Forum: Are there consolations in consolidation?

It's hard not to conclude that all of this consolidation amounts to a considerable reduction of competition in the marketplace

It’s all on again with Oracle bidding for BEA while SAP is buying Business Objects. The international IT marketplace continues to consolidate around the core group of ICT giants.

Locally, should the bid succeed, we could well see BEA’s local offices in Auckland and Wellington subsumed into Oracle as were the local PeopleSoft, Siebel and JD Edwards presences in the past. Looking back, we’ve seen other erstwhile giants go the same way. HP gobbled Digital, Compaq and Tandem, and in New Zealand, it acquired the local branches of CSC and Cap Gemini. Gateway swallowed PC Direct and then departed the country. Accenture just departed, though they still have feet on the ground here, apparently.

IBM has gobbled so many over the years it’s hard to keep track, but in this century PricewaterhouseCoopers Consulting was a biggie and you can add to that Rational, Informix’s assets if not the company, Candle, FileNet and Ascential and Logical CSI in New Zealand, in no particular order.

It’s hard not to conclude that all of this amounts to a considerable reduction of competition in the marketplace and that it will not be good for customers — at least when it comes to prices.

The contrary argument is that the consolidated R&D and other resources in these merged entities will be able to deliver better products and services to users.

In New Zealand we worry a lot about our local companies being sold offshore, but the M&A activity above — and there is much, much more than that — at least puts some of that in perspective. The ICT market is global and it takes very exceptional companies to both grow strongly and avoid acquisition along the way.

The most obvious example is Google, which performed a total run-around to grow from start-up to industry giant. It’s utterly staggering to think that Google was incorporated less than a decade ago, on September 7, 1998. But the Googles of this world are rare.

For that reason, I think, we may as well give up any remaining thoughts of developing a New Zealand Nokia or Microsoft. Any half-decent local company will be gobbled and probably gobbled early. While some Kiwi entrepreneurs might deny intentions to sell, they usually change their mind when the dollars hit the table.

The other model of local IT development is that of the “ideas factory”. We create, innovate and develop mostly with the intention of at some point cashing in. Sadly, neither model appears likely to lead to the development of a truly strong local ICT sector, and if you add to that the volatility of our dollar, the skills shortage and other impediments, we really do have a tough road ahead.

Every so often something goes the other way. IBM sold its PC division to create Lenovo, which has become a new player in the local market. But such deals are the exception.

There’s at least one consolation in these latest acquisitions, though: Business Objects doesn’t have a local office to close.

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Tags OracleSAPbusiness objectsM&Abea

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