News Stay informed about the latest enterprise technology news and product updates.

Enterprise software giants look to smaller fish

IBM, Oracle, SAP and Microsoft will stop acquiring major companies and turn their attention to smaller firms and Web 2.0 startups, according to a new report.

The era of big acquisitions in enterprise software is over, according to a recent report from Forrester Research.

That does not mean, however, that software acquisitions are over. In fact, in the coming years large software vendors will be looking to smaller, niche providers to extend their capabilities, particularly in the area of Web 2.0, experts agree.

"That's definitely where we're going," said Ray Wang, senior analyst with Cambridge, Mass.-based Forrester and co-author of the report, The Last Hurrah for Big Software Acquisitions. "A lot of the infrastructure is in play in the market. People are improving collaboration and integration not only at a business process level but at the data level. The problem is people are trying to figure out what their footprint will be."

There's been a steady wave of consolidation in the enterprise application market, thanks largely to Oracle's buying up most of the pure-play vendors -- including, most recently, Hyperion and BEA-- coupled with SAP's acquisition of Business Objects and IBM's purchase of Cognos. That's meant plenty of disruption for end users and system administrators, but they can now relax and take a deep breath, according to Forrester. @47541

They should, however, take the opportunity to map their current and future technology requirements to their core vendor's strategy, the report says. Projects such as instance consolidation, upgrades and business process outsourcing should be conducted strategically, with a focus on the long term and service-oriented architecture (SOA), rather than piecemeal.

Meanwhile, organizations hoping to leverage Web 2.0 technologies should look to smaller technology vendors, much as the enterprise software heavyweights themselves are doing.

"What they really should do is spend some time looking at what the non-enterprise user is doing -- there are some really innovative models out there," Wang said. "Consider that 10 years ago instant messaging was an innovative method. Now, with collaborative workspace and all the Web conferencing tools, that's what the future of work is going to be like."

There are plenty of Web 2.0 startups, many probably hoping that they will eventually be folded into a larger enterprise software vendor. Last week, Hoover's -- a third-party provider of business information -- purchased Visible Path, the company that built its Hoover's Connect social networking tool for business users.

On-demand offers safety net

Though reluctant to speculate on potential acquisition targets, Denis Pombriant, managing principal of Stoughton, Mass.-based Beagle Research, said that software buyers will probably forge ahead with efforts to get into Web 2.0 whether a company is likely to be acquired or not.

"With service-oriented architectures and on-demand technologies, the risks that companies used to have before making decisions to use a product, vis-a-vis turbulence in the market and acquisitions -- that's much less of a factor simply because a lot of these new solutions are built on technologies that make it easy to disengage with," Pombriant said. "If the buyer decides to go in another direction, they can do that without a major write-down."

The emergence of Google

It's not just small startups inserting themselves into the enterprise software market; Google could present a challenge in the coming years. It has already.

"Now people will get on Gmail or [AOL Instant Messenger] when corporate email goes down," Wang said. "People are creating a workaround already. There is a place for companies like Google to design these tools, but it's going to come back to: 'Do IT managers feel their information is secure?' It's one thing when it's free and it goes down; it's another when it can't meet those service-level agreements."

Strategies differ

Among the major vendors, Microsoft will be the least acquisitive, targeting middleware providers in customer data integration, personal information management, and Web 2.0 specialists that enhance Information Workspace, according to the report (which was published before Redmond's blockbuster Yahoo! announcement).

SAP is likely to focus on small-scale acquisitions around its NetWeaver middleware tools and partners, particularly user interface tools, business process management, extract transform and load, and master data management.

Oracle will most likely turn its attention to industry-specific applications in its existing base and middleware, the report said.

IBM will probably make the biggest splash with acquisitions, according to the report. Forrester expects that as SAP and Oracle encroach on its middleware business, Big Blue will buy its way into the packaged application business.

None of which should keep technology buyers from making a purchase, according to Pombriant.

"Buyers are pretty smart," he said. "It's always been a fluid market. That hasn't stopped people from buying software. If a company has a defined need and a solution is available, they'll go out and utilize it, especially if it's a low-cost, on-demand solution."

Dig Deeper on Social media customer experience

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.