Last year was a banner year for software acquisitions with an astounding 1,726 software companies being gobbled up by their bigger brethren. The reasons for the acquisitions seem to fall into two categories -- the acquiring company's desire for growth or new market opportunities. But are these acquisitions good for the software industry?
It seems we are getting down to the "Final Four" -- Oracle, Microsoft, IBM, and SAP -- maybe five if you include HP. These companies have been on a shopping spree like you wouldn't believe. Here are some numbers for you:
Oracle has bought 26 companies including the mega-deals for Siebel, PeopleSoft and Retek.
Microsoft gets second prize with 25 acquisitions in the same time including ProClarity and many other little startups that didn't hit the radar.
And then there is IBM with 22 acquired companies including Ascential, FileNet, and Internet Security Systems...
Apparently, software acquisitions dominate all technology sectors by accounting for 40% of the nearly $300 BILLION (yikes!) spent on M & A activities performed last year. There is significant reason to be concerned but also equal reason to celebrate. A recent article in InformationWeek listed the pros and cons of these voracious acquirers:
On the plus side:
1. A small vendors's new owner may invest more in R&D than the smaller company could do
2. The acquirer may give you access to a larger, more knowledgable support team.
3. Certainly acquisition by a deep pockets company can put a struggling software vendor on more solid ground -- financially-speaking -- and allow it to scale its architecture.
4. Large software companies have shifted their focus back to revenue-growth strategies so they are buying companies that either complement their own set or give them access to new areas. Big companies are stretching their winds, metaphorically.
On the negative side:
1. The acquiring company could put a halt to the innovation that you have come to rely on and simply continue to feed off the maintenance fees as long as you are willing to pay them.
2. The acquiring company may take the acquired software in a completely different direction -- one that no longer supports yours.
3. Of course, the 900 pound gorilla is the whole issue of the software's integration with the other bits and pieces of the acquiring company.
4. What about customer support? These are the folks that are often the first to go from the acquired company leaving a customer to feel unloved.
So is it good or bad? And who are the next acquisition targets?
To the good or bad question --
The article notes that it is certainly easier for IT shops to deal with fewer vendors. I admit it is easier to deal with a single vendor than a hundred little vendors. The mandate for many IT shops to run lean and mean has not substantially changed in recent years and working with fewer vendors means spending less time and money managing the relationship. On the other hand, that means the vendor has a lot of leverage regarding license fees, maintenance contract negotiations, etc., over you. If you are Charles Wang (remember him?), you love this model...
It may be good news for small companies who have struggled to get their technologies in the door of major corporations. Many CIOs and IT shops are loathe to stick their necks for new, "unproven" software companies even if their technologies are brilliant. Coming in under the name of a much larger and well-known company just seems to open doors magically. However, IMHO, I must say that I feel this is ultimately detrimental to innovation. CIOs need to take more risks, "show some guts", and stop playing it so safe. (See a related InformationWeek article on this very topic by clicking here. I may talk about their survey in another blog.) CIOs need to look at the needs of the company and determine what is the best solution regardless of software company size. Fortunately the venture capital folks must feel the same way since their investing is on the rise.
Perhaps a bright spot in the innovation landscape is the software-as-a-service (SaaS) area. SAP is certainly betting heavily on innovation coming from its SaaS partners with its NetWeaver and SOA stance. In case you are not familiar with the model, the idea is for SAP to partner with many smaller vendors whose software services are called by MySAP (SAP's new ERP suite). Bill McDermott (CEO of SAP Americas) has a priceless quote regarding this strategy. He states that the acquisition roadmap followed by their arch-competitor, Oracle, is like "a lung-and-heart transplant where ours is plug and play". My,my...
I guess time will tell. Until then, small software companies, look out. If you are leading the pack with your offerings, you better turn around now and then to see whose about to gobble you up!
So who is likely to be a candidate for acquisition in the BI space? My bets are on:
1. Teradata -- with NCR's recent decision to spin off Teradata, a suitor cannot be far behind (Microsoft or SAP, perhaps?) to gobble up Teradata. (By the way, this also makes NCR a target as well).
2. The data warehouse appliance vendors -- Netezza, DATAllegro, GreenPlum, and the newest entrant, InfoBright. Their time has come as well.
So who do you see next on the block? I'll be interested to hear...
Yours in BI success,
Posted January 30, 2007 10:58 AM
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