Oracle's $7.4bn acquisition of Sun Microsystems is 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.
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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IT suppliers that have complacently relied on large orders from the public sector are in for a shock, says Richard Holway, chairman of research company TechMarketView.