When software giants collide

Oracle’s protracted battle to wrest control of rival PeopleSoft had only just reached its conclusion when Symantec announced its plans to pick up Veritas in a megabucks all stock transition. As the software industry consolidates around a few global behemoths, should the channel be concerned about the reduced number of vendors to work with?

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By  Stuart Wilson Published  December 21, 2004

Oracle’s protracted battle to wrest control of rival PeopleSoft had only just reached its conclusion when Symantec announced its plans to pick up Veritas in a megabucks all stock transaction. As the software industry consolidates around a few global behemoths, should the channel be concerned about the reduced number of vendors to work with?

Yes and no. On the plus side, the giant vendors will be able to offer a much more complete offering to customers meaning bigger projects for the partners charged with implementing the solutions and providing after-sales service. However, the level of integration that these projects involve may well decline. After all, the rationale behind these deals is that customers purchasing a significant proportion of their software from a single vendor will be spared the headache of making all the various elements work together.

For the customers that sounds great, but for the channel it is not exactly good news. For many years now, it has been the fine art of systems integration and ensuring that systems work smoothly together that has formed a large proportion of their services revenue. That sales stream is not going to disappear, but it could be eroded significantly if the software giants get their act together and unify the various application and infrastructure software they offer.

That is by no means a foregone conclusion. One case in point is Microsoft Business Solutions. Its quest to unify the offerings of the various vendors it acquired — namely Navision (including Axapta), Great Plains and applications from Solomon — has highlighted the problems this poses. Codenamed Project Green, Microsoft has dedicated massive resources to pulling its business applications offerings into a cohesive unified solution but has nevertheless had to push back the expected completion date several times.

For Oracle, convincing customers that it will maintain support for PeopleSoft products has been a top priority. Long-term, the vendors involved in mega-mergers are looking for the economies of scale that can be achieved by pooling research and development resources and building a unified product offering. Short term, these deals provide the opportunity to cross-sell into existing customer bases.

For the partners of these vendors, it is very much a case of business as usual. Typically vendors wait a few months before looking to merge the channel programmes after a major acquisition. As the vendors extend the footprint of their product portfolio, the opportunity for partners to develop their business presents itself. However, if a customer requires fewer vendors to meet all its IT needs, it is instantly in a position to work with fewer partners to supply the software and related services.

These deals do affect the balance of power between vendor, partner and customer. The debate concerning the pros and cons of a best-of-breed solution combining multiple vendors versus a one-stop-shop solution has been the talk of the industry for many years now. With a new breed of vendor superpower emerging, it seems that the one-stop-shop solution is gaining traction at an enterprise level.

Nevertheless, the IT industry demands innovation and a strong pipeline of emerging companies looking to create a niche and build a business remains. This is good news for the channel as new vendors typically put a compelling offer on the table for partners. The only difference now is that the big boys buy many of these emerging companies out at a much earlier stage in their development.

Typically VC-funded, these companies used to hold out for a money spinning IPO on NASDAQ. With the appetite for technology IPOs not what it once was, the trend emerging now is for these companies to be snapped up early by industry heavyweights while still privately held.

So, what should the channel do in the wake of software vendor consolidation? Understand the power that these vendors have and the fact that customers will want you to provide their products. Simultaneously, do not lose sight of emerging niches and balance your portfolio by looking to add new vendors offering strong margin potential.

Understand the dynamics at play in the market. As these vendors become true global heavyweights, customers will request their solutions and the channel will have no option but to meet this demand.

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