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6/13/2012
01:16 PM
Rob Preston
Rob Preston
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What Can You Learn From IT Vendor M&As?

A lot. Consider the track records of some of the most acquisitive IT vendors over the past few years: Salesforce.com, Oracle, IBM, SAP, Dell, and HP.

One of the best measures of an IT vendor's state of mind and overall competency is its M&A activity. Is it among the last vendors into an emerging market with an acquisition, overpaying for a second-tier player? Do its acquisitions add up to something larger than the sum of their parts? Are its biggest acquisitions bold, even unconventional moves, or are they obvious ploys to buy revenue, market share, and new customers?

Consider a handful of the most acquisitive IT vendors over the last few years: Salesforce.com, Oracle, IBM, SAP, Dell, and Hewlett-Packard. What do the companies they're buying, and the point at which they're buying them, say about their ability to execute on a long-term strategy? A lot.

Salesforce.com. It's by far the smallest and most focused of the vendors in this cluster, and it's also the fastest growing, on track to increase revenue 32% this year to about $3 billion. It's leveraging a series of acquisitions to move beyond sales force automation into marketing (Buddy Media), HR (Rypple), and sentiment analysis (Radian6). The common threads: social-media-rich apps on a cloud base. Salesforce.com is a force to be reckoned with long term, assuming that it (and its $18 billion market cap) don't get acquired by one of the following players.

Oracle. Small and focused are hardly the calling cards of Oracle, which has acquired about 20 companies since its $7.4 billion purchase of Sun in 2010. Among those far flung purchases: Pillar Data Systems (storage systems), Endeca (e-commerce and business intelligence software), FatWire Software (Web content management), RightNow (cloud-based CRM apps), and Taleo (cloud-based HR apps). Oracle's common threads are its Fusion application suite (six long years in the making, knitting together its existing apps with its amalgamation of PeopleSoft, JD Edwards, Siebel, and other apps) and Exa-line of integrated hardware-software appliances. Oracle's financial success speaks for itself. But as my colleague Art Wittmann writes, Oracle's recent cloud announcement, an attempt to roll up everything from PeopleSoft to Sun to RightNow to Taleo, was all over the map. Oracle may be doing well for itself, but it needs to do better for customers.

IBM. Say this much for IBM: It has a compelling vision, Smarter Planet, and it has acquired early and often to feed that vision. A prime example is its $3.5 billion acquisition of PWC Consulting in 2002, a bold move into business consulting. Another tenet of Smarter Planet is business intelligence and data analytics, now a core competency that IBM built on top of Cognos, SPSS, Netezza, and a number of smaller acquisitions. More recently, IBM has plowed into the next major business technology growth market, marketing automation, snapping up Coremetrics, Unica, and Tealeaf.

SAP. What do Business Objects, Sybase, TomorrowNow, SuccessFactors, and Ariba have in common? Not a lot--other than they were all big SAP acquisitions. The BusinessObjects (business intelligence) and Sybase (databases and mobile tools) deals have produced workmanlike results, while it's still too early to say whether SuccessFactors (HR) and Ariba (procurement) will elevate SAP into the cloud big leagues after the company's painfully slow start with Business ByDesign. An unmitigated disaster was TomorrowNow, which SAP acquired in 2005 to provide technical support services to licensees of rival PeopleSoft software. TomorrowNow, which SAP shut down in 2008, ended up costing SAP more than $300 million in legal damages, after it admitted to infringing Oracle's copyrights on PeopleSoft software.

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Dell. After eschewing acquisitions during its first decade, Dell has snapped up a range of mostly data center and cloud computing vendors during the past several years. EqualLogic and Compellent placed Dell firmly into storage. Force10 got it into Ethernet switching. SecureWorks, SonicWall, and AppAssure beefed up its security. And Clerity, Make Technologies, and Wyse will help Dell modernize customers' legacy applications. It's not sexy stuff, but it's a consistent, cumulative strategy.

