Gartner - SWOT SAS Institute

Gartner for Business Leaders Publication Date: 10 December 2010

ID Number: G00208557

SWOT: SAS Institute, Business Intelligence, Worldwide Dan Sommer, John Hagerty, Andreas Bitterer

SAS Institute is a leader in data mining, predictive technologies and analytic applications. But several competitive pressures are emerging, putting that position under threat for the first time.

© 2010 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner's prior written permission. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner's research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner's Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see "Guiding Principles on Independence and Objectivity" on its website, http://www.gartner.com/technology/about/ombudsman/omb_guide2.jsp

TABLE OF CONTENTS Analysis ....................................................................................................................................... 4 SWOT Analysis................................................................................................................ 4 Strengths ............................................................................................................ 6 Unparalleled Depth in Analytic Capabilities ............................................. 6 Wide Range of Vertical and Horizontal Analytic Applications ................... 7 Ability to Enter Noncompetitive Sales Situations With Analytics ............... 8 Company Structure Allows Long-Term Perspective ................................. 9 Pricing Model Reduces Barrier to Adoption and Fosters Predictable Revenue Stream ..................................................................................... 9 Wide and Passionate User Base ........................................................... 10 Deep Penetration in Accounts With High Switch-Out Costs ................... 10 SAS Culture Attracts and Retains Employees ....................................... 11 Weaknesses ..................................................................................................... 11 Weight of Own Portfolio Stifles Net-New Innovation .............................. 11 Core BI Product Is a Follower, Not a Leader ......................................... 12 Unproven Alliances and Partnerships.................................................... 13 Underperforming Midmarket Strategy.................................................... 13 Need to Address a Reputation of Being "Expensive" ............................. 13 Must Overcome a Reputation of Being "Difficult to Use" ........................ 14 Opportunities..................................................................................................... 14 In-Database Analytics as a Way Into New Accounts.............................. 14 Explore Acquisitions and Deeper Partnerships ...................................... 15 Widen On-Demand and Managed Analytic Offering .............................. 16 Software Partnerships........................................................................... 17 Service Partnerships ............................................................................. 17 Give Away Portions of the BI Platform ................................................... 18 Upcoming Governance, Risk and Regulatory Activities ......................... 18 Threats.............................................................................................................. 19 Stronger Competition Will Threaten SAS's Dominance .......................... 19 IBM .......................................................................................... 19 Other Megavendors .................................................................. 19 Other Independent Software Vendors ....................................... 19 SAS Knockoffs ......................................................................... 19 Small Proportion of Sales Into Net-New Accounts Threatens Long-Term Revenue Regeneration ......................................................................... 20 Unclear Succession Plan ...................................................................... 20 Possibility of Acquisition of SAS ............................................................ 20 R Programming Language Cuts Into Base SAS Dominance .................. 21 Analytics Embedded Into Applications ................................................... 21 Outsourced Analytics ............................................................................ 22 Becoming Known Only as a Specialist in an Era of Consolidation.......... 22 Implication for SAS Institute ........................................................................................... 22 Company Overview........................................................................................................ 23 Methodology .................................................................................................................. 24 Recommended Reading ............................................................................................................. 25

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 2 of 26

LIST OF TABLES Table 1. Gap Analysis: SAS Versus Visual Front-End Tools ....................................................... 15 Table 2. SAS Institute Revenue and Market Share by Region, 2009 ........................................... 24 Table 3. SAS Institute Market Share by Business Segment, 2009 ............................................... 24

LIST OF FIGURES Figure 1. SWOT: SAS Institute, Business Intelligence, Worldwide................................................. 5 Figure 2. Graphical Representation of SWOT: SAS Institute, Business Intelligence, Worldwide .... 6 Figure 3. Analytic Application and Performance Management Market Share, 2009 ....................... 8 Figure 4. BI Platform Market Share, 2009 ................................................................................... 12 Figure 5. SAS Institute Revenue Breakdown, 2009 (Millions of Dollars) ...................................... 23

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 3 of 26

ANALYSIS

SWOT Analysis In the business intelligence (BI) domain, most vendors have focused their efforts on moretraditional use cases, such as reporting, online analytical processing (OLAP) and dashboarding. While concentrating on those mainstream capabilities has worked well for BI vendors in the past, many BI projects globally are getting to higher maturity levels, gradually working their way up the BI value chain and moving away from only measurement and monitoring into ever-more sophisticated analytics. SAS has dominated that high end of the market, drawing from a statistical heritage, which should put the company in good stead for the future. But at the same time, more competitive pressures than ever are threatening to displace SAS. This document provides a detailed analysis of the strengths, weaknesses, opportunities and threats that SAS is facing in the context of the BI arena, including analytics. Hence, it makes no attempt to analyze the company as a whole and all the markets in which it participates (such as CRM, data integration, data quality and data warehousing). However, while the spotlight is on business intelligence, a wider scope is often needed (for example, ownership structure and pricing) to understand strategic direction. Figure 1 provides an overview of SAS's strength, weakness, opportunity and threat (SWOT) characteristics, and Figure 2 provides a graphical representation of these in relation to one another. To create Figure 2, we analyzed the strengths and weaknesses that are internal to the vendor and the opportunities and threats that are external to the vendor. For each category, we defined a number of characteristics based on parameters such as company or market, product or services, finance, and operations. Each characteristic is examined in terms of the potential impact on the vendor's position in the market if this factor is acted on or ignored in the next 12 months. These impacts are then rated as high, medium or low to determine a final numbered rating for each quadrant in the graphic.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 4 of 26

Figure 1. SWOT: SAS Institute, Business Intelligence, Worldwide

Source: Gartner (November 2010)

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 5 of 26

Figure 2. Graphical Representation of SWOT: SAS Institute, Business Intelligence, Worldwide

Source: Gartner (November 2010)

Strengths Unparalleled Depth in Analytic Capabilities Unlike many other BI platform vendors that focus on historical data, SAS focuses on advanced analytical techniques, such as data mining and predictive modeling. As far as mind share and capabilities are concerned, SAS is the "800-pound gorilla" in the analytics space, with workbenches enabling companies to analyze customers (for marketing, retention and risk assessments), products (for product development, quality control and support) and corporate activities, such as identifying key performance indicators and forecasts for performance management activities like demand forecasting. No competitor can yet match SAS's ecosystem of skills and availability around those products. Here is a short description of key products SAS has in analytics: SAS Enterprise Miner — A workbench enabling data mining and predictive modeling. It is a flagship product for SAS. Base SAS — SAS-developed programming language that has been the "lingua franca" for statistics. SAS/STAT — Software designed for statistical analysis, such as variance, mixed models and regression.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 6 of 26

SAS Enterprise Guide — Optimized for Windows client applications. The solution is an interface for business analysts, programmers and statisticians and a key application in SAS BI offerings. SAS/GRAPH — Aimed at creating high-impact visuals. JMP — In-memory analytic offering with strong visualization capabilities that could be positioned for a broader class of business analysts than the traditional SAS user, while being an integrated SAS client. SAS/ETS — Econometric, time series and forecasting techniques that enable modeling, forecasting and simulation of business processes. SAS Forecast Server — Enables automatic production of statistically based forecasts. SAS Forecast Server bundles the SAS High-Performance Forecasting engine with the SAS Forecast Studio graphical user interface. SAS/OR — Optimization, project scheduling and simulation techniques to identify the actions that will produce the best results, while operating within resource limitations and tight restrictions. SAS Model Manager — For creating, managing, monitoring and deploying analytical models. SAS/QC — Tools for improving products, optimizing processes and increasing levels of customer satisfaction. SAS Text Analytics — Analyzing large quantities of text and interpreting, mining and structuring information to reveal patterns, generate metadata, and identify sentiments and relationships among documents.

