Enterprise Software Market - New Powerhouses & Major Shakeup Ahead?

I was reviewing a bid situation recently when I was startled to hear one viewpoint saying that we buy a certain software product otherwise the database price could become very high and that we are better off by chosing the software product from the same database vendor.I was numbed for a moment - I recollect atleast half-a-dozen similar situations in the last few weeks.True or not true - the perception seem to be finding ground. I recently wrote about imminent consolidation in the software market saying, the new economy software startups measured on different parameters are beginning to realize that earnings have replaced revenue growth as the new measure of success on Wall Street. This shift in outlook and measurements are creating pressures – these shall trigger a powerful wave of consolidation throughout the industry over the next few years. It is believed that a very significant number of the sector's publicly traded companies are likely to be absorbed or eliminated. The new economy software startups measured on different parameters are beginning to realize that earnings have replaced revenue growth as the new measure of success on Wall Street. This shift in outlook and measurements are creating pressures – these shall trigger a powerful wave of consolidation throughout the industry over the next few years. Every vendor needs to choose what’s most important depending on the state of its business and the industry. Smaller vendors shall become part of ecosystems centered around key players and to survive.

A newly released IDC study Consolidations of Enterprise Applications Vendors Alter Software Industry in 15-Month Buyout Frenzy (IDC #33219) reveals, in just fifteen months ending March 31, 2005 the enterprise applications market saw at least 191 reported buyout deals worth more than $30 billion among 2,500 enterprise applications vendors. These consolidations are impacting every vertical industry, as newly formed industry powerhouses extend into specific or adjacent verticals in the effort to establish supremacy in an industry segment. The quickening pace of buyout activities will embolden certain companies while weakening others in the blink of an eye. The new generation of industry leaders are gaining powerful tools, such as substantial recurring revenue, global reach, and combined customer lists, forcing rivals to compete on new, more demanding terms. Many vendors who remain stagnant during this period of rapid consolidation may find themselves cornered in the middle of an industry niche, segment, or product category without any upward mobility.
Over 87% of the 191 deals had a direct impact on North America with international vendors buying up U.S. vendors to expand into the market, while domestic vendors expanded through numerous acquisitions. Twelve percent of the deals primarily affected European vendors while the Asia/Pacific region accounted for a single transaction. The largest deal involved a team of private equity investors while the majority of deals came from lower-profile vendors. Bidding wars will become increasingly common as private equity firms, hedge funds, and institutional investors continue to purchase enterprise applications vendors of all sizes.Consolidation fever ahead - not sure whether customers would benefit a lot because of this - till the haze cleares, it is clearly alarming!!!