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Saturday, June 19, 2004

SAP, Microsoft and the Coming Consolidation in Software via Knowledge@wharton

Microsoft, the world’s largest maker of software for personal computers, last year had approached Germany’s SAP, the world’s leading business-software company, about a potential merger, but the preliminary talks were discontinued this spring, said the dry-as-dust announcements.The coming consolidation in software will involve companies in the three chief categories of software for both businesses and for consumers. They are: applications (software that handles a slew of administrative tasks for corporations, such as financial management, procurement, human resource management and order processing, as well as for desktop computers); platforms (the so-called “middleware” systems on which some software applications run and which coordinate different software programs); and system infrastructure (the operational software that keeps computers running). These three categories are breaking down as both consumer- and business-software companies eye new markets for growth and as the open-source software movement grows.The trend is toward consolidation. It would be very, very difficult to start another Oracle or another Microsoft today because the industry is maturing. Of course, software features and capabilities are profoundly important. But so are sales and distribution and brand.There are enormous returns to scale and the emergence of a much more concentrated software industry. It will take a long time for it to happen because there are literally thousands of companies. But it will be hard to stay independent.
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