Wide Range of Vertical and Horizontal Analytic Applications Introducing domain-specific analytic applications is "all the rage" right now as a means of differentiating, bringing solutions to the customer and finding new buyer constituencies. Oracle, SAP and IBM are all taking this route. Previously, these same companies cared less about productizing solutions due to lack of scale and left it for partners to do. Now, with IT consolidation and the stack war intensifying, many vendors are rethinking the value and loyalty that a moreturnkey approach can bring. SAS took a solution-oriented route more than a decade ago, which now gives the company the advantage of having the widest variety of cross-functional and vertically specific analytic applications out of the box. SAS is the market share leader (see Figure 3), and no other vendor in the analytics space can match SAS's breadth today. This enables the company to go to its customers with a content and solution-driven story instead of offering only technical capabilities. More than 2,500 SAS customers are using more than 80 predefined BI applications today. The only question is how thin SAS can spread itself before seriously affecting its profit margins.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 7 of 26

Figure 3. Analytic Application and Performance Management Market Share, 2009

Source: Gartner (November 2010)

Ability to Enter Noncompetitive Sales Situations With Analytics SAS often targets specific user constituencies. Hence, it has the ability to enter sales situations in which it doesn't compete in the "open market" with other BI vendors in proof of concepts, avoiding head-to-head competition and becoming less exposed to pricing pressures. The two already-mentioned strengths (unparalleled depth in analytic capabilities and a wide range of vertical and horizontal applications) both contribute to this third strength as they are differentiators that the competitors can't yet match. The IT department has not been SAS's main target; rather, SAS targets specialists in business units, especially quantitative analysts and statisticians (with its data mining and predictive modeling capabilities) and specialists in departments (with its prepackaged analytical content; for example, fraud detection or creditscoring applications for risk managers). SAS's traditional sales strategy can be likened to a Trojan horse model, often starting out small in the above-mentioned constituencies with a relatively low first-year license fee, and then reaping annuities in subsequent years while expanding deeper and wider into those accounts. In some cases, the pricing model has allowed SAS to "fly under the radar" by avoiding capital expenditure (capex) budgets and appearing only on the less scrutinized operational expenditure line. SAS's ability to sell into specific constituencies has been a lucrative model. But in the recent economic crisis, many projects, regardless of vendor, that weren't sanctioned from the top have been put on hold or canceled. Vendor consolidation and strategic sourcing decisions, often made higher up in the hierarchy, have forced SAS to rethink its strategy, and the company has recently restructured its sales force to be able to compete in deals with a stronger "enterprise" character. Such deals often need discussion and involvement of the board, as well as a more consultative value-based selling approach. SAS is currently building a dedicated organization to support these kinds of sales. This approach will inevitably leave SAS more exposed to other competitors in BI and beyond.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 8 of 26

Company Structure Allows Long-Term Perspective SAS is still largely owned and operated by two of its founders — Dr. Jim Goodnight and John Sall. Unlike most of its vendor peers, the company is privately held. This enables a strategy that is not scrutinized by investors every quarter and means fewer financial disclosure requirements, allowing a focus on longer-term opportunities. This has made a clear difference in how the company operates — here are a few examples: In 2009, when many competitors downsized to meet the challenging market conditions, SAS chose to keep all its talent, with no layoffs. Where some competitors hesitate, SAS invests in large data center farms, an investment spanning over many years, building up its cloud and grid strategy, which may reap rewards longer term. SAS releases newer incarnations of its BI and analytic software when the company feels it's ready and not when the market or competitive pressures mandate them. SAS has established a direct presence in international and emerging markets more aggressively and broadly than any of its peers of best of breeds dared to do. Today, 63% of sales are represented by international sales, outside of North America. That global scale can be matched only by the software giants today, and it provides a natural hedge against economic woes in the U.S. and Europe. As with most things, there is a flip side to being a privately held company. Most notably, it raises questions on how reactive and nimble a company is to changes in its external environment. So far, this has not been an issue, but if SAS chooses to not absorb ongoing market impacts quickly enough, it runs the risk of becoming insular and unable to react when it really needs to. The ownership structure raises questions on how top heavy the management process is, and whether it encourages dynamic creative thinking and new ideas often enough.

Pricing Model Reduces Barrier to Adoption and Fosters Predictable Revenue Stream SAS's unique pricing model can be considered both a strength and a weakness, but it is a defining reason for the company's success. From the vendor's point of view, the pricing model has enabled SAS to prosper the way it has. Among end users and customers of SAS, however, Gartner has heard a more mixed reaction, with some finding the model expensive over time. SAS customers "lease" the product by paying a Year 1 license fee and then a recurring annuity for as long as they use the product. If the user decides to stop paying that annuity, the software is switched off. Within that framework, SAS offers a variety of creative pricing models; for example, a valuebased pricing model, in which the revenue of the client — and the benefits derived — is calculated in the pricing. Overall, roughly half the deals are negotiated in some way, especially in multiyear government contracts. In short, SAS sells once and then sees relatively high renewal fees continue to roll in — providing that the customer is happy enough with the product to keep paying for it. These recurring subscription fees from customers make up roughly 70% of SAS's revenue, and they have been a key enabler of SAS's profitability and growth. The pricing structure also provides good visibility into future cash flows, allowing the company to steer investments accordingly. SAS's leasing model enables customers to choose whether the purchase should show up as an operational expenditure as opposed to a capital expenditure, and in some cases, this eliminates a barrier of entry into organizations with capex spending cuts. However, this is

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 9 of 26

counterbalanced by the reputation the vendor holds in some quarters (such as in procurement) that the pricing model can be expensive over time. Historically, Gartner has received a fair number of inquiries from SAS customers worried that they do not have perpetual use rights. But as software as a service (SaaS) becomes more prevalent, the industry is becoming more accustomed to nonperpetual use rights and starting to embrace the subscription licensing model more, which is making SAS less of an "oddball." Effectively, the lack of perpetual use rights in a subscription-based model versus the traditional license-plusmaintenance model is really about negotiating power. Customers not having perpetual use rights give power to SAS in negotiations.

