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Friday, February 10, 2006

Enterprise Application Software & The Frenzied Consolidation

The consolidation frenzy and the uncertainty and slow evolution of the enterprise software market towards a stable model is causing so much attention and concern across the board. Earlier, I wrote that there exits possibilities of some smaller players thriving by being part of a service provider ecosystem. The signals are unmistakably clear: There will be a few big players, with good number of little players by their side supplementing them, and together with startups (who shall be seen as carrying the flywheel of innovation); the landscape shall get substantially altered. In a follow on post, I argued that a careful examination shows that well evolved industries move towards a decentralized/tiered model – currently the enterprise software industry is highly integrated vertically and its ecosystem is not well set today. In this changing world, going beyond the packaged solutions, extend the idea a bit – enter the idea of SOA & Composite applications - the applications can be mashed up in multiple ways to create new frameworks that can be assembled as & when needed to make business in an always ready-to-respond mode towards changing external conditions. IDC predicts that the worldwide enterprise applications market saw a spectacular amount of merger and acquisition activities in 2005 with the number of deals in 2005 climbed to 199, compared with 144 in 2004, and the value of these deals more than doubled to over $36 billion. In addition, there were seven deals worth more than $1 billion in 2005, compared with only one in 2004. The report finds that by almost every measure, the pace and value of enterprise application mergers and acquisitions went through the roof in 2005. However, that doesn't mean the market is likely to go the way of traditional industries, with only a handful of players left competing for the shrinking pie. Instead, the future is likely to be marked by continuous product and customer innovation from best-of-breed vendors as well as visionary players who know what it takes to stay financially viable as well as technologically advanced. These vendors will emerge as category champions and ultimately industry leaders for many years to come.'Interesting read.

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