In a May 2nd, First Thing Monday commentary, Gartner VP and Distinguished Analyst Jim Shepherd penned a commentary titled Software Acquisitions Are Back, and No Longer Scary. (free sign-up or client paid access required).
Jim opines that consolidation and acquisitions among software industry players has returned to its pre-recession, boom times pace, and with more than 30 years of industry involvement, is struck by how nonchalant the industry has become about these transactions. Where these events were once a big deal for the players and their respective customers, Jim feels that these days, no one gets excited. “It’s just considered business as usual.”
Jim comments that customers have learned that there is little they can do about these events, other than to change the address of where to send the maintenance check. More concerning, he notes that in many current deals, maintenance revenue and the customer base are much more important to the acquirer than the actual applications. Jim states: “The simple fact is that most acquisitions are just about getting bigger, and having more things to sell and more customers to sell them to. Software executives and their private equity backers realize that size is much more important than architectural elegance or product coherence.”
My response: what a sad state for the industry when growth and individual interest needs outweigh the needs for technology innovation and actually supporting customers.
We can all reference a past company or industry that saw its demise because it lost all focus on its prime existence, namely delighting customers and fulfilling their needs vs. solely those of its investors. After all, who are these bigger players actually acquiring? They acquire to springboard innovation, fill a strategic hole in the portfolio, or have an instant broader industry or geographic presence.
The software industry itself has its genesis in smart and savvy entrepreneurs who developed a better way for technology to solve business problems, particularly in supply chain, procurement and operations management. Companies such as SAP, Oracle or Microsoft came from ideas generated by a small group of innovators with ideas focused on solving customer business process management needs. Many smaller best-of-breed software providers exist in the supply chain domain because they offer innovation or a smarter, more cost-effective alternative. In our view, customers will always value innovation, especially when the ROI is compelling.
Do not misinterpret my opinion, investors do need to be satisfied, but not to the detriment of customers. Today, our supply chain community is much more savvy as to technology trends, buying cycles, and ‘how to work a vendor’.
On the specific subject of software maintenance, assumptions that customers will continue to pay the freight are also short-lived and fleeting. The ‘voice of the customer’ is already being heard in this area, witness recent events at SAP. Cloud computing models will ultimately make maintenance a short lifecycle.
Those of us who have been involved with software for a long time can well remember past days of lavish customer conferences, renting of yachts and golf courses to impress customers. Those days are a memory. However, smaller, innovative vendors who go the extra mile to support unique customer needs should not be a memory of the past but rather a key to continued industry renewal and success. After all, who would have conceived that real-time, in the moment communicating to others in 140 character messages would gain such acceptance to equate to a company estimated to be worth billions.
Jim Shepherd’s premise is that as the software industry continues to mature, the winners will be much larger companies providing global coverage, more resources and extensive collections of applications and services.
I’d like to think that there will instead be a continued need for the co-existence of best-of-breed innovators who will continue to drive innovation and industry progress. In the end, customers should always be the final judge of value and success.