How Strategic Acquisitions Go Awry

from the small-deal dept

Wed, Jul 18th 2007 6:52pm — Joseph Weisenthal

The software space has seen quite a bit of consolidation over the last few years, with Oracle's aggressive acquisition spree standing out. Just today it announced the purchase of yet another company, this time in the security space. IBM has made a number of deals as well, as it looks to bolster its high-margin software business, the unit that's largely responsible for its continued profit growth. Yesterday, the company announced the purchase of Data Mirror, which will bolster its business intelligence offerings. The purchase is not so much about growth, but about adding functionality to its existing offerings. But as Rick Sherman points out, there's a downside to these small, "tuck in" acquisitions: they create complexity. It's not so simple to just buy a line of software and meld it into an existing product, as any major enterprise software vendor can attest. Therefore, it's entirely possible that the customers of Data Mirror (or any company in a similar boat), could look for another simple, lightweight solution that isn't tied into some larger, behemoth.

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Filed Under: m&a, software
Companies: ibm

5 Comments

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Jeremy, 19 Jul 2007 @ 3:41am

That's why....
Oracle is doing it right by creating fusion.
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Sneeje, 19 Jul 2007 @ 5:42am

Mere speculation
While I understand the potential for issues to arise, and even as an employee of IBM I'm not at all blind to the minuses that come with extremely large corporations, I must point out that your post is mere speculation. It has not been my experience at all that IBM struggles to incorporate acquisitions in such a way as to provide near-seamless offerings. I accept that it may occur, but I have not seen it.
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Rick Sherman, 20 Jul 2007 @ 4:13pm

Perception is in the eye of the beholder
A little feedback on your readers' comments:
Customers, or even prospects, may have a different viewpoint than someone who works inside one of the software titans.
Large enterprise customers, especially the IT groups within them, love an ever expanding product suite. The tuck-in strategy is perfect way to accomplish that. Those large enterprise customers are exactly IBM's primary target for its enterprise-class software offerings and systems integration.
The SMB or small to medium business market (definitions vary with the high-end of sales being from $500k to $1B) is not always receptive to enterprise-class suites because of costs and the required skills/resources necessary to design, develop and deploy solutions with them.
This is not a knock on IBM the company, its products or its engineering prowess. This phenomenon impacts all the software titans, such as IBM, Oracle, SAP & Microsoft, as well as, the neo-titans such as BusinessObjects, Cognos and formerly Hyperion (now part of Oracle.) And the tuck-in Catch-22 is not limited to business intelligence (BI), data warehousing (DW) or data integration which is what I blog about.
I have heard many, many people complain about this effect over the years. These folks were discussing acquisitions and products being absorbed by all the software titans and neo-titans. They lament that the product they were using was being assimilated into the mega-software suite. Of course the acquirer supports the original product, and maybe even enhances it for awhile, but the assimilation is inevitable.
I am not saying that the acquisition is bad idea just that there are often pros and cons from a customer or prospect perspective. The good news is that software products from other small software firms or start-ups then fill the void and the cycle starts again.
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Sneeje, 20 Jul 2007 @ 5:33pm

Re: Perception is in the eye of the beholder
While I understand your point, I think the problem is muted at best. I can only state empirically, as you have, my experience. The price points for most of the recent acquisitions in this space (business intelligence and data acquisition being my area of expertise too) have not changed significantly in the near-term and in fact, many of our smaller customers indicate that support usually improves. Most acquisitions become completely immersed in the IBM suite within 3-4 years. By that time, even if the price points have changed (and admittedly sometimes they do), there are usually other competitive offerings.

So, I really haven't seen the impacts nor have we heard many complaints from our smaller customers regarding this issue. It's my opinion that the customers that see this as a negative are really reacting to a perceived issue (absorption by a monolith) than actual negatives or impacts.
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Richard Sherman, 21 Jul 2007 @ 6:48am

Re: Re: Perception is in the eye of the beholder
People's perceptions are going to be framed by their environment and who they interact with. If you work for IBM (or any of the titans) then you are most liekly going to perceive the acquisitions and resulting product mega-suites as terrific. If you generally interact with true blue loyal IBM customers or attend IBM sponsored events then you are going to be talking with customers with that perception.

I have talked to many companies over the years through my consulting work, teaching at conferences & seminars, interviewing customers for articles or research papers and attending industry-related events. In addition, I talk regularly with industry experts and financial analysts that track the business intelligence and data warehousing industry who themselves interact with many in the industry. I have heard the other perception discussed and acted upon many, many times.

You might not believe the other side of this debate, or hear it from your contacts, but it exists. You might not agree or see the other side but you have to acknowledge that others in the industry (from companies that buy software products and services) may have a perception different than yours.
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