HP. Last and possibly least is HP, which, on its third CEO in two years, is still vacillating when it comes to a vision. It parted with $25 billion to buy Compaq in 2002 and $1.2 billion to buy Palm in 2010, only to plot an exit from those businesses last year … only to reverse course (sort of) this year under new CEO Meg Whitman. HP shelled out about $10 billion for content management software vendor Autonomy and an undisclosed sum for analytics software vendor Vertica last year, following the failure of its internally developed Neoview big data platform and long after IBM and EMC had acquired market leaders in that sector. HP won a bidding war against Dell for storage vendor 3Par, but the $2.3 billion purchase price was more than twice Dell's initial offer. HP is still trying to make sense of its $13.9 billion acquisition of EDS in 2008.

At this year's InformationWeek 500 Conference C-level execs will gather to discuss how they're rewriting the old IT rulebook and accelerating business execution. At the St. Regis Monarch Beach, Dana Point, Calif., Sept. 9-11.

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dchasselshp5
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dchasselshp5,
User Rank: Apprentice
6/14/2012 | 9:19:10 AM
re: What Can You Learn From IT Vendor M&As?
So what do we learn? Real Innovation gets stifled as the "deal junkies" and their ecosystem of fee earners drive a perception of what the stock market "likes" I know I have been there! So short term views rule. It is acquire or be acquired so these players have played the game well. But what are the consequences longer term? Here is my take on each.
Salesforce New kid on the block and on same track as others but is it losing focus on customer real needs? Has done well on back of fact customers are feed up with alternatives! But if alternatives get better then this model may change?
Oracle Now end to end ICT by buying commodity hardware. But are they getting ready for commoditised software which is coming! But huge risk with a rather complex set of tools and con Fusion may be that with old model application approach. ERP is dying as smaller more focused solutions deliver better value. The move to object model driven software may make the 6 years of building their suites a hard pill to swallow?
IBM They like Oracle have huge and complex set of tools which makes for expensive overhead for partners and users. They avoided ERP ownership; smart move and use their acquired consultancy to good effect to exploit installing others! But that market is under threat so I see they will be pushing the combined BPM MDM (Master Data Management) message. A user centric outside in approach fits well with consultancy and some of their acquisition but still complex to get working together?
SAP How long can the ERP model last G«Ű not long as the outside in approach gains momentum with quicker and more effective wins. Obviously such a question was recognised hence the in the acquisitions to give spread of capability. All credit to them they initiated innovation with Business by Design. But a threat to core business if it delivers as they say maybe why not pushed but they do have that capability ready.
Dell Yes very focused in a commodity market and now into modernization of software a big issue but only big players will pay a lot to fix. They bought Perot consultancy but where is its presence? Future sales of ICT will be solution driven and they do not have any yet. The cloud use is about solutions not hardware which is a commodity to deliver. But they have learned from others on not buying old complex component based software.
HP Oh dear all the mistakes yet there is a strong presence in the market to just maybe make it easier to take on new models? They have at least avoided the pressure to follow the big software vendors in acquisition of component tools that have failed to deliver business and user focused solutions efficiently (hence why SalesforceG«÷s success). Despite their clear challenges they may have a better chance to be G«£solution ledG«• but as was mentioned they need to harness their front end EDS acquisition.
Summary these players all have challenges as the game begins to change and it will not get easier if the policy is to wait and acquire at later stages. That model has run its course with very mixed results as indicated. Software is the real problem and yet may be the answers for those with the vision. Commoditised business software has been created the long held vision held by many see this interesting perspective from well respected independent analyst Naomi Bloom said recently in her blog http://infullbloom.us/?p=3222 She concludes G«£If IG«÷m right, youG«÷ll want to be on the agile, models-driven, definitional development side of the moat thus created, whether youG«÷re an HR leader, working in the HRM software vendor community, or an investor in that communityG«•
So which side of the moat will these players find themselves?
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