Software Market Consolidation

What consolidation? Read my and other views on the so-called market consolidation we are witnessing (I have extracted my post below)

http://www.sandhill.com/opinion/daily_blog.php?id=6

Memo to entrepreneurs - plenty of niches abound

Memo to technology buyers - talk of consolidation typically helps bigger vendors. Reward innovation and solutions that fit your business needs, not just "safe" solutions.

"What Market Consolidation? By Vinnie Mirchandani Apr 01, 05 In the DOJ case last year, Oracle argued – persuasively– that there was sufficient competition in accounting and HR software markets. It pointed to SAP, Lawson, Microsoft, American Management Systems and other competitors which would continue even if it absorbed PeopleSoft and J.D. Edwards. Accounting and HR software are mature markets – Frank Dodge (of McCormack and Dodge fame) began peddling asset accounting software in the late 60s. If that market segment is still fragmented what about newer software categories like PSA, PLM and several others that have only been defined in the last few years? What about vertical areas like utility billing, insurance claims processing, fixed income trading systems and hundreds of other areas where no major vendor even has a mature solution, forget a dominant position? How about emerging markets like India, China and Eastern Europe where most of the major vendors have only scratched the surface? What about new ways of buying software functionality in formats such as business process outsourcing? Yet growing talk (including this blog) is around software market maturity and consolidation. Give credit again to Oracle for fueling that debate just a few months after arguing the markets were fragmented. Larry Ellison, emulating Arnold, appears to be enjoying his new role as "The Consolidator". But even his Retek and Oblix acquisitions are very different from his PeopleSoft one – they are product extension plays. You could point to IBM's acquisition of Ascential as another sign of a consolidating market. But they also bought Daksh late year – a player in the still nascent BPO space. While it is always interesting to listen to Larry Ellison's views on the market, I think the software industry should also listen to Jeffrey Immelt, CEO of GE. The 2004 annual report from GE is a fascinating read – and a poetry on business optimism. He talks about new frontiers – in biosciences, renewable energy, "verticals" financing, Hispanic television, global mortgages, and countless other areas. 90% of GE's earnings in 2005 will come from its "growth engines" rather than its "cash generators". In 2000, 33% came from the latter. Sound familiar? The software industry is similarly addicted to its maintenance revenue and other "cash generators". Time for it to refocus on growth engines. There is clearly a role for M&A in developing growth engines – GE is a voracious acquirer. But the focus should ideally be on growth, not just consolidation. Frankly, there are so many unexplored, unsaturated markets that good, old fashioned entrepreneurial work that our industry has such a proud record of is will continue to be needed even as we look for talent to help smoothly assimilate acquisitions."