The recent acquisition of Sybase by SAP got me thinking. Is it me or most leading large companies, thanks to their acquisition binge are beginning to resemble the erstwhile General Motors?
Take a look at Microsoft, Oracle, SAP, IBM and CA, the top 5 pure play software companies (granted IBM is a little service heavy still). That’s just not it, look at the next set of companies Epicor, BMC, Sage and Intuit to some extent, they are not that different either.
GM in its prime, or should I say when it was working itself towards the cliff, was a mishmash of a lot of acquired companies/products, some cannibalizing their own step-brethren. If it was not Saturn going against Buick it was Chevy going against Pontiac or GMC going against Chevy SUVs. GM countered every external competitive threat with financial incentives and/or 0% financing whilst continuously eroding its brand and market share. While it was overloaded with all the bloat (and a heavily draining UAW contract), GM had no semblance of innovation or leadership in its industry. Something had to give. Eventually GM threw up.
Look at the leading software companies now. Each of them has a portfolio of offerings that even the sales force within those companies have a tough time rationalizing and positioning. I still remember a meeting that we had with the alliance team in Microsoft. We were exploring the possibility of integrating our industry vertical focused application to the back-office ERP. Given that we were in the mid-market segment, we thought Great Plains would be a good fit. Having a couple of customers already using Great Plains might have influenced our thinking. But when we met the alliance team, we found that they were as confused as we were on which product line would be the right one to integrate – MS-Dynamics, Great Plains, Navision.The last thing I remember from those discussions was that based on the size of a company one could chose a different product line – not sure how a company would graduate to another product line when they grow – upgrades? migration? Would there be feature parity between those different lines? Anyway that is a discussion for another time.
I don’t mean to pick on Microsoft specifically – I still like their dividend every quarter. I am sure the story is not any different if I were to go to Oracle, SAP or CA for that matter. I can almost picture a restaurant-like menu being dished out to the CIO looking for a particular solution. Granted, there would be nuances between each of those offerings but those very differences might mean the customer being required to buy more than one solution to meet all their needs.
How does a company of that proportion innovate? As the software industry is going through some seismic shifts, across technology, architecture, business models, in the form of Cloud Computing, SaaS, Open Source, how would companies with such large footprints adapt? Technology companies have for the longest time made mockery of auto manufacturers, of what not do, but over time it seems like are following the same beaten path.
GM went for market share and in the process accumulated many businesses that they had no reason to acquire. Eventually Toyota, recent challenges not withstanding, caught up and surpassed GM on the market share. With innovation, product quality and business smarts, I might add. The only innovation we saw coming out of GM on the product front during that time were gas guzzling large SUVs and very large SUVs. To be fair they did innovate on the financing side – 0% financing, 0% financing + $2000 cash, No payment for 2 years. Finally it came to realize that the only way to survive was to scale down to a meaningful size and create products that it can truly manage.
Software companies on the other hand have gone on acquisition binges to garner vast customer bases and consequently the lucrative maintenance revenue. While in some cases, it is great to have a more stable company acquire a failing one – (case in point Siebel, Sun acquisition by Oracle), what it has done is reduce the leverage customers get with adequate competition in the market. Customers are also increasingly becoming vary of customer support for the acquired products.
Given the similarities, an interesting question to ask is would the same fate befall the large software conglomerates?. Ned Lily of ERP Graveyard has an interesting way to look at it on his scorecard. Large companies as it is are swamps of bureaucracy. With acquisitions, the politics and land grab soon become a way of life in the merged company. The last thing on anybody’s mind would be innovation. Adaptability to new challenges amounts to making an elephant dance.The one thing the technology companies have going for them, and be thankful for, is they are not subject to the same recalls as in the case of car companies.
In a seemingly strange irony, customer’s seem to be answering that question by their increasing adoption of SaaS. It seems like they are saying “I don’t need to buy a car after all, when all I need is to get from Point A to Point B. I will just rent a cab.”