Friday, July 31, 2009

A comment or two on acquisitions

Given the latest news about acquisitions in the BI space, I feel I need to make a few comments. No doubt this will be viewed as provocative. That's not my intent. This is just my honest opinion about the subject.

Acquisitions don't typically add value or benefit customers. The real beneficiaries are shareholders and executive management. Wall Street likes acquisitions. Investors and investment banking-types make tons of money.

Me, I like money too. However, I would prefer that people/companies make money by adding value. By adding value I mean inventing something new, building great companies that make great products and support their customers - and not looking for a quick and lucrative "exit". I mean adding competition to the market - not reducing or eliminating it.

Sadly, when acquisitions occur, value is often lost. Products are discontinued (or simply "supported"), key employees are RIFed, and customers lose their voice and the influence that they once had. New product features? Get in line (a long one). Your own user group conference? Not any more. You can have a breakout session in our mega conference.

There are still a few independent vendors out there. But for how long? When a larger vendor offers 5 - 6 times trailing revenues in cash, it's hard to say no. Perhaps the remaining independent vendors could make a pledge to stay independent? Okay, that's probably a bit naïve on my part.

The larger question in my mind is: how do organizations re-take control of their own destiny? While not necessarily an advocate for things like open source, I do wonder if it wouldn't provide some protection against the ongoing M&A frenzy in the market.

I would like to know what you think. Post a response!



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  1. Hi Howard,

    I fully agree with you.
    However this is the consequence of the world in which we do leave: entrepreneurs want to make money fast, they raise funds; investors want to make money fast. So the startup needs to be sold 5 or 8 years later, in order for all of them to make money.... The loosers are the customers...

    The only alternative is to self finance development/growth of startups and to manage businesses for the long term (before we are all dead)... this way aligns interests of all stakeholders (shareholders, managers, customers, and employees). But, for the entrepreneur/manager this is much more harder and risky....

    Nonetheless, this is the way that I, as an entrepreneur, favor. This is the difficult way that I do recommend.

    Alain Risbourg

  2. Alain,

    Thanks for your comment and I do agree with your assessment.

    Self funding is quite hard. However, some have managed to do so, even in this difficult climate. It is very risky - for certain. However, those that prevail are completely free to pursue their vision.



  3. Hi Howard,

    I assume you're referring to both this week's events (IBM/SPSS) and the general software consolidation trend.

    In the end I think IBM/SPSS was probably good. SPSS got a good price. I suspect IBM will be more effective at selling it than they were. For once, someone with a real salesforce is going to SAS a run for their money.

    On consolidation overall, I believe that shareholder value tends to get created thru elimination of competition and the creation of big software oligopolies. I think customers get hurt by this initially but it creates two opportunities: [1] business model disruption a la SaaS and open source where the big guys get "innovator's dilemma'ed" into paralysis or poor execution, and [2] the opportunity for technology disruption -- a la Mark Logic -- because the big guys are so busy integrating the nightmare of multi-level acquisitions that innovation stalls.

  4. Dave,

    Thanks for the thoughtful response.

    The IBM/SPSS announcement may have triggered it, but it's something I've been pondering for awhile.

    In some cases an acquisition serves to accelerate the inevitable demise of a vendor. Like pruning the dead growth of a plant to encourage new. However, that's not often the case. Oftentimes the target is viable and could continue to thrive in the market if allowed to.

    But, I agree with you that it creates a void which will be filled by emerging and innovative companies. One can only hope that they stick around awhile.



  5. Howard:

    If companies who are in a state of dissolution or flat/negative growth sell only the product lines that are declining, they will have the opportunity to focus on their strengths and grow. The "pacman" mentality that we have seen in the BI industry over the past several years has fueled a false economy as newly acquired products stagnate or go sideways leaving users with obsolete technology through no fault of their own. Put into perspective there are a great number of frustrated users of Adaytum, Cartesis, Express and others who have viable product that became obsolete in the course of acquisitions. The product wasn't necessaruly bad, but was redundant to the acquiring company.

    Some products may experience growth due to being a check off item in a laundry list purchase, but the new owner of all these products doesn't really care about the strength of the current user base. These are not start-ups we are talking about, but established companies with years of loyal customers. We are creating monopolies and it makes me sad to watch healthy competition go away.

  6. While people may have different views still good things should always be appreciated. Yours is a nice blog. Liked it!!!

  7. Howard,

    I wanted to complete my first comment and answer to your question,from the perspective of the user.

    "how do organizations re-take control of their own destiny? While not necessarily an advocate for things like open source, I do wonder if it wouldn't provide some protection against the ongoing M&A frenzy in the market".

    As this frenzy is not going to stop (yesterday Informatica announced they are going to purchase Agent Logic), because it's a given in our economy, I think that the only worth-to-give advice is the following:

    There is no such thing as an everlasting solution, that users/organizations can build on, be it Community Open source (communities are also mortal organizations) of solution from a software vendor - either commercial open source, innovative proprietary software startup or incumbent software mogul (they can go out of business, be purchased or decide about the end-of-life of you solution for good or bad reasons).

    So knowing that, you need, when you are to select a suitable solution for your business, to also prepare yourself for the worst scenario. Any way it's going to happen at some time!

    You must work on 3 axis :

    1) select a (de facto)standard-based solution, in order to be able to migrate your data from one solution to another without having to change all your Information Systems.

    2) select a solution whose provider accepts escrow services, in order to be able to get some maintenance/support from a 3rd party if your provider fails and/or stops providing supports.

    3) select a solution provider whose business model maximizes its chance of being still developing and maintaining the solution you are going to choose: in an ideal world, they must be innovative, self-financing their development, with momentum, profitable and customer focused.

    Best regards

  8. Alain,

    Thanks for your very thoughtful comments. Very valuable!

    Regardless of the path that organizations choose, they need to take greater control over the process. As a part of this, they must think about the possible scenarios (e.g., dissolution, acquisition) and develop plans accordingly. Blind trust or hoping for the best simply won't help.