Saturday, July 14, 2007

Software M&A Rumors

I noticed two items of importance this week:
1. The Dow hits an all time high
2. Rumors of VERY LARGE M&A activity in the I.T. space are off the chart

I'll avoid perpetuating any of the rumors that are going around; talk is cheap. What seems evident is that both I.T. buyers and providers seem bullish on the idea of massive consolidation. Our industry has been in constant flux for a long time, exhibiting all the signs of an immature industry.

Despite our strong economy, many of the preeminent brands continue to bleed money while failing to create a differentiated product portfolio. The buying community has rewarded platform commoditization and 'design to standardization'. Cloners and imitators have shown their ability to rapidly re-create innovator's products using open source and competitive pricing models.

Most large ISV's have already executed on a significant number of acquisitions and have had to become experts in integrating their own products. As their ability to refactor, integrate and generally absorb new products grows, so does their desire to capture additional market share through acquisition.

The unanswered question is where is this all leading? I'm confident that we'll see a few models emerge. However, the one that seems obvious is the one-stop shop. One company provides hardware, software infrastructure, packaged applications and professional services. With the growing popularity of SaaS, we can anticipate that multi-tenant hosted application support will also be a key element. The other trend that can not be discounted is the use of offshore resources to provide low cost labor.

I believe that massive consolidation is both inevitable and necessary. Information and technology providers must reach the next level maturity. They must be able to provide end-to-end solutions and take full responsibility.

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