Just arrived back in the valley after a short international tour, to see this NYTIMES note suggesting that Microsoft should look at SAP for a buy-out. The reasoning : Microsoft does business software well. Approximately half its revenue comes from business customers for its e-mail infrastructure, database systems, developer tools, Office productivity applications and other mainstays. It has also assembled, through acquisitions, a fledgling line of enterprise software that it calls Microsoft Dynamics. Microsoft would like Dynamics to be viewed as competing head to head with the No. 2 name in enterprise software, Oracle, or the No. 1, SAP of Germany. For the moment, however, Microsoft Dynamics’ parity with those big names is nothing more than wishful aspiration.
Me think not. Reason : Laggards coming together to create another monster.. The very purpose of Microsoft wooing yahoo is because, MSFT is concerned with losing it's desktop dominance to web based application and needing to protect it's domain there. I am also not an enthusiastic supporter of consolidation of enteprise software.The earlier reasoning for looking at SAP was clearly aimed at a few large customers but to straddle them in the enterprise space. When years back , Microsoft mulled a potential acquisition of SAP, the expectation was that Microsoft would a leadership position in back-office applications among the Fortune 500. Information published then gave some perspective. The documents released in the case, which can be downloaded here, include a PowerPoint presentation dated Jan. 5, 2004, in which Microsoft outlined its rationale for buying SAP- without doubt a costly proposition ( that time the price expectation was in excess of 50 billion USD), With SAP, Microsoft saw the chance to strengthen its relationships with multinational companies and computer services firms, and the opportunity to promote its Windows products among SAP's 20,000 customers. The document, marked highly confidential, uses an elaborate set of code names, referring to SAP as "Sagittarius," Oracle as "Ophiuchus," PeopleSoft as "Pegasus," and Microsoft as "Mensa." So what’s the solution for MSFT – Money can give it a limited upside – rejigging their DNA to be more open, innovative and a winning attitude in all things that it enters could be the key. They can however look at a small scale pointed acquisition like salesforce.com to create new avenues of entperprise business. Why not start now and try again on Search, Mobile infrastructure and Ads – who knows – history renewed /relaunched product launches have created history in the business world in the past – it’s a tough, rough and a long road ahead – it’s worth travelling. Microsoft needs only one strategy now -thats the strategy of fast and flawless execution.
I wrote a brief note on Oracle’s acquisition of Agile Software. While the top-tier vendors boast of wide ranging integrated functionalities with deep pockets, specialized solutions like PLM, SRM, MDM, Content management, BPM, Document management, Compliance solutions, Vertical solutions coming from best - of - breed players continue to remain attractive to buyers of different spectrum. Finding it difficult to beat them in their own game, cash rich mega vendors are doing what they are best at doing : buying out point vendors.
I was sitting next to the amiable Bryan Stolle, Agile's chairman in a recent meet. Agile is the last standalone PLM standalone solutions company, after the acquisition of its closest competitor, Matrix One, by Dassault Systems last year. After its 2003 acquisition of Eigner, which gave the company a solid foothold in the European discrete manufacturing market, it acquired Cimmetry in early 2005. Cimmetry’s visualization flagship product, AutoVue, now has over 9,500 customers in a number of vertical industries, including manufacturing, electronics, architectural/engineering/construction, and industrial. Agile is expanding its product portfolio to support the CPG industry. In mid-2006, Agile announced the acquisition of Prodika, a PLM applications vendor with a focus on CPG.
Oracle has acquired more than 25 companies – of varying size & color to shore up its strength in the enterprise application space. The acquisitions have been in almost every enterprise category, ranging from ERP (enterprise resource planning) to CRM (customer relationship management) and grid computing to business intelligence. This is part of oracle’s stated strategy of acquiring scale and depth by acquiring complementary products and customer bases which it can cross sell a wider range of products to, in competition with MIS players in the MISO family. Agile provides Oracle with a decent set of solutions in the SCM and PLM enterprise solutions space. The thinking behind the merger is that there is limited or no overlap between oracle’s existing product range and that of Agile. Oracle has committed approximately 5.0x maintenance revenue multiple for Agile – a position that is more or less its benchmark based on previous acquisitions. On paper, this appears to be a sound deal for Oracle - Agile has a significant customer base and its maintenance renewal ratio is also said to be on the higher side. For Oracle, looking at increasing its footprint in the manufacturing space, this opportunity is a god send one.
In the enterprise PLM software space, clearly vendor consolidations will reduce the number of players and further strengthen those that already hold a substantial share of the PLM market. This would force collapse a number of products to be highly feature rich. This would mean that typically functionalities that two years ago were still offered as separate modules/products may become part of larger product suites. Oracle shall clearly gain with this acquisition as it braces to take on the likes of IBM, Dassault & SAP. Read the full note here.
Software AG has agreed to buy SOA vendor webMethods Inc. for US$546 million in cash. This is 2.6x sales value. I was thinking that it could be HP. May be its systinet acquisition gave it enough. It may also be noted that Sun’s acquisition of SeeBeyond has not been any noteworthy success. For Software AG, long considered an XML specialist and the seen as strong in the integration of legacy systems, it desperately needed a makeover as a leading SOA (Services Oriented Architecture) company. WebMethods seemed to fit in well from that perspective. It shows three things:
A. European company paying cash to acquire a predominantly US strong company B. In SOA space, you have to have scale to see success C. The much awaited SOA uptick may indeed be happening in the near future.
A recent survey showed that SOA adoption is experiencing slow, but steady, adoption among large and mid-sized enterprises, it finds that SOA is still in very early deployment cycles. The report based on extensive structured survey finds that the early implementers of SOA are primarily taking a technology-led approach to SOA deployment as against the widely held belief that many early adopters were viewing SOA as needing to be a business-led initiative and many initiatives are at early planning stage or at trial deployment around legacy application integration.
How can these companies come together: On paper, it appears that should be able to leverage SOA capabilities to fuse together their offerings in such a way that the features & functionalities may be combined in intelligent ways. WebMethods BAM/BPM solutions could give a legup to Software AG in the fast growing BPM space. It would be very interesting to watch SOA players coming together and creating greater value. Watch out for more action in this space. Some may be centered around well known name like BEA, Tibco etc. They may choose to acquire smaller companies or they may run the risk of getting acquired.
The consolidation shall be accelerated due to the active interest shown by private equity players in the enterprise software. With hundreds of billions of dollars under management, private equity firms need toinvest and chalk up predictable returns, enterprise applications vendors have become an investment class as dependable as batteries and diapers for their steady revenue streams.
Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld "All views expressed are my personal views are not related in any way to my employer"
