Software Industry :Slow Growth Pushing For Consolidation

(Via TechWeb) Slow growth has triggered consolidation in a highly diverse software industry, according to a new report titled –"Software: Global Industry Guide". The report notes that the global software market reached a value of $132.2 billion in 2004, demonstrating and compound annual growth rate of 4.1 percent from $112.7 billion in 2000. Western producers dominate the market because clients believe experience and investments make them better prepared than smaller competitors to deliver cutting-edge solutions. The report lists Microsoft as a prime example of market consolidation and ranks Oracle as the world's largest enterprise software company and the world's second largest independent software company. I totally agree with the views expressed here that this period of consolidation will see many of the market's large companies meet head to head as they attempt to diversity their operations into other software sectors and will pit companies with similar economies of scale and scope into direct competition, creating significant pricing pressures as companies attempt to garnish market share. This will pressure on margins, reduce prices, increase the volume of new computer sales and have a net positive effect on software sales, allowing companies to counter shortfalls through and drive revenue growth. I had been talking about the impending consolidation for sometime. I also wrote that The general trend toward consolidation is already felt. The only issue is outside of the top 5/6 players several other players addressing specific niche areas currently have ore than 50% of the marketcap - we have to see how the economics,integration, customer reaction all mix up - with software, more than the employees, customers get alarmed about any possible merger moves. What I do not see in the arguments centered on developments in the past and the potential in the future is : how would these companies survive the next 6-8 quarters and how on earth would any customer feel comfortable with the many walking dead companies - sad as it is -but reality is more important.Big time acquisitions are already happening. Consolidation fever ahead - not sure whether customers would benefit a lot because of this - till the haze cleares, it is clearly alarming. At the same time, I certainly see niche players operations as part of a larger ecosystem gaining strength - they may be a chosen few but still this may portend a new trend as well.