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Sunday, April 16, 2006

The Enterprise Software Industry : Consolidation Effects

Courtesy of Rajesh saw this perspective on the consolidation wave felt in the enterprise software industry and its implication on the ecosystem. The article highlights, looking solely at the economics, software buyers will be the short-term losers from this merger activity. With fewer companies vying for sales, the industry’s traditional 80 percent discounts, which large companies can count on for volume purchases, will be a thing of the past.Solutions include reducing complexity in application portfolios- that is, by eliminating redundant programs and refocusing data acquisition activities specifically on information needed to enhance competitiveness -executives can rein in maintenance costs and increase the amount spent on new development, more felxible architectures etc. Pricing concerns will drive more cooperation among software buyers. Software purchasers may indeed pay a price for consolidation. But in the end, consolidation could cost the large enterprise software suppliers the most. For a short-term gain in revenue, they may end up having to adjust to a new software landscape that emphasizes customer flexibility; more efficient delivery mechanisms; open standards; the rise of smaller, niche data-centric applications; and greater simplicity. More commonplace will be 50 percent off list price. But the good news is that while in the short run,higher prices will hurt the purchasing companies that depend on enterprise software to coordinate their activities. But in the long run, pricing pressure could change the dynamics of the buyer–supplier relationship and initiate a profound shift in how software is delivered and in the types of programs companies implement. Software purchasers who understand this and take advantage of the opportunity to leverage changing industry dynamics will have the most to gain.
I shall post an update to this with my detailed views later - currently am travelling.

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
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