Over the past two years industry consolidation has taken its toll on a number of ICT companies that have been snapped up by larger rivals. M&A has become a core competency.
"We are bearing the brunt of this consolidation," a CIO told me. "I was recently negotiating for a product and then ended up with another because a recent acquisition had been made and my preferred choice was then no longer available".
Dealing with the takeover merchants and betting on the future products of a major vendor is more risky than ever. Many markets are developing along a winner-takes-all model and IT executives who back anyone but the winner are in for a difficult time. Buyers, at the same time, are becoming extremely sceptical, risk-averse, and a lot tighter with their budgets.
In the late 1990s and early 2000s we heard loads of outlandish vendor claims about how their products would save millions. Several of them have now disappeared or are shadows of their former selves.
Today we have fewer big deals, which translates into desperate vendors. When you look at the M&As over the past five years, especially in Australia, there are two critical areas -- employees and customers. Often employees leave for some reason or other and a lot of the company's skills go with them. A significant number of M&A deals in Australia have failed because the merger caused key employees to depart.
This is also a time when customer relationships break down.
And it ain't easy leading a company through this period either. Customers want a lot of reassuring, not just pie-in-the-sky claims about the future go-to-market strategies of the combined entity. Executing a clear global strategy that articulates the combined companies' market offerings, market focus, and positioning is vital to maintain high market performance.
What will happen to the acquired company? Will product lines be merged, and will products be eliminated? Users don't like to be uncertain abut a technology's future, especially one they have heavily invested in over the years. On the other hand, the acquirer, if flush with funds, may refresh a product's allocation of R&D expenditure.
Despite all this the prognosis for some of the software vendors, is far from gloomy. As new disruptive trends hit the market -- such as service-based software architectures, and so forth -- there is an opportunity for companies to grab the initiative. But it's not just the current giants that one needs to worry about. Chinese and Indian companies are coming in fast to take advantage of any disruption. In five or 10 years the list of the world's biggest software companies could be very different from today.
Len Rust is publisher of The Rust Report.