Goodnight on Acquisitions

by Dr. Jim Goodnight

No doubt, we’re seeing a lot of consolidation in the enterprise software sector. Is it healthy? Well, competition is healthy, and I’m certainly not afraid of it. Competition ensures customers will get fair pricing, better quality products and continued innovation.

While some in the industry are gobbling up competitors to increase market share, I have opted not to go down that path. That strategy may prove successful for others, but it doesn’t fit our current philosophy.

SAS is different. And, as SAS’ CEO who considers acquisitions, I have to think differently. I see three basic reasons for buying another company:

To grow market share: Offers short-term benefits to the vendor. The vendor must address internal decisions about which technology it should continue to develop/market and which to sacrifice. This strategy may cannibalize current revenue streams. Provides few or no benefits to the customer. No new technology is offered to the customer.

To enhance core technology: Offers long-term benefits to the vendor, short-term benefits to the customer. The vendor may acquire new technology that it, in turn, can integrate with existing solutions to deliver an enhanced product to market more quickly than by developing the same technology organically. The benefits of this approach diminish as competitors catch up in technological developments.

To expand domain expertise: Offers long-term benefits to the vendor and customer. The vendor acquires knowledge and capability to solve specific business problems for the customer, integrates this capability into existing technology and delivers a solution that helps customers solve problems more quickly.

Every vendor needs to choose what’s most important depending on the state of its business and the industry. SAS is a stable company with a long-term history of growth.

I believe in growing the company organically because it’s the most cost-effective approach and results in the most integrated product offerings. However, we are always watching the market for exciting new technology that may extend our offerings far more quickly than we could develop the technology ourselves.

When we see technology that will benefit both SAS and its customers, we may acquire a company to enhance our own core technology. We did this with Intrinsic for its marketing automation solution, DataFlux for its data quality software, and ABC Technologies for activity-based costing and performance management capabilities.

But we aren’t just looking for cool technology. Our business plan for the last several years has been to verticalize SAS software solutions. That is, we recognize the need to bring in specific industry domain expertise to ensure that the solutions we develop solve real business problems. We are now looking at acquisitions to help address this initiative. The first acquisition in this vein was OpRisk Analytics, announced in June of this year. We are considering others.

I guess it could come down to too much consolidation – I wouldn’t want to see a few big fish completely dominate the market. However, as more organizations adopt a portfolio management approach to their IT spend, they’ll be choosing to work with fewer software vendors who can offer broader solutions across the enterprise. Every emerging industry eventually sees a thinning out among vendors, generally leaving the market leaders and a crop of innovative start-ups. SAS is one of the leaders, and we intend to be around for a long time.