Although several of big tech's most powerful names deserve consideration, e-commerce-turned-everything provider Amazon.com (NASDAQ:AMZN) gets my vote as the most lethal competitor in all of tech. Software vendors focused on business intelligence, or BI, such as Tableau Software (NYSE:DATA), Splunk (NASDAQ: SPLK), and Qlik Technologies (NASDAQ:QLIK) would do well to take notice.
After swirling rumors, Amazon introduced its own cloud BI software, named QuickSight, earlier this month at the company's yearly "re: Invent" conference in Las Vegas. Thus far, the analyst community has been dismissive about the scope of the threat Amazon presents to BI software incumbents and their peers. However, underestimating Amazon's ability to innovate and compete has led to the quick dismissal of too many companies to count over the years.
Structural advantages for Tableau, Splunk, and Qlik
The analysts' skeptical view of Amazon's challenge to many of BI software's more established names are, to be fair, justified, for several important competitive reasons.
One of the most significant structural advantages pure-play BI vendors enjoy is that many corporations still maintain their high-value or "mission-critical" data warehoused in on-site servers. As William Blair analyst Bhavan Suri recently noted, that means that, in most cases:
[A] cloud-based solution this data would have to be uploaded before it could be analyzed. Because this would lead to sub-optimal performance, we believe it makes the most sense for BI solutions to be deployed where the majority of an organization's data resides. Thus ... we do not view it as a significant near-term threat."
The sensitive nature of key data (sales data, customer info, and so on) creates a reluctance to host this type of information in public cloud servers such as those Amazon runs for AWS, even though small and medium-sized enterprises, or SMEs, are probably little better at network security than Amazon is. This dynamic could change over time as acceptance of cloud hosting increases among SMEs and the cost and scalability advantages that accompany it. However, customers that have already invested in BI software for their on-premises servers will face an even greater disincentive to switch to Amazon in the short term. This situation bodes well for the likes of Tableau, Splunk, and Qlik. However, it's not the only advantage they enjoy over Amazon.
Current BI software specialists will probably enjoy a feature advantage over Amazon as QuickSight enters the market. As at least one analyst noted, the full functionality of Amazon's new BI software isn't entirely understood at this point, a fact that could indicate QuickSight lacks some of the robust features established BI software leaders offer. As was the case with the on-site advantage, superior product quality, if that turns out to be the case, should help insulate BI-specific software players to mitigate the impact of Amazon's entry.
These are both powerful advantages that should help protect the likes of Tableau, Splunk, Qlik Technologies, and the remaining glut of BI upstarts. However, success is never permanent, least of all in a rapidly evolving software vertical such as BI, and that's why I believe underestimating Amazon's long-term competitive presence would be a serious mistake for industry incumbents and their shareholders.
Never bet against Amazon
In my years covering Amazon, I've come to appreciate its position as a competitive force. Going beyond simply respecting Amazon's disruptive DNA, I see two additional factors that could increase its chances of success in BI software.
The first is the inherent benefits of cloud hosting. While not always cheaper, cloud hosting and computing costs continue to steadily decline, and there's no denying the flexibility cloud-based options provide over expensive, fixed investments in hosting hardware. So it's easy to envision how, over time, the on-site advantages BI vendors currently enjoy diminish as cloud adoption continues. And as the company at the forefront of many cloud computing markets, Amazon could package its BI products with other cloud products in a compelling enough way to steal customers from the likes of Splunk, Qlik, Tableau, and others. This is by no means a certainty, but it does seem plausible.
Second, should Amazon narrow the product functionality gap, the e-commerce giant could, and probably would, aggressively compete on price. As we've learned over the years, Amazon loves a price war. And should such a scenario emerge, Amazon's massive revenue base and amazingly patient shareholders could enable it to succeed over smaller competitors. The key in avoiding this outcome will lie in smaller vendors' ability or willingness to keep their products one step ahead of Amazon.
We haven't reached a winner-take-all point in the emerging market for BI software. With estimates of market saturation at roughly 10% today, there are plenty of growth opportunities left for the likes of Tableau, Splunk, and Qlik to successfully co-exist with Amazon's 800-pound gorilla. And while the conditions that could create more direct conflict between vendors remain years away, it's still important not to underestimate Amazon in this budding software space, either.
Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com and Splunk. The Motley Fool recommends Qlik Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.