Wide and Passionate User Base Over the decades, Base SAS has evolved into being the dominant language for creating advanced analytic applications. There are alternatives emerging now; most notably, the opensource R Project (see the Threats section for further discussion). But SAS most likely has access to the widest range of statistical analyst skills in the industry, and many people have built their careers on programming in Base SAS. In many places in the world, the ecosystem of developers and statisticians hasn't wanted to touch anything other than SAS, leading to companies choosing SAS for analytics since they know there will be a bigger talent pool available either by hiring SASknowledgeable resources or through the availability of trained consultants. More importantly, companies with a large pool of SAS programmers know they can't switch to another statistical programming language. Whether this dynamic will remain, especially since IBM is flooding the market with consultants, is open to question. Many advanced SAS users have staked their careers on the vendor's success and are hence extremely loyal, and they become strong advocates for adopting the software when they move into new positions and organizations. With a heritage in academia, SAS recognized early on that, for the regeneration of skills, it needs to be very active at universities. This has enabled the vendor to claim a major portion of talented graduates in countries as wide ranging as Denmark, South Africa and India. SAS has reinvigorated its free software programs for academia, now expanded beyond teaching staff to also include university students. However, R continues to gain traction in higher education, and it poses an alternative. In short, while SAS's dominance in analytic skills is a major strength, it is arguably a diminishing one. SAS is readjusting to a "new normal" in which competition for mind share among new users is tougher. From a customer perspective, Gartner BI platform Magic Quadrant reference surveys show that SAS customers are particularly happy with the sales relationship and with the customer and product support they receive.

Deep Penetration in Accounts With High Switch-Out Costs As a related point to the previous strength, once SAS Analytics is deployed and used in missioncritical scenarios, it is very difficult to displace. Gartner has heard of numerous cases in which the procurement people want to explore alternatives to SAS because they feel it's too expensive, but they can't, because the statisticians in the organization have been working in SAS for 20 years. But this goes beyond the access to skills. As mentioned, the product leasing model requires that the annual fees be paid; if not, the software will be switched off. That's quite a bit different from software with a perpetual license model where, if a customer chooses to cancel the maintenance and support contract, the software will not be deactivated. However, it is rare that traditional perpetual maintenance is not renewed, so the main difference is SAS's added negotiating power. To be able to maintain this dynamic, SAS clearly has to deliver value that others struggle to deliver, and many organizations want to avoid changing SAS for custom development or ripping it out. Customers often say that the extraction, transformation and loading data processes are so embedded into the IT organization that switching them out would be a major undertaking. Hence, Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 10 of 26

what SAS provides is considered very difficult to replace, and few vendors have yet been deemed a credible enough alternative. But growing exposure from other vendors is forcing SAS to compete for the first time, which could dilute this strength if the vendor doesn't maintain its value edge.

SAS Culture Attracts and Retains Employees This is a corporate strength, but it is also important enough to have repercussions on the performance of SAS's BI and analytics area. The SAS way of treating employees gives the company an abundance of goodwill extending far beyond its corporate walls. SAS continues to win awards globally for being a most excellent employer. Headquarters and offices are often in premium properties, and the company offers its employees subsidized healthcare, gyms, day care and a philosophy of work-life balance. During the dot-com boom, SAS considered an initial public offering (IPO) to attract the best and brightest talent at the time to enable stock options, but the SAS culture seems to have triumphed. Today, SAS has one of the lowest employee attrition rates in the industry, with decades of experience in its seasoned and skilled staff. This adds consistency, and SAS does not have the high turnover problems faced by some of its competitors. If a negative has to be identified in this, it is that the loyalty, benefits and low attrition rates could create a "yes saying" organization, with not enough new blood and critical thinking coming in to shake things up.

Weaknesses Weight of Own Portfolio Stifles Net-New Innovation SAS reinvests a staggering 23% of top-line revenue into R&D — higher than most (if not all) of its peers in the industry. SAS has nearly 3,000 people, mostly at its sprawling campus in Cary, North Carolina, working on R&D. Over many decades, the company has developed a wide portfolio of products and applications, as described earlier. On their own, these facts highlight some of the company's greatest strengths. However, the sheer magnitude of maintaining that existing portfolio and supporting large numbers of customers takes up huge amounts of capital — both human and financial — and prompts the concern as to how much is left for net-new innovation. The company's strong engineering culture influences its merger and acquisition activities. While SAS has acquired software in the past five years, it has been more cautious than some competitors. SAS has taken one side of the great software debate of the 21st century, believing that keeping the foundational code consistent and rearchitecting vertical acquisitions on that foundation is the way forward over an acquisitive model. The downside of this is that its "not invented here" aversion has limited the company from pursuing inorganic growth. Another reason for being restrictive can also be that some companies that SAS could acquire as best-of-breed solutions in hot markets are looking for a big IPO payout that SAS, as a private company, may not match. This relegates opportunity to vendors that are not going to make it to an IPO and that need an exit strategy. Current examples of SAS's net-new focus areas of innovation include social-media monitoring and high-performance computing. While these initiatives are exciting opportunities, it's somewhat underwhelming for a company with so much R&D resources at its disposal. For example, there are no stated plans for collaborative decision making, while other competitors are aggressively pursuing it. The company would do well to optimize product update cycles so that more resources can be allocated to net-new, business-expanding innovation. In addition, "opening up the wallet" for acquisitions could fast-track the vendor into being a more credible alternative to the stack vendors in a time of consolidation.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 11 of 26

Core BI Product Is a Follower, Not a Leader SAS was late in delivering core BI capabilities (query, reporting, analysis, dashboarding, etc.) with its statistics and analytics platform. While improvements have been made in recent years, the products have not fully caught up with those of other leaders in the BI platform area (see Figure 4 for 2009 BI platform market share). According to Gartner BI platform Magic Quadrant reference surveys, SAS scores lower than average on dashboards, infrastructure (security, metadata and administration), production, and parameterized reporting capabilities and usability. Moreover, its OLAP Server is threatened by the in-memory analytic trend. For a deeper dive into BI platform product functionality, see "Critical Capabilities for Business Intelligence Reporting" and "BI Platforms User Survey, 2010: Customers Rate their BI Platform Functionality." Gartner's experience is that SAS rarely appears on shortlists for core BI functions. Frankly, it is unusual that SAS is in the running at all with the IT-centric customers whom Gartner analysts speak to. Although SAS can deliver these capabilities, customers with low-complexity BI requirements rarely consider SAS as a potential supplier. This is a weakness worthy of a disclaimer: SAS's go-to-market strategy is rarely to lead with its core BI product (SAS Enterprise BI Server) on its own, unlike other providers, such as MicroStrategy. Instead, SAS leads with content-driven and/or industry solutions/analytics with core BI added on. SAS's perspective is that core BI is yet another component of a rich analytic stack that also includes applications, data integration and storage. The company's inability to meet buyers where they're coming from (core BI, for example) blocks SAS from competing in deals that it might be able to win. In 2009, global market numbers showed stronger growth for overall BI platform revenue (not just SAS) than for analytic applications, indicating a continued preference in some camps for build over buy. While SAS has always led with a solution-based approach, key competitors are committed to building out their own analytic applications during 2010 and competing with SAS on its home turf. The company would do well to make it strategic priority to improve SAS Enterprise BI Server to be more competitive as a stand-alone product. Figure 4. BI Platform Market Share, 2009

