In addition, Actuate has been a pioneer in deploying true web-based reporting solutions, a feature that expands Microsoft's capability beyond the desktop.

Microstrategy is currently trading at a fairly high valuation, closing at $106 today. After a couple of bad quarters, it has posted a very good 3rd quarter and is almost back up to the level of profitability it last saw at the end of 2006. They offer functionality comparable to Actuate but have a reputation of being more scalable and able to support larger quantities of data and more users. Their product suite includes integration with SAP and strong data mining capabilities. Still this looks somewhat like a comeback story.

SPSS has had its share price crushed recently. For much of the past year, it has suffered from uninspiring revenue growth and uneven results. It's most recent quarter, however, showed improved income based on a jump in revenue and improved cost control. SPSS offers the usual BI tools, data mining, statistics and reporting. SPSS differentiates itself from competitors by emphasizing its Predictive Analysis capability that adds a rules/recommendation engine to the output of their analysis tools to help corporations to identify which initiatives will deliver optimal results and to enable better risk management.

So who might be the best fit for Microsoft?

I think Actuate might be the best fit for Microsoft. Microsoft has been building their SQL Server database into more of an enterprise-caliber product. Actuate, who concentrates on the reporting aspects of BI, can be more easily integrated with Microsoft's SQL Server business strategy. A strong reporting layer on top of a strong database layer would be a good story for Microsoft.

The other candidates may have stronger built-in data warehousing functionality built into their product suites but I am not sure Microsoft would value that kind of capability as they are well along in developing their own capabilities in that area. Informatica has much stronger data integration capabilities that Microsoft's DTS product and, as such, Informatica might make excellent sense as an acquisition from that point of view as opposed to the general category of Business Intelligence.

Financially, Actuate is currently in pretty good shape. Compared to some of its competitors, it has been more consistent lately at delivering solid numbers. With the smallest market cap, it could be the more cost effective alternative and there would be none of the debt associated with an acquisition of SPSS.

In conclusion, Actuate plugs a hole in Microsoft's product lineup, adding a well-known and accepted reporting and analysis solution to the SQL Server product line. It could be easily integrated into Microsoft's business strategy in the BI space and, at a modest market cap, would cause little impact to Microsoft's cash hoard. And I would go further and assert that Informatica would also be a good acquisition for Microsoft. This would yield an industrial-strength, top-to-bottom solution with reporting, data integration and database capabilities.

Disclosure: author owns no shares in any stocks discussed in this article