stupidity" is available on his web site. It provides a good summary of what's in the book. Think of it as Cliff notes if you're not into reading business books.

I blogged a note about Christensen and "The Innovator's Dilemma" a while back.

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