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 12 of 26

Source: Gartner (November 2010)

Unproven Alliances and Partnerships While SAS is in the midst of executing several very big and promising programs, its past track record of patchy and unconvincing alliances and partnerships makes this a weakness until proved otherwise. SAS often has not sustained and nurtured established partnerships as best as it could. The SAS executive responsible for alliances recently announced that SAS has gone from "… partnering when necessary to partnering for competitive advantage." An increasingly ecosystemcentric IT environment has forced a change in mind-set for SAS. The company is now pouring money into partnership initiatives, which has also resulted in some sales gains. Out of new software revenue of roughly $500 million in 2009, 24% came from alliances and channels, up from 18% in 2008. The goal is to derive 30% of new revenue from partners in the next two years. There are several initiatives in the pipeline expected to drive this improvement. Two stand out as especially strategic to the company — the in-database initiative with data management and appliance vendors, and the software/service partnership with Accenture (the Accenture SAS Analytics Group). For further information on these, see the Opportunities section.

Underperforming Midmarket Strategy SAS has always targeted larger organizations, with a particular focus on financial services organizations. Gartner estimates that only one-tenth of SAS revenue comes from organizations with fewer than 1,000 employees, while only one-sixth comes from resellers/value-added resellers. In the past four years, SAS has been trying to reach new users and brands in the midmarket through dedicated in-house local sales capabilities, hand in hand with a small and midsize business (SMB) partner program. This approach was not an out-and-out success, so now the company is trying to refocus its resources, targeting four or five bigger countries more strongly, and trying to reach critical mass of lead generation and a viable-enough ecosystem of partners in those countries to yield sufficient results. In particular, SAS is trying to mimic Microsoft's channel model as much as possible, where partners do virtually all the legwork. But much more work needs to be done for SAS to become a credible choice for the midmarket.

Need to Address a Reputation of Being "Expensive" There are two biases buyers often state when initially discussing SAS: (1)"SAS is expensive"; and (2) "SAS is difficult to use." While some have come to that conclusion after product evaluation or use, others state these biases without any concrete justification. Regarding costs, there are two sides to the discussion. SAS's pricing model has served the company well and contributed to its becoming the largest privately held software company in the world. SAS (and Gartner, in this document) believes its pricing model is a strength. However, buyers don't always understand how SAS prices its products. Many are accustomed to a traditional perpetual software model (an upfront license plus an 18% to 22% maintenance fee per year, etc.) and perceive that the SAS model is expensive. For those that do opt for SAS products, there is often "payment fatigue" that kicks in somewhere between Year 3 and Year 5 of the contract. This causes a lot of grumbling from check signers who are looking for a way to cap their expenditure on SAS software. But they realize that, if they choose not to renew, the software will no longer work. So far, however, most users deem the opportunity cost of creating custom code for similar functionality or sourcing from elsewhere as a nonstarter. Hence, as competition intensifies, SAS needs to keep providing an emphatic answer to the question, "Why are we paying so much for this stuff?"

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 13 of 26

Must Overcome a Reputation of Being "Difficult to Use" At best, the company is at parity for usability with other BI and analytics vendors, while in other areas, the company lags behind the competition. This reputation is difficult to shed, and SAS scored below average in the 2010 BI platform Magic Quadrant reference survey. In its defense, SAS has improved in terms of flash-based interfaces and dashboards, and it deserves credit for that. The company is also pushing JMP, its data visualization product, as an add-on in BI sales, allowing sandbox modeling and a data discovery environment for the statistically inclined business analyst "below" the advanced statistician. The company would do well to continue trying to reach downstream in the area of usability to reach a wider constituency of users, as well as to bridge the gap to the largest extent possible between advanced functionality and normal information consumption and dissemination. Gartner maintains that an acquisition of a leadingedge data discovery tool known for its user-friendliness is something that SAS should look at (see the Opportunities section).

Opportunities In-Database Analytics as a Way Into New Accounts There are benefits in being able to mine directly in the database. A practical example in the financial sector is risk and stress-testing simulations that are becoming much-more granular — sometimes by customers. Calculations like that can now be done without moving data out of the database. The opportunity should be biggest in data-intensive vertical sectors, such as retail, financial services and telecommunications. SAS announced a partnership with Teradata in 2008 with the aim of SAS data management and analytic functions integrating better in Teradata environments. Most traction has been in joint Teradata and SAS accounts. SAS claims that it has led to large deals that the company would not have been able to close had it not been for the in-database initiative. While the Teradata partnership gets refined, the intent is for the initiative to be extended to other data warehouse vendors and products, such as Oracle Exadata, HP, Netezza (now part of IBM), IBM DB2, Greenplum (now EMC) and Aster Data. Work with Netezza and IBM DB2 is complete, and Aster Data is still in process. Further opportunity could exist in extending the initiative to columnar database vendors, such as Sybase (now part of SAP) and Vertica. Gartner has learned that the only data warehouse vendors not involved in a partnership dialogue with SAS are Microsoft SQL Server and IBM Informix. SAS sees this as a major pillar to strengthen in the next few years. While in-database analytics have the potential to grow into a commercial success for SAS, the main benefit is in how it helps the company in positioning. It shows that SAS wants to be a serious augmentation to the four main software stacks (Microsoft, IBM, SAP and Oracle), acquiring customers looking for best-ofbreed rather than stack-centric analytics. From a sales and go-to-market perspective, SAS is expecting this to be a door opener into large IT-centric enterprise deals were it wasn't present before. Unfortunately for SAS, while this initiative has expanded, it has been disrupted by a massive wave of market changes, mergers, acquisitions and consolidation currently hitting the data warehouse and appliance market, which raises some concerns. How much will HP continue to strategically support Neoview after the departure of CEO Mark Hurd? Now that IBM has acquired SPSS, will Netezza close the partnership with SAS and replace it with SPSS? Will SAP (Sybase) and EMC (Greenplum) change the strategic direction of their data warehouse appliances as the acquisitions are digested? What happens if Teradata is acquired? These are all realistic scenarios that SAS needs contingency plans for.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 14 of 26

