When Microsoft enters a software market, established players have good reason to be wary. Microsoft has almost invariably mopped up in each of the markets it has penetrated: client operating systems, office productivity, email/groupware and web browsers. Now it is preparing to do the same in the business intelligence (BI) software market.

After five years in the making, the Redmond software giant recently took the lid off SQL Server 2005, which is billed as the most BI-conscious release of its flagship database to date. In addition to improved performance and manageability over its predecessor, SQL Server 2005 comes with new and enhanced features for building and managing data integration processes, analysing and mining BI data, and building superior reports, which make it a much more credible enterprise offering.

With SQL Server 2005 now in play and the potential huge - BI and data analysis software is valued as a $22bn market that is growing at between 10% to 20% per year - Microsoft is understandably bullish about establishing a beachhead. "We'll do more than outgrow the market... we'll transform the market," says Jeff Raikes, president of Microsoft Business Division. "Users see BI as expensive, inconvenient and hard to use, which gives us an opportunity to deliver value by building low-cost, yet high-value BI software."

Microsoft dispelled any doubts about its passion for BI when it announced last October that it would be setting aside a sizeable chunk of its $15m R&D budget to bolster its BI credentials. According to Bill Baker, general manager of SQL Server BI at Microsoft, significant amounts of R&D dollars have already been spent on developing the new BI capabilities in SQL Server 2005. "This is by far our most ambitious BI release ever and the next one will be more so. We intend to invest heavily in this area," he says.

After consciously playing down BI capabilities in earlier SQL Server versions as non-disruptive technologies, Microsoft is now singing a very different tune and is aggressively positioning SQL Server 2005's latest data integration, OLAP, reporting capabilities and data integration tools on an equal footing with other best-of-breed BI tools.

From a bird's-eye view, Microsoft's BI game plan extends far beyond SQL Server into other parts of its software business. "It's not just SQL Server, but a combination of Office and SharePoint product lines as well as continuing to foster a partner community that adds value on top of the database," Baker says. For instance, Microsoft has used BI to redefine a new market opportunity for Office, by recasting it as an analysis tool - among other things - rather than a desktop writing, spreadsheet and publishing tool.

Office 12, which is due next year, also promises new BI capabilities ratcheted up to Excel and SharePoint. These Office-enabled BI features enable companies to pilot low-cost, low-commitment BI initiatives that leverage the ubiquity of Office (used by an estimated 500 million users) as a vehicle for distributing analytics to a much broader audience than before.

"We've effectively changed the form factor and cost structure of BI," says Baker. "By pushing BI out to the operational side of organisations we've taken BI from a thing a company did on a Monday morning after a Sunday data load and made it mission critical."

Microsoft is hoping that the BI capabilities will eke more growth out of its $11bn Office franchise by igniting more upgrades. But some BI stalwarts think Microsoft may be pushing the Office BI envelope a bit too far. "BI isn't about Office," says Gerry Cohen, CEO at Information Builders. "There might be some nice applications that hook into Office, but labelling the software as a big BI initiative is quite misleading."

Arguably Cohen has a point. While tapping into a vast Office base will buoy the SQL Server 2005 release for Microsoft and its partners and raise awareness of Microsoft's BI, it will not automatically provide the basis of a company's enterprise-wide BI strategy, which is where most of the smart money is being directed at these days.

With so much pent-up demand for pervasive BI, Microsoft predicts that many companies will make the leap to SQL Server 2005 in the coming year. Users are thought to be pinning their hopes for future BI projects on SQL Server 2005's upgraded Integration, Analysis and Reporting Services features, which are designed to boost performance and ease end users' reliance on IT staffers.

Baker ranks the demand in the following order: data integration, reporting, OLAP and data mining. "We're seeing a fair amount of interest being driven by the upgraded data integration and OLAP architectures designed to handle larger data volumes and complexity without the need for a lot of programming," he says.

Real estate firm Long & Foster is eyeing the new Analysis Services (OLAP) features to help analyse customer data gleaned from the company's website to provide them with personalised data that fits their needs. According to Mayur Raichura, MD of information systems, Long & Foster was loathe to use this feature in SQL Server 2000, citing scalability and performance concerns. "The previous version didn't scale well enough to handle such tasks."

"We're seeing a good chunk of our customer base upgrade to 2005 to take advantage of query and analysis performance on the Web," says Clay Young, senior VP of strategic marketing at ProClarity, an OLAP specialist that builds BI solutions on top of SQL Server.

SQL Server 2005's revamped ETL facility - dubbed SSIS (SQL Server Integration Services) - also seems to be gathering support and is being seen by Microsoft solution providers like Immedient as a "killer app" for SQL Server 2005. Immidient is currently working with several clients to beta SSIS, and says the big customer opportunity is scalability, which the company hopes will open up SSIS to a lot more needs.

Baker points out that SSIS' predecessor (DTS) was used by around 80% of SQL Server 2000 users but was never built for easy deployment with huge data volumes and throughput. "We've focused on this area because data integration typically accounts for 70% of a BI project."

