What's Behind Industry Consolidation?

We shouldn't have been surprised when the dot-com bubble burst. Likewise, we shouldn't be surprised by the current trend of consolidation in the software industry. In retrospect, it seems like a very natural evolution of a young and dynamic industry. The companies that survive the shakeout will be the ones that offer a solid business proposition and visible ROI to their customers.

But why now? What's driving the consolidation? Who's in the driver's seat? What does it mean to customers who buy enterprise software?

First, think about the fact that the software industry is not homogeneous; there are several sectors. In enterprise software, operational vendors like SAP, Oracle, Siebel, PeopleSoft and J.D. Edwards are behind the current acquisition trend. For the traditional front-end business intelligence (BI) vendors, you have Business Objects, Crystal Decisions, Hyperion and Brio.

One important factor is that enterprise resource planning (ERP) vendors are desperately looking for ways to replace declining revenues. Over the last half of the '90s, Y2K represented the most ominous deadline ever faced by IT. And that fear drove the explosive growth of ERP vendors. Of course, when the work was done, ERP revenue fell off, which would have happened with or without a downturn in the economy. Naturally, these vendors are seeking growth opportunities.

Such opportunity, then, lies in the acquisition of competitors' market share, as we've seen in PeopleSoft's acquisition of J.D. Edwards, and Oracle's bid to take over PeopleSoft. PeopleSoft will actually gain complementary applications, while Oracle is simply making a bid for PeopleSoft's customers.

Among the traditional BI vendors, the reverse is true. The market has been so strong that companies are taking this opportunity to build their arsenals. Business Objects announced plans to acquire report-writer Crystal Decisions, while Hyperion indicated it would absorb another reporting vendor, Brio.

All of these acquisitions are clearly lacking the one key enabler of the intelligence side of BI: analytics. BI powered by advanced analytics provides rapid and ongoing ROI to organizations in all industries. True business analytics incorporates predictive capabilities, including data mining, forecasting and optimization. Organizations can see where they should be heading, what customers they should be targeting, and which suppliers they should be working with.

Did any of these acquisitions help solve business problems and enhance customer performance? And why would these companies undertake these expensive acquisitions?

We can't speak for these customers or these CEOs, but we can speak with SAS' own president and CEO, Dr. Jim Goodnight. See Dr. Goodnight's view on the consolidation in the industry – and his own acquisition strategy.

Diana M. Levey
sas com Editor-in-Chief

Matthew Barnason
sas com International Editor