Explore Acquisitions and Deeper Partnerships There is a lot to be said for having consistent development teams and organically grown technology like SAS has. But in its current position, SAS should explore whether a more open acquisition policy could enable the company to improve on what it does in BI. In this way, SAS could get away from the "not invented here" syndrome and also explore new avenues, minimizing the risk of being boxed in as a specialist in a marketplace coming under increased pressure. To date, SAS has focused mainly on smaller tuck-in acquisitions to further its domain expertise. But SAS has the muscle for more since it has an extremely healthy balance sheet, with no debt, and an annuity pricing model that continues to generate cash flow from the installed base. In the short term, global macroeconomic and financial worries may work to SAS's advantage, if the company acts in a contrarian way (i.e., buying when others are cautious). With no external investors to satisfy and the value of acquisition targets and availability of venture capital funding limited in the wider market, SAS is in a strong position to make a series of targeted acquisitions to further its scope in BI and analytics. Alternatively, where acquisition is not deemed a credible option, deeper partnership opportunities in the same area should be explored. Areas for SAS to consider include the following: Easier-to-use tools — To address the issue of usability, SAS would need a way to reach wider constituencies that have shunned or not had the opportunity to work with SAS previously. Currently, light-footprint data discovery tools ("analytics light") with inmemory functionality are spreading throughout business units, reaching new users or old users disillusioned with the canned reports that IT provides them. Vendors playing in this space are QlikTech, Tableau, Tibco Spotfire, Targit, LogiXML and a number of SaaS vendors. In addition, many large vendors are addressing the data discovery space to win the battle for the desktop, with Microsoft PowerPivot, Cognos Express, SAP Business Analytic Engine and other organic initiatives under development. SAS has JMP for high-end rapid prototyping and visualization, but it is not filling the perceived usability gap. A lower-end data discovery tool could fill some real or perceived shortcomings of SAS in one swoop. A new front end wouldn't undermine a tightly integrated SAS analytic stack underneath. If the gaps outlined in Table 1 were filled, it would open up possibilities in a new constituency of users that could be upsold to other SAS tools. Table 1. Gap Analysis: SAS Versus Visual Front-End Tools SAS

Visual Front End

Reaches high-end analytic users

Reaches low-end analytic users

Perception of being difficult to use

Perceived as being easy to use

Perceived to be for specialists

Can spread virally

Enterprise-scale infrastructure and data management

In-memory

High-end visualization in JMP

Low-end analytic visualization

Mainly in large enterprises

SMBs

Has a large installed base

Reaches new customers

Source: Gartner (November 2010)

Business rule/business process management system — IBM now owns SPSS and Ilog, so it can combine predictive analytics with business rules. Potentially, SAS might need to reach parity in this area.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 15 of 26

Specialist intellectual property (IP) in combination with industry analytic services — SAS has been fairly active in the area of buying industry IP for vertical analytic scenarios. This should be continued. A major channel to distribute that IP and put it to work would be to partner with or acquire what Gartner calls "industry analytic services" — specifically, data aggregators. SAS could host and distribute the data on its grid. Industry analytic services are already subscription-based, fitting SAS's pricing model. Some big data content providers, such as Google, Nielsen, Thomson Reuters and IMS Health, are too big to acquire, but they should be partnered with. Smaller industry analytic services, such as Moneris, Aviation Research and CoreLogic, may be morefeasible acquisition targets. Analytic business process outsourcer (BPO), in India or elsewhere — There are several up-and-coming firms, especially in India, prepared to partially or wholly take over the analytic process (see "Dataquest Insight: BI Platform Vendors Should Add Analytics BPO Vendors to Their Overall Channel Strategy"). It is emerging as another alternative that could fill the gap between what advanced analytics can do and the lack of skills (e.g., statisticians, modelers, mathematicians) available inside organizations. A small but growing number of enterprises in the U.S., Europe and emerging markets are outsourcing analytics to offshore vendors. Many of these analytic BPOs work with SAS tools today. Acquiring one of these, or at least setting up strong formal alliances, would allow reach into less-resource-intensive companies — SMBs and others — looking to solve analytic problems, especially in emerging markets. Mobile BI — With the rapidly increasing mobility of the workforce, mobile BI is a new, or rather renewed, focus area for BI vendors. While there are very few customer deployments today, new form factor devices (such as the Apple iPad and Samsung Galaxy Tab) and the wide variety of smartphones could change this scenario very rapidly. SAS should consider how to leapfrog into becoming a leader in mobile analytics.

Widen On-Demand and Managed Analytic Offering SAP is possibly the leader among established vendors in BI and analytics on-demand, slowly pushing the SaaS cart forward, without gaining too much traction. And no startup on-demand vendor in the space has managed to grow beyond $10 million in annual revenue. So the opportunity is immense for a strong vendor to take the leadership position. Because of its business model, SAS can look at a five-year horizon, whereas publicly traded companies might chase the money shorter term or be concerned about protecting their acquired investments. SAS has a golden opportunity to position itself for a future that is increasingly moving to cloud, and the company should ramp up its messaging around it: Private clouds/high-performance algorithms — Private cloud investment with a big data center is ongoing. SAS should "take the baton" and become the leader for extremely advanced mathematical calculations that need very strong processing power and highperformance computing. Examples could be NASA-type calculations, calculations of volcanic ash cloud movements and weather forecasting. An arsenal of high-end hardware, combined with the mathematical expertise SAS is sitting on, could enable the company to host these problems, which in turn could open up high-margin consulting opportunities. Analytic managed services — In addition to its software platform and hardware infrastructure, SAS also holds a treasure trove of intellectual capital on how best to implement and run an analytics competency. The company could consider selling its inherent expertise to clients as a managed service.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 16 of 26

Analytic applications on demand — SAS's model of domain-specific packaged solutions could be tailor-made for SaaS, and these solutions should be sold this way when possible. Reporting, data mining and SAS JMP could also be sold this way. This would allow SAS to short-circuit the analytic service providers that are trying to deliver as an outsourced service. SAS also has an opportunity to take leadership in emerging cloud analytics for social-software analytics, leveraging its core algorithms and text analytic capabilities. Hosting a development environment for mobile/consumer analytic applications, where external developers are invited to create applications.

Software Partnerships While SAS has started the process of linking up with software firms on the infrastructure front, primarily with database management system vendors, it should also consider aggressive partnerships on the software application front — specifically, with providers with strong presence in key industries. By componentizing its analytic engines into other vendors' products, SAS could open up a whole new OEM channel. Two-thirds of business applications sold globally are still non-SAP or non-Oracle, and linking up with more-niche application vendors is one opportunity. However, SAS should also look at partnering closer with the "megavendors." Increasing megavendor dominance both from a supply perspective (through mergers, acquisitions and organic growth) and a demand perspective (through standardization projects and "strategic sourcing") is a reality today that SAS must deal with. Hence, deeper partnerships with the application giants should be considered, and the opportunity is now. Both SAP and Oracle lack SAS's depth in analytics, and after IBM's acquisition of SPSS, SAP and Oracle industry applications could make interesting hosts. The large vendors are increasingly trying to power analytics in the context of the application. Incumbent on them is the opportunity to realize what they are missing in content and context. For predictive workbenches, SAP had an OEM with KXEN and then SPSS (resold as SAP BusinessObjects Predictive Workbench). SAP might one day look for another partner, given that SPSS has been acquired by IBM (having said that, SAP recently recommitted its partnership with SPSS). SAS could also help fill gaps in Oracle's analytic and performance management stories. If SAS would link up much more closely with megavendors, some nervousness about IBM as a competitor would be quelled. However, this has to be carefully balanced so that the current revenue streams of the stand-alone analytic applications, as well as the ensuing upselling opportunities of underlying infrastructure, are not too cannibalized.

