If you’ve been reading the business news you might have noticed that Oracle has been trying to buy PeopleSoft, one of its competitors in the enterprise software toolkits market, in which the German company SAP is the leader. With either SAP, Oracle Applications (not to be confused with the Oracle Database Server), or PeopleSoft you can build a corporate accounting system without having to start from scratch.
My theory of the market for IT products…
1960s: lots of innovation, many vendors
1970: customers realize that most of their innovative smaller vendors have gone bankrupt, vow to buy only from IBM
1988ish: customers realize that the computer they bought this year from IBM was almost exactly the same as the one they bought from IBM in 1969; they begin to demand innovation
1988-2000: lots of innovation; small companies such as Microsoft and Oracle are able to grow into big companies
2001: customers realize that most of their innovative smaller vendors have gone bankrupt and vow to buy IT from only three vendors: Microsoft for software, Oracle for big database management software, IBM for mainframes.
2010?: customers realize that Windows/Office 2010 is more or less the same as Windows/Office 2000 and begin to look at new products from new companies again
Currently therefore it makes a lot of sense for all the medium-sized software companies either to fold or be purchased by Microsoft, Oracle, or IBM. When customers will only buy from one of the Big Three the business is worth a lot more to the Big Three than to anyone else.
[Of course PeopleSoft may not be sold at all. Oracle has offered $5.1 billion, which the shareholders would be incredibly lucky to get considering that the long-run viability of the business is questionable. Craig Conway, the CEO of PeopleSoft, however, states that “I could imagine no price nor combination of price and other conditions to recommend accepting the offer to our shareholders”. I.e., if Oracle offered to give his shareholders a Dr. Evil-esque $100 billion he would turn it down because the acquisition would mean the end of his CEO job. Mr. Conway earned $17.6 million last year, during which revenue and profit declined and his shareholders got creamed.]
Peoplesoft’s new 8.0 architecture is pretty good. I’m not sure where they are in the transition of their customers. This uncertainty and the name brand Oracle could be very detrimental to their upgrade effort as well as attracting new business in this economy.
The other beneficiary of the consolidation could very well be SAP. They’ve been putting up reasonable numbers while attempting to transition to a new architecture themselves.
Of course as MSFT moves more into the business process space the long range prospects of any of these companies is more than suspect. I would expect IBM to move more into the business process software market through some aquisitions. They’re worth a bet to be in the top two with MSFT because of their consulting arm, way beyond MSFT’s capabilities and should remain so for many years. Oracle’s lunch will be eaten because their cost model is still high end Unix and not a really strong consulting arm to lean on.
Well, I believe that the enterprise software industry needs a “paradigm shift” — it’s hitting the wall. Look at the existing products from sieble, psft, oracle, etc. — they basically force users to comply to certain process and end-user has very little control to ‘customize’ the application. Also, the usability of these applications are very bad and there are a lot of vapor ware.
I think we need an entire new generation of enterprise application, which end-user can specify what they want to accmpolish in very simple lanuage, and the software should automatically ‘translate’ those requirements to an application. This ‘user-centric” way of creating application will make business much more efficient and make the applications much easier for end-users.
On the other hand, I do feel this is very difficult to do, and we probably need to wait a while.
…they basically force users to comply to certain process and end-user has very little control to ‘customize’ the application.
Yes, these systems have evolved over decades. In SAP’s case, R3 is a direct decendant of their mainframe product from the 1970s. R1 was incredibly innovative back then, and it helped SAP get to where it is today, because they had one of the first production-quality machine independent virtual machines.
Too bad the language was ABAP, aka “German COBOL”. But it was the 1970s after all.
In any case the future will be interesting since the value in these systems to the vendor is their proprietariness. The value to the consumer is their automation first and their openness second.
They’re all trying to open up and still maintain enough proprietary handcuffs to turn a profit. Their historic margins will fall. They’re all going after the SMBs (Small and Medium size Businesses).
All the ERPs but Microsoft will probably end up with open source systems and try to make their profit on services. Give IBM the odds here. But IBM will have to make some strategic purchases first to get the software foundation. (Anyone remember “San Francisco”? Before and After)
See also http://www.c2.com/cgi/wiki?ConversationForAction – the first parts.
Since I work in the industry, the evolution of the computer and software companies admittedly fascinates me more then other industries that go through the same growth cycles (banking, automobile, beer). Public companies are also under pressure to consolidate from powerful market demands for increased value. Increasing value when you are in the early stages of company growth by investing in marketing or “streamlining” customer support or processes is relatively easy. Companies also routinely shift labor overseas, acquire companies, or employ lobbying to open trade or influence foreign policy.
Generally the larger the company the riskier or costlier the expansion actions are- but this also increases the barrier of entry to competitors. Acquiring a company promises shareholders increased market share, decreased competition or decreased research and development expense. Of course inadept consolidations meet disastorous ends, but majority stakeholders (founders and chiefs) rarely lose. Furthermore minority shareholders caught in the moment are generally willing to gamble for a higher payoff. Since customers will stick with mediocre products from a name brand they know, the larger companies can become quite lumbering and bloated before customer demand dries up. Ahh, the appeal of Times and Google.
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