One of the hottest segments of the tech industry, business intelligence software, is going through a major phase of consolidation as one major player after another is acquired by larger companies.

At one time, the software industry had hundreds of small and medium ''best-of-breed'' companies. But midsize companies find it very difficult to compete against the giants because large corporations prefer to buy their technology from a few strategic suppliers rather than a lot of smaller companies.

Not surprisingly, the field is now dominated by a handful of giants, including Microsoft, IBM, SAP, and Oracle, all of which have vast product portfolios. Two independents, BEA Systems (BEAS) and Sybase (SY), are being seen as likely takeover targets.

The Cognos acquisition is a continuation of IBM''s inorganic growth strategy through mergers and acquisitions, launched in February 2006. The software giant has bought 23 software companies as part of its ''information on demand'' offering; software and services that help corporations get the most out of customer data.

Cognos is a good buy, because the two companies have been working together closely for more than 15 years. Their technology is compatible. Both have standardised the Java programming language. Besides, Cognos has integrated its executive dashboard and business data analysis programs with IBM''s DB2 database and its WebSphere technology for weaving together complex business applications.

IBM should have little problem in swiftly merging Cognos into its existing operations and selling its products through its over 10,000-strong software sales force. One of the top companies in the business intelligence arena, Cognos reported a net income of $115.7 million in fiscal 2007 on sales of $979.3 million up 11.6 per cent from the previous year.

Its shares were at $53 on 9 November. IBM''s offer of $58 per share means a modest 9.5 per cent premium, and Cognos shares rose more than 8 per cent on the news, to more than $57. IBM stock rose 3 per cent to $103 a share.

Now only a handful of ''best-of-breed'' business intelligence software companies survive. They include the private SAS Institute and Teradata, which was spun out from NCR earlier this year. Teradata is likely to be too expensive, and SAS isn''t for sale.

BEA, which recently rebuffed a hostile takeover bid by Oracle, was basically holding out for a higher price. The problem with Sybase is that its technology isn''t advanced enough for IBM, SAP isn''t in the market for a database acquisition, and database leader Oracle might come up with antitrust issues.

But software being what it is, there''s always some disruptive technology in the pipeline. In the business intelligence segment, a radically different technology comes from Swedish start-up QlikTech, now located in Radnor, Pennsylvania.

It loads all of the data to be analysed into a computer''s memory chips, so that query results come up almost instantly. Less expensive than Cognos and Business Objects, the company says its tools can be used by many people within the company, not just executives or business analysts.

IBM acknowledges that QlikTech''s technology is attracting customers, but says Cognos and IBM together offer a much broader and deeper array of capabilities. The question is, will QlikTech be the next business intelligence company on the block?