Service Partnerships SAS was never known for showing a great deal of interest in maintaining alliances with system integrators and other professional services organizations. Competitive pressures have changed that. The model of having a team of statisticians in-house that are thrown complex data structures, who then come up with insights, is complemented by an emerging opportunity for managed services. SAS is in a prime position for creating formal partnerships with service delivery organizations that consider analytics an important growth market. The most prominent relationship SAS has today is with Accenture. The two companies have formed a "virtual joint venture" into which SAS is investing tens of millions of dollars in the next few years. It is still too early to recognize any significant momentum, but the marketing machine is already in full swing. If this alliance goes well, SAS should start growing its system integrator network.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 17 of 26

Currently, there are a number of consultancies and integrators in the starting blocks of investing in analytic practices. PricewaterhouseCoopers is getting back into the game, after its year-long noncompete agreement has run out after selling the spinoff to IBM. KPMG has started to rebuild its BI practice as well, although it must be considered to be relatively weak. Deloitte is launching an analytic practice, but it doesn't want to commit to a software partner. There are several analytic offshoots under construction, and SAS will be "invited to the dance" because of all its strengths. Some service providers officially claim that, being service firms, they don't have to pick a platform. Many of them are taking a page from the IBM book, not recognizing that they need a software platform to do so. When they come to that realization, SAS will have an opportunity to put this need at the center of its growth strategy. SAS should also explore ways of partnering with BPOs as described earlier in the Explore Acquisitions and Deeper Partnerships subsection. SAS is also modifying its channels program to reach SMBs, as discussed previously.

Give Away Portions of the BI Platform Competition in the BI platform market is heating up significantly, and increasingly unorthodox measures are required to maintain or grow share in this space. Currently, SAS struggles to compete well in the BI platform space with only SAS Enterprise BI Server. SAS should explore the possibility of giving away a restricted BI server license (e.g., limited by CPU, server or number of users) to a limited amount of (or all) users; in this way, it would add pressure and kill off some competition. But more importantly, it would increase SAS's visibility in IT. MicroStrategy did something similar when it needed to enter departmental scenarios. However, whether this has been successful is still open to question. SAS could also consider the actions of Microsoft, which gave away BI functionality to boost its SQL Server, SharePoint and Office sales. This approach would spread SAS out into more places, especially in the IT department, where its domainspecific expertise and more-interesting analytic scenarios could be monetized afterward, sanctioned by IT. It would also disrupt ongoing BI standardization efforts, where the megavendors often look set to win. If SAS truly believes that analytics drives BI adoption, removing another barrier to deployment could work to its benefit, while boxing out competitors who believe the opposite. It should be accompanied by a marketing campaign for it to make a significant impact on the industry.

Upcoming Governance, Risk and Regulatory Activities Postfinancial crisis, the rhetoric from politicians has hardened, laying the ground for expanded global, countrywide and regionwide regulation. Few vendors could match the know-how SAS has to address these varying needs. Due to its broad portfolio of horizontal and industry-specific analytic applications, SAS is currently seen as a front-running candidate for addressing regulatory requirements in a host of domains; it quickly became the standard for Basel II compliance requirements, which turned out to be a success and a "cash cow," and it gave SAS deeper reach into financial services organizations in Europe. Basel III is currently being discussed, and if requirements turn out to be stringent and mandatory, SAS may tap into another rich vein. In education, the No Child Left Behind Act in the U.S. could be modified to predict student performance. Solvency II for insurance, the Health Insurance Portability and Accountability Act in the healthcare sector, and XBRL for financial reporting are other opportunities SAS is currently pursuing. In short, governance, risk and regulatory activities are a big growth opportunity for SAS.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 18 of 26

Threats Stronger Competition Will Threaten SAS's Dominance The competitive landscape can sometimes be redrawn quickly. The market for BI, analytics and performance management is not the same as it was two to three years ago, and many vendors now have a broader definition of what it contains, in line with Gartner's framework (see "Gartner's Business Intelligence, Analytics and Performance Management Framework"). SAS has to face a new world order in which it: (1) no longer benefits from the near-monopolistic position in analytics it had in the past; and (2) is coming under increased pressure in the traditional BI domain. IBM While several vendors are homing in on analytics, IBM deserves a separate mention, and it is coming at SAS from all angles, both from a product and service perspective. In 2009, IBM announced a deeper partnership with SPSS, together with the formation of an analytics unit within the IBM Global Services arm called Business Analytics and Optimization, with an allocated consultancy head count of 8,000 by the end of 2010. IBM saw a gap in the market and filled it by offering analytics as a managed service. Shortly afterward, IBM acquired SPSS, which was SAS's only large competitor in statistical analytics. IBM can multiply the number of "feet on the street" promoting and selling SPSS. Add to that Cognos, DB2, Ilog, Netezza, Clarity Systems and various acquisitions in data integration and master data management, and SAS has a formidable, much-bigger competitor that is able to attack on many fronts. Other Megavendors So far, the other stack vendors have focused on refining their value proposals in the BI platform and performance management domains. An increasing push from the demand (IT) and supply (megavendors) side to standardize on one or a few suppliers in BI puts SAS under further pressure in BI-platform-selling scenarios. IBM's efforts in analytics have not yet been matched by the other stack vendors. Microsoft has added rudimentary data mining functionality in SQL Server and even into Excel. This may be good enough for many organizations in the midmarket, for people who don't understand what SAS does or who believe SAS would be overkill for their requirements. SAP is working on realtime in-memory analytics, where predictive modeling can eventually be a very powerful add-on should SAP choose to pursue that. SAP is also continuing its OEM agreement with IBM-SPSS as the BusinessObjects Predictive Workbench. Oracle, meanwhile, has a data mining option embedded in its database. Other Independent Software Vendors Tibco is starting to build an increasingly powerful story, following its acquisition of Insightful. MicroStrategy is also building more of a data mining story. Information Builders has embedded R into its platform. R-based analytics can easily be embedded by many independent vendors, providing a potentially flatter playing field for advanced analytics going forward. While the number of these types of competitors might be multiplying, the good news for SAS is that there are currently few analytics vendors left to acquire for major vendors that would want to dent SAS's proposition: KXEN, Angoss, StatSoft and Fuzzy Logix are a few of the smaller independent vendors. SAS Knockoffs While there never was a serious threat involving the proprietary SAS language, a small U.K. company named World Programming System (WPS) was an ongoing irritant to SAS by providing

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 19 of 26

a SAS interpreter. Needless to say, WPS doesn't have SAS's blessing; in fact, in November 2009, SAS took action and sued WPS for copyright infringement. After the ruling in July 2010, the legal battle was followed by a PR battle, and the case is now in the hands of the European Court of Justice. Whatever the outcome, SAS has pulled WPS — a company previously not well-known — into the spotlight.

