Oracle's$7.4bn acquisition of Sun Microsystemsis the latest move in an industry that is rapidly
consolidating around a few major suppliers.
IT mergers and acquisitions have accelerated in recent years.
Last year,
Hewlett-Packard bought EDS for $13.9bn and
Oracle acquired business intelligence specialist Cognos for
$5bn. Symantec bought Veritas for $13.5bn in 2004.
Under Larry Ellison's leadership,
Oracle has spent $35bn since 2005 on major software
acquisitions, including Peoplesoft, Hyperion and Siebel.
IT departments are now running much of their IT with products
and services from the big four - Microsoft, IBM, HP and Oracle.
However, many are struggling to work out how to take advantage of
the new supplier landscape.
Continuing consolidation
The software and IT services market will only continue to
consolidate, according to
Richard Holway, a respected IT industry analyst and chairman of
TechMarketView.
Mid-sized suppliers will disappear, leaving a market dominated
by three or four large software and services companies and myriad
small, innovative IT supplier start-ups, he says.
"Consolidation is inevitable. There will be hardly anybody in
the middle ground. We have already seen it happen to a greater
extent in software than services, but IT services is going that
route," Holway says.
Big Indian outsourcing firms, including Wipro, Infosys and TCS,
will buy more big-name systems integrators, he predicts. Top
players such as Cap Gemini, Atos Origin and Steria will almost
certainly be taken over within two years, he says.
Get a better deal
Yet many IT departments have yet to work out how IT industry
consolidation can benefit procurement and integration plans.
Ray Titcombe, chairman of the Strategic Supplier Relationships
Group (SSRG), a consortium of user groups, says, "I have yet to see
businesses recognise and plan procurement strategies that reflect
this level of industry consolidation."
David Roberts, executive director of The Corporate IT Forum
(TIF), says some users are still treating the acquired companies as
separate entities, which means they are missing out on negotiating
enterprise licensing agreements crossing multiple products from the
same major supplier.
He believes industry consolidation damages supplier/user
relationships. "It takes a long time to get internal [IT
procurement] teams and suppliers working well together. This
relationship survives people moving along with their careers, but
it can be shattered when the supplier company is acquired."
User and supplier engagement
This concern was illustrated in a recent TIF survey. Its members
said they felt HP pricing is inflexible and IBM is difficult to
work with. They described Oracle as a monopoly and claimed
Microsoft's licensing does not fit in with how users want to run
the software.
TIF is planning what it describes as "a proactive engagement
programme" to bring end-user organisations and suppliers together
to work around these issues.
But fears that consolidation is inevitably bad for IT
departments are misplaced, says Holway.
"The obvious thing people say is that it reduces choice. One
cannot argue with that. But in many cases the old brands and the
old products go on for years. The last thing suppliers want to do
is drop them," he says.
"People say CIOs are poor little people who are battered because
of these big players. But they hold all the cards. They are the
people going out to their contractors and their suppliers,
demanding discounts of 20% or 30% in the case of BT."
IT directors should use their relationship with large suppliers
to negotiate competitive enterprise licensing agreements for
multiple products.
As an example, Mitchell says, "You may be using a niche security
product, but IBM may be able to provide you with something that has
about 80% of the functionality for free, as part of an enterprise
contract."
At the very least, CIOs need to ensure their procurement teams
understand they are negotiating with one major supplier for
products which may previously have been independent.
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