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Wednesday, December 15, 2004corporate customers are driving software sector mergers. Excerpts with my edits and my views added:
There could be no more striking evidence of the trend toward consolidation in the computer software industry than the news of the past few days.
Oracle + Peoplesoft, Symantec + Veritas(Likely)
Big mergers have been rare in the software industry. Software companies have typically flourished or died on their own. Acquisitions tended to be made by larger companies seeking to fill a niche with new expertise and elite teams of engineers, like most of Microsoft's corporate purchases.Corporate customers are driving the new trend. All through the Internet boom years of the 1990s, it was the hardware and software companies that held power in the marketplace. They were the weapons suppliers of a new economy that would be the death knell of old hierarchies and old companies unless they bought new Internet technology.The suppliers basically threw technology - a raft of often confusing new hardware and software products - at corporate buyers, and it was up to the corporate customers to make it work.After the Internet bubble burst, the balance of power in the technology marketplace shifted sharply toward corporate customers, and that trend shows no signs of reversing soon. Today, business buyers want their technology to cost less and be less complicated to use, analysts say.
Recent software mergers are driven by the companies' need to cut costs and assemble larger bundles of products they can sell to corporate customers."The days are gone when technology suppliers delivered an array of piece parts that the customers were forced to cobble together themselves," said Crawford Del Prete, a senior vice president of research for International Data Corp., a technology research firm. "What we're seeing with these mergers is software companies focusing on offering integrated packages of products."
The new rules of survival in the corporate software business, according to Lawrence Ellison, founder and chief executive of Oracle, mean that companies must be able to steadily improve their products and lower costs."The only way to do that is get bigger and sell more software," Ellison said in an interview on Monday. "Size matters in software, and so does scale."The consolidation trend could well have a ways to run. In a new book, "The Business of Software," Michael Cusumano, a professor at the Massachusetts Institute of Technology's Sloan School of Management, writes that there are probably "too many software companies in the world by a factor of three or more." Mergers, to be sure, are not the only way an industry can consolidate. "I think what the industry needs is not so much consolidation of software companies but elimination of companies," Charles Di Bona, an analyst at Sanford C. Bernstein & Co., said. Even when acquired, di Bona said, software companies and products are more likely to be phased out over time than melded together. Watch this space for views on consolidation for software professional service companies. |
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