Small Proportion of Sales Into Net-New Accounts Threatens Long-Term Revenue Regeneration Gartner estimates that roughly one-fourth of SAS's software revenue is new software sales. Out of that proportion of new sales, most reach into adjacent user constituencies in existing accounts, or through upgrading/renegotiating an existing agreement, and are booked as new sales. Hence, the proportion of new sales into net-new accounts outside the installed base is small, probably significantly less than 10% of software revenue. This could mean missed opportunities in evolving demographics, such as growing midmarket companies and new vertical areas. SAS's ability to get into new accounts is hampered due to the factors already mentioned, such as a midmarket strategy that has yet to take off, negative perceptions of total cost of ownership and ease of use, a partner and alliance program still under construction, and increased concentration around sourcing from megavendors. SAS is also focusing more on winning the big-enterprise sale, which it will target through the reformation of its sales force and by working more closely with, in particular, Accenture and Teradata as strategic partners. But in an IT landscape in which many organizations increasingly focus their IT procurement on one or a few strategic vendors, the window of opportunity is narrowing. On the upside, SAS has a customer base of more than 19,000 unique brands. SAS's strategy is to expand its footprint in current customers where there is opportunity. This costs less for SAS than acquiring new customers.

Unclear Succession Plan This is not a question that SAS likes to address publicly. However, while most customers of SAS do not spend much time worrying about SAS's leadership structure, others are seeking confidence that SAS will remain a stable provider of software and solutions, driven by a clear management succession strategy. Since the company is largely owned by people close to retirement age, Gartner clients are wondering what would happen if Dr. Goodnight steps down as CEO, since there is no apparent CEO-in-waiting. SAS has assured Gartner that it has an internal contingency plan, but questions about the company's future leadership remain a longer-term threat as long as they're not emphatically answered. Competitors highlight this issue, while buyers remain sensitive to each vendor's long-term viability. The succession of ownership also remains a question mark; Gartner expects SAS will be transferred into some kind of trust fund since the current owners show no apparent interest in selling the company. A trust fund would allow SAS to preserve its unique culture. Dr. Goodnight is already one of the richest people in the world. We assume he'd want to keep his legacy intact as much as possible.

Possibility of Acquisition of SAS As per the previous point, we do not find it likely that SAS will be acquired in the near or medium term — that is, in the next five years. The owners have made their fortunes, and they are most likely concerned about maintaining the culture and character they have built and nurtured through the years. Large, publicly traded companies might hesitate from considering acquiring SAS since it would be difficult to digest the complex setup, overhead and (not least) pricing structure that

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 20 of 26

SAS currently has. Also, due to the company's sheer size, potential acquirers are few and far between anyway. IBM should be ruled out as a suitor, after having acquired SPSS, and Microsoft would be an unnatural home for SAS. However, HP could go for it, if its ambitions were high enough to expand beyond the Neoview data warehouse platform into the BI and analytics markets. Oracle could also look at SAS as a way to meet IBM head-to-head in the high-end analytics space. Finally, Teradata and SAS could attempt a merger if the two companies continue integrating with each other's portfolios (see "Future Acquisitions in the Business Intelligence Market: A Hypothesis"). Beyond these, it is difficult to identify clear candidates that could put up the multiple billions of dollars it would take to acquire SAS. If it were to happen, SAS customers would most likely deal with disruption in licensing models and road maps. An acquisition could also seriously disrupt SAS's culture (which is one of the company's strengths). Again, at this point, the owners of SAS show no apparent interest in selling the company. However, it would be foolish to discard the possibility of acquisition completely.

R Programming Language Cuts Into Base SAS Dominance One threat posed by the analytic open-source programming language R is that independent software vendors can now add and develop their own analytic functionality and products. Vendors like Information Builders are already leveraging R. A potentially large number of specialist software vendors will also leverage the capabilities of R to build out analytic applications for a wide variety of industries, possibly directly competing with SAS's industry solutions. R has been growing out of traditional academia circles. While Base SAS has been the dominant statistical analysis language for decades, the R Project is becoming an increased threat in terms of recruiting new talent in statistics. Along with R, Base SAS programming is now only one of many skills sets that graduates will look to fill. SAS has reacted by enabling compatibility with R in SAS/IML and JMP. The company is also giving away SAS tools for free to university teaching staff and students, but it remains to be seen how effective this is to pushing R back.

Analytics Embedded Into Applications Market perception of SAS as an analytic leader should be secure for a while. But SAS isn't embedded well in third-party applications. Today, SAS applications drive the analytic process, but they don't provide analytics in the transaction process. While the threat is small now, it is increasing in magnitude as enterprise application providers aggressively embed analytics in their systems. For example, Oracle BI Applications provide analysis, metrics and reporting in context to more than 10 business process areas. Analytics will be an integral part of Oracle's upcoming Fusion applications, virtually eliminating the boundary between transaction capture and business analysis. SAP also has an outspoken strategy of more closely embedding BI into the transactional application. We expect more-integrated analytics to be delivered with applications going forward. See further discussion of this in the Software Partnerships subsection of Opportunities. Today, some SAS sweet spots, such as anti-money-laundering, fraud detection and price optimization, are not supplied by enterprise application vendors. Longer term, however, they could encroach more on SAS's space. The megavendors have lots of money. They just keep building out, and eventually they could catch up.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 21 of 26

Outsourced Analytics Apart from IBM and other system integrators increasingly providing analytics as a managed service, there is movement among vertical content owners (Thomson Reuters, Nielsen, etc.) and/or service providers in low-cost economies (such as India) that are willing to take on the entire analytic process. When tolerance increases on the end-user side for outsourcing analytics, then this threat will be increasingly potent. The maturity of analytic BPOs could affect SAS's selling model and cause a possible shift in buying centers. There are two key drivers for outsourcing analytics: Businesses seeking to reduce the cost of analysis by skipping the need to buy BI infrastructure and invest in training Businesses seeking to focus on their core business and facing the constant need to evaluate whether they are deploying their capital correctly This threat is small today, but if enterprises start evaluating analytic outsourcers en masse, SAS will have a considerable challenge because the playing field will become broader, and clients will often either demand lower prices or fees based on outcome. SAS should explore ways of working with analytic outsourcers.

