IBM, Cognos, and the End of Best-of-Breed

The software giant's $5 billion acquisition of Cognos shows how difficult it is becoming for midsize software companies to survive on their own

One of the hottest segments of the tech industry, business intelligence software, is less and less a separate category of products as one major player after another gets scooped up by larger companies. The latest move was IBM's (IBM) announcement on Nov. 12 that it will buy Cognos (COGN) of Ottawa, Canada, for $5 billion. This followed SAP's (SAP) deal to buy Business Objects (BOBJ) last month for $7 billion, and Oracle's (ORCL) acquisition of Hyperion Solutions for $3.3 billion in April.

The software industry, once populated by hundreds of so-called best-of-breed companies, is now dominated by a handful of giants, including Microsoft (MSFT), IBM, SAP, and Oracle, with vast portfolios of products. It's very difficult for midsize companies to compete against the giants because large corporations prefer to buy their technology from a few strategic suppliers rather than a lot of smaller companies. Two other independents, BEA Systems (BEAS) and Sybase (SY), are seen as likely takeover targets. "In some sectors it's really hard to find the independent, best-of-breed companies anymore, says analyst Paul Hamerman of market researcher Forrester Research (FORR). "Longer term, the industry will regenerate itself, and new ideas will incubate,

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