Software Scientists

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It seems every week brings word of another blockbuster acquisition in the business software industry: IBM buying Cognos for $5 billion, SAP buying Business Objects for $6.8 billion, Oracle, which bought Hyperion for $3.3 billion earlier this year, trying to buy BEA Systems for $6.7 billion.

For solution providers allied with acquired and soon-to-be-acquired software vendors, these are uncertain times. But they can also be times of opportunity.

As has happened with PCs, servers and other segments of the IT industry, the maturing business software arena is consolidating down to a relative handful of major vendors, with IBM, Microsoft, Oracle and SAP as the leading players. And all indications are that current trends will continue.

"I think you'll see continued industry consolidation and more vertical integration, not less," Hewlett-Packard Chairman and CEO Mark Hurd predicted in a keynote speech at the Oracle OpenWorld conference last month. "Only a few companies are well-managed and have great people. In the end, math wins."

The "Big Four" will never be the only software vendors on the planet, of course. Major companies such as CA and Symantec are still around, as are channel favorites like Sage Software and Intuit. HP is becoming a software force through its acquisitions of Mercury Interactive, Opsware and others. And companies like Salesforce.com and NetSuite are the vanguard of a whole new generation of Software-as-a-Service application vendors. Even Oracle CEO Larry Ellison acknowledged during a Q&A session at OpenWorld that his company would always have competition from smaller companies no matter how aggressive Oracle's acquisition strategy.

But there's no denying that the business software space is undergoing some serious rearchitecting. And solution providers are doing some serious rethinking about whom they partner with and why.

Industry consolidation means the major software vendors are now vertically integrated as never before. SAP, once an applications vendor, now offers the NetWeaver application integration platform and Business Information Warehouse data warehouse system (with Business Objects soon to extend its business intelligence offerings). Oracle, whose roots are in database software, now offers its extensive Fusion Middleware product line and multiple application suites—thanks in large part to 41 acquisitions in the past 45 months (see cover story, p. 28). IBM, while once vowing not to get into applications, has added content management to its software repertoire by acquiring FileNet and is in the process of buying business intelligence software vendor Cognos. Microsoft, of course, has always taken the approach of offering everything from applications down to the operating system.

As software vendors become more vertically integrated, solution providers that have offered, say, financial applications from multiple vendors may find that strategy a more difficult road. Oracle channel partners planning on reselling the company's next-generation Fusion applications, for example, will also have to work with Oracle's Fusion middleware that the Fusion applications will rely on for business intelligence, security and other core functionality. "It's becoming more of a platform play," said Gartner analyst Kimberly Collins.

For solution providers, that could mean tying themselves more closely to a single vendor and their entire software technology stack. One Hyperion channel partner, who asked not to be identified, said he's already feeling some pressure to sell more Oracle products. The question for resellers is whether they have the breadth and depth of technical expertise to work with such a range of technology.

Solution providers may opt to ally with a certain vendor based on the reseller's target vertical markets and the vendor's areas of strength. SAP is dominant in manufacturing and chemical industries, for example, while Oracle is firmly entrenched within financial services companies, Collins said.

Next: Industry Consolidation

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