Becoming Known Only as a Specialist in an Era of Consolidation With competition coming at SAS from all angles, the company could be pushed into a corner where it becomes known only as a specialist for advanced analytics, not for a full range of BI, analytics, performance management and information infrastructure capabilities. This is a threat to the company's potential growth. The competitive landscape has changed significantly in the past few years. The emergence of megavendors has meant that BI, analytics, performance management and information infrastructure capabilities can be and are sold in concert with other assets — transaction applications, productivity suites, databases, business services, etc. — making a pure-play provider like SAS vulnerable to massive procurement contracts that include possibilities for favorable prices. SAS is currently partnering and building a dedicated organization to support a more-enterprisewide consultative type of sale to fend off this threat. It will be a challenge to earn that credibility higher up in the corporate hierarchies. This effort needs to be accompanied by a massive brand campaign to etch the SAS brand into everyone's consciousness, along with the other "big gun" vendors in IT. SAS's reputation as a top employer in the U.S. is one thing that could be leveraged to build the brand outside the company's narrow analytics area of expertise.

Implication for SAS Institute The market is moving in SAS's direction, which is proving to be both a challenge and an opportunity. The total addressable market will grow as many more vendors promote the benefits of analytics, while more people educate themselves on how to fulfill those needs. In many facets of analytics, SAS is the leader, and it can hence profit from the growing opportunity. SAS's challenge lies in defending its leadership when vendors with much-more revenue encroach on the space, while at the same time R Project opens the floodgates from below. SAS must become nimbler and needs to: Optimize the development life cycle of its existing and upcoming product sets to allow a larger portion out of every invested dollar in R&D to go into net-new investment to maximize innovation.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 22 of 26

Carefully assess to what extent SAS analytics can be opened up and embedded in other ecosystems without cannibalization of its own ecosystem. The in-database initiative is going a long way toward addressing this. Can the same be replicated in applications? The centralization of many end-user organizations toward the stack is a strong force that SAS needs to address. Use its strong cash position to accelerate acquisitions, with the objective of addressing perceived weak spots, broadening the scope of value it can offer to customers, and avoiding being boxed into a corner as a specialist when consolidation is happening both on the supply and demand side. Take advantage of being the leader in analytics when many service providers are ramping up their analytic initiatives. Use its unique position of being able to work toward leadership in areas that are small but emerging and disruptive longer term — such as being the comprehensive provider of domain-specific analytics on demand and high-performance computing algorithms.

Company Overview SAS Institute was founded in 1976 in Cary, North Carolina, where the company still maintains its headquarters on a massive and sprawling campus. Two of the original founders, Dr. Jim Goodnight and John Sall, are still active in running the company. Since its inception, SAS has had more than 30 years of uninterrupted growth. Revenue in 2009 reached $2.3 billion, making it the biggest privately held software company in the world. Gartner's revenue breakdown estimates are shown in Figure 5. The bar to the right shows how SAS's BI revenue, subject to scrutiny in this note, break down. Figure 5. SAS Institute Revenue Breakdown, 2009 (Millions of Dollars)

Source: Gartner (November (2010)

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 23 of 26

SAS revenue and market share splits are shown in Table 2. SAS has the strongest position in EMEA, where it maintains a combined 17% market share, outsized only by SAP. But SAS has a very good geographic mix and a strong position in most regions, ensuring some hedging against potential regional downturns and currency fluctuations. Table 2. SAS Institute Revenue and Market Share by Region, 2009 Revenue ($M) 2009

Revenue Growth (%) 2008-2009

Market Share (%) 2009

North America

521.9

7.6

12

Latin America

44.0

-4.8

14

Western Europe

545.7

-1.8

17

Eastern Europe

45.6

35.7

18

Middle East and Africa

28.3

22.4

17

104.9

-4.6

15

34.2

4.2

9

1,324.6

3.0

14

Asia/Pacific Japan Total

Note: Data is a Gartner estimate and is not provided or sanctioned by the vendor. Source: Gartner (November 2010)

Table 3 shows SAS market share in the different BI segments that Gartner tracks. SAS is the third biggest vendor in BI platforms, after SAP and IBM. In analytic applications, SAS is the market share leader, at 28%. In CPM suites, an area not covered in this note, SAS is fifth behind Oracle, SAP, IBM and Infor. Table 3. SAS Institute Market Share by Business Segment, 2009 Market Share (%) BI Platforms

14

Analytic Applications and Performance Management

28

CPM Suites

6

Source: Gartner (November 2010)

Gartner estimates that close to 90% of SAS BI software revenue comes from companies with more than 1,000 employees, which is a significantly higher proportion than its peers in the industry. The biggest vertical sector for SAS is financial services; Gartner estimates that more than 40% of SAS BI revenue comes from this sector. SAS is a market share leader in that space. The company also sells a relatively large proportion to the government sector, compared with the industry average.

Methodology The vendor analyzed in this SWOT was selected because it is a huge vendor in the BI space. With $1.3 billion in BI revenue, SAS is the only vendor that can challenge the megavendors (SAP, Oracle, Microsoft, IBM) for sheer size and breadth of offerings.

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 24 of 26

The Gartner SWOT analysis is designed for the use of vendors as a supplement to their planning processes. Its primary value is as an independent analysis of the vendor's competitive situation. The SWOT analysis provides a unique independent view of the strengths, weaknesses, opportunities and threats for a specific vendor in a specific market and geography. The specific geography (for example, globally or regionally) and market and/or submarket is based on Gartner market segment definitions or market focuses (for example, SMB). Vendors are selected based on a variety of criteria, such as growth rate or major changes in positioning or channel strategy — they will not necessarily be the companies with the largest market share.

RECOMMENDED READING Some documents may not be available as part of your current Gartner subscription. "Market Share Analysis: Business Intelligence, Analytics and Performance Management Software, Worldwide, 2009" "Competitive Landscape: How Worldwide Business Intelligence Vendors Position to Win" "Critical Capabilities for Business Intelligence Reporting" "BI Platforms User Survey, 2010: Customers Rate their BI Platform Functionality" "Dataquest Insight: BI Platform Vendors Should Add Analytics BPO Vendors to Their Overall Channel Strategy" "Gartner's Business Intelligence, Analytics and Performance Management Framework" "Future Acquisitions in the Business Intelligence Market: A Hypothesis"

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 25 of 26

REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT 06902-7700 U.S.A. +1 203 964 0096 European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM +44 1784 431611 Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA +61 2 9459 4600 Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo 153-0042 JAPAN +81 3 3481 3670 Latin America Headquarters Gartner do Brazil Av. das Nações Unidas, 12551 9° andar—World Trade Center 04578-903—São Paulo SP BRAZIL +55 11 3443 1509

Publication Date: 10 December 2010/ID Number: G00208557 © 2010 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 26 of 26