Pieces falling into place
Pieces falling into place
Consolidation appears to be the future of technology
Wednesday, December 15, 2004
If you listen closely, you can hear Larry Ellison's voice calling out from Redwood City: "I told you so."
Ellison has been saying for more than a year that the business software industry, along with the rest of the tech business, has entered a consolidation phase that will leave only a few big vendors to sell everything that companies need to run their vast and varied computerized functions.
Now, with Ellison's acquisition of PeopleSoft a done deal, an even bigger software merger, the $13 billion acquisition of Mountain View's Veritas Software Corp. by Cupertino's Symantec Corp., is rumored to be close. And suddenly Ellison's prediction rings a lot truer.
Neither security softwaremaker Symantec nor infrastructure and storage softwaremaker Veritas responded to calls for comment. News of the possible deal was reported by the New York Times on Tuesday.
"We're getting down to the Rule of Three," said Peter Sealey, adjunct professor of marketing at UC Berkeley's Haas School of Business. "In almost every global industry -- automotive, computer hardware, malt beverages, soft drinks -- we're having enormous consolidation."
In the enterprise software business, that move toward consolidation is accelerated because clients need software vendors capable of dealing with the growing size and complexity of computer systems that span the globe, Sealey said. Instead of piecing together software from a number of different sellers, companies need vendors that can provide the whole puzzle.
In the world of companies that make software for businesses, there are many specialties. Even Oracle, large as it is with the acquisition of PeopleSoft, specializes mainly in databases that hold corporate information and applications that mine useful information out of those databases, to produce, for example, a quarterly sales report.
Other makers of such applications are San Mateo's Siebel Systems Inc. and Lawson Software Inc. of St. Paul, Minn.
Then there are security companies, such as Symantec and Santa Clara's McAfee Inc., which help protect systems from time-wasting viruses and dangerous hackers. There is also an array of companies that perform important but low-profile infrastructure tasks. Veritas' products mostly manage storage, while San Jose's BEA Systems Inc. provides tools to build software systems.
But in as little as a decade's time, many observers predict, all these functions will be provided by just a handful of companies. And most of the specialist companies will be part of larger firms unless they manage to become one of the giants.
Indeed, even as Oracle battled to take over PeopleSoft, the company mentioned BEA as another potential acquisition.
Ken Marlin, managing partner at New York consulting firm Marlin & Associates, raises the familiar business metaphor of the automobile industry.
In the early part of the 1900s, he said, "There were companies that made engines and companies that made bodies and companies that made seats," much like there are companies that tend to various software functions today.
"Now in big parts of the software business we still force the customer to be a general contractor and assemble bits and pieces of software from various places. That can't be the way of the future," Marlin said.
As information technology systems become larger and more complex, companies can't integrate all these different products. They're turning to consulting firms for help and even outsourcing their entire IT operations, like Procter and Gamble did in 2003.
"That's really what's driving" consolidation, Sealey said.
Scott McNealy, chairman and chief executive officer of Sun Microsystems, says the same thing is going on across the technology industry.
"The (computer) world is moving from building your own components ... to finding the system complete," McNealy told The Chronicle in a 2003 interview.
But who will be the last corporations standing in the software industry?
Everyone's short list includes IBM Corp. and Microsoft Corp. Most analysts also mention Oracle and Germany's SAP. But in the eat-or-get-eaten world of enterprise software, almost every CEO sees his or her company as a contender.
If news of its negotiations with Veritas is true, Symantec seems to be positioning itself as a member of that short list. A combined Symantec/Veritas would help its clients manage a whole range of computer issues, from virus attacks to internal challenges like recovering data when systems crash.
"We see quite a number of people who are not as big as those (top) players who still have plenty of capital available and are looking to ... assemble the pieces so they can become one of those players," Marlin said. "(Symantec's) deal is an example of that."
A Veritas acquisition would be the latest and largest in a chain of acquisitions for Symantec. The company's Web site lists 14 companies it has purchased since 1998.
"We spend more time buying than selling. That's for sure," Symantec CEO and Chairman John Thompson told The Chronicle in an interview in January, when asked if his firm was an acquisition target.
But not everyone thinks Symantec, with a market capitalization of $17.4 billion, can get big enough to play in the realm of IBM and Microsoft.
"I don't think so," Sealey said. "How do you withstand an Ellison doing what he did with PeopleSoft?"
With public companies' obligation to maximize shareholders' investment, Symantec and other software companies won't be able to resist the next big takeover attempt any more than PeopleSoft could in the end, Sealey said.