I had a long overdue lunch the other day with former Business Objects co-worker, and one of the smartest people I know, Alex Moissis. While most people you talk to in Silicon Valley compare software industry evolution today to evolution of the automobile industry in the early 20th century, Alex had a different view.
He thinks you should compare Oracle not to General Motors, but to ITT — i.e., to the conglomerates of the 1970s.
- Conglomerates were built through acquisition, at sometimes pricey multiples.
- They did so largely for size’s sake.
- Their leaders were incented to keep getting bigger.
- While there were arguably scale economies to be had, they were generally not realized, nor did they prove compelling compared to the disadvantages of the conglomerate model.
- In the end, they were largely broken up.
It’s an interesting viewpoint and well grounded in reality. When I talk to my friends at the new behemoths, I don’t see any signs of any real product integration and/or discontinuation coming anytime soon (e.g., next 5 years) nor do I see any obvious scale economies. In fact, when I talk to friends in two different divisions of Oracle, it’s more like talking to people at different companies than anything else.
So are we witnessing a consolidation a la the early automobile industry or the growth of conglomerates a la ITT?
My take is that while history never exactly repeats itself that I would predict that a lot of products / companies do get spun back out of the behemoths before the movie ends. And you can’t forget that the behemoths themselves are being disrupted at three-levels
- Technologically by startups. The cost of being a behemoth is that you are so buried in integration road maps that innovation gets stalled.
- Price-wise by open source. MySQL, SugarCRM, Lucene, even Ingres all seem to be chipping away and moving up against their enterprise counterparts.
- Business-model-wise by SaaS and Google. Companies don’t employ electricians today, will they employ IT staffs to do basic operational systems (e.g., HR, CRM, ERP) tomorrow? Or will they just configure multi-tenant SaaS apps and focus their technology investments in R&D — as Geoffrey Moore would say, invest IT resource in core, not context.