Price is also another compelling factor that is driving adoption. When Microsoft first bundled OLAP and ETL functionality into SQL Server it positioned these BI add-ons as a bonus: buy SQL Server and you get the BI tools for free. Technically this has never been the case since each subsequent release of the database has been more expensive. Nevertheless, even with the price of SQL Server 2005 Enterprise Edition rising by 20% (to $6,000 per processor) it still represents good value for money when the integrated BI capabilities are factored in.

Most SQL Server 2005 migrations are likely to take place at a comparatively slow pace over the course of 2006 as companies figure out just how they are going to make use of the new BI capabilities. Some enterprise software applications do not yet support SQL Server 2005.

Risk-averse SQL Server 2000 companies are going to approach SQL 2005 much as they did Windows Server 2003: they will wait for the first service pack, which is due to ship in the second quarter of 2006, before deploying it. Over the years SQL Server has outgrown its departmental tag and companies are starting to standardise on it as one of their core enterprise data management platforms. However, it is not common practice to implement a new version of a mission-critical database overnight.

Lacking sophistication
An ascendant Microsoft in the OLAP and enterprise reporting space obviously poses problems for Business Objects, Cognos, Hyperion Solutions and other BI stalwarts, however. Generally the response of these vendors has been predictable: to label Analysis and Reporting Services as 'SQL Server-only' solutions.

Darren Cunningham, director of product marketing at Business Objects, is not convinced that Microsoft's BI comes close to the sophisticated capabilities offered by the BusinessObjects XI suite. "Sure Reporting Services will find a niche, but you can't really compare it to Crystal Enterprise which is a far more scalable platform." He points to customers who are using Crystal to support "thousands or tens of thousands of users."

Despite Cunningham having a good case here, Microsoft Reporting and Analysis Services still supersede pay-per-user analysis and reporting tools from the likes of Business Objects, Cognos, Hyperion, Actuate and others on price alone. Even with deeply discounted offerings these vendors would be hard pressed to compete on price. Microsoft has also invested heavily in new capabilities that compete more broadly against these vendors' products.

Neil Hill, senior VP of corporate development at Cognos, maintains a "healthy sense of paranoia" about Microsoft. But he is not overly worried about SQL Server: "We'll still maintain our position in the multi-platform and complex BI and analytics franchise." He questions the wisdom of an economic model that drives ugrades to key Microsoft franchises, notably Office and the operating system.

"Customers can only get the maximum benefit when they deploy all the components top to bottom and side by side. Many will have to swap out or upgrade to Office 12, SQL Server 2005 and the new Excel Servers," Hill says. "It's rare that any enterprise class company will hand all that server-side infrastructure to any single vendor."

As Microsoft rolls out its most ambitious BI offering to date, the cordial relations it enjoys with some long-time BI partners could also be at risk. Ever since it first included OLAP and ETL capabilities into its SQL Server 7.0 database, other BI vendors have been on their guard. But curiously, Microsoft also became a model partner as well: spawning an ecosystem of partner-dependent applications. Vendors such as ProClarity, Panorama and Dundas all make a tidy profit building specialised applications that benefit from the uptake of SQL Sever.

But with Microsoft's appetite for growth pushing more deeply into the BI market, you might expect some of these partners to think twice about partnering with the software giant. Partners, however, take a pragmatic view of the relationship. "Sure they're starting to creep up the stack into areas like scorecarding. But they're still taking a platform approach," says Oudi Antebi, VP of product marketing at Panorama Software, a long-time partner from which Microsoft acquired the original OLAP technology now included in SQL Server.

Partner transparency
Meanwhile, Young maintains that Microsoft has been an "excellent partner" that has allowed ProClarity to build up a thriving business on top of SQL Server: making it the third largest third-party provider of SQL Server-specific BI tools. "We couldn't have done it without Microsoft's initiative," he says.

Microsoft's Baker acknowledges that it is a careful balancing act to keep partners on your side, but one that depends on maintaining "transparency". "We've always been upfront with them from day one," he says.

Microsoft is, of course, betting that the new features will open up fresh BI applications for its SQL Server database. While Microsoft continues to add more functionality into SQL Server, there will also be a parallel need for BI applications build upon it to grow in terms of depth and breadth as well.

CBR Opinion
Microsoft has put its heart and soul into developing a set of top-drawer reporting, analysis and data integration BI capabilities, which raise the ante for BI. SQL Server 2005 is likely to drive many new and improved functions in Microsoft Office and Dynamics applications as well as partner-developed solutions. However, from both customer and partner perspectives there is a cost in terms of migration complexity before they can take full advantage of some of the new BI features. While it is likely that SQL Server 2005 will gain users at the expense of other OLAP and ETL tools in the market, wide-scale customer defections will only come from users that have not invested heavily in a particular BI platform, or find the all-in-one approach of Microsoft's BI stack irresistible.