Election Day In Software

The acquisition frenzy in the software industry is straining some long-established channel relationships and forcing solution providers to choose where to pledge their vendor allegiances.

The consolidation trend, which saw a handful of vendors snap up almost 40 other companies this year, "is throwing off some of our traditional partnerships," said Dave Gilden, COO of Acuity Solutions, a Tampa, Fla.-based security-focused partner. "It's a big issue, since partners like Acuity have made huge investments with specific vendors."

Rory Sanchez, president of SL Powers, a West Palm Beach, Fla., solution provider, said the buyouts can create real issues in the channel. "The problem is we make investments to get certified and are loyal to these vendors and then they make these acquisitions without really letting us know what's going on or explaining it to us," said Sanchez. "Then we are left to our own devices to figure out what is going on and how their strategy is going to affect us."

After Oracle completed its near-$6-billion-dollar buyout of Siebel Systems in January, many thought the software M&A boom was over. They had another think coming.

Year to date, Oracle has purchased 10 companies and Microsoft has bought 12. EMC—trying to expand beyond storage to security and information life-cycle management, has bought six, including two Microsoft solution provider partners. IBM Software has bought at least four, including FileNet.

The deals—Google's $1.65 billion buyout of YouTube not included—are not all huge, but they're still flowing. And they are strategic, solution providers and other industry watchers say.

Take Oracle's shopping list as an example. The Redwood Shores, Calif.-based database giant snapped up four small companies in June alone: Demantra, Telephony@Work, Sigma Dynamics and Sunopsis. These companies brought demand management expertise, IP-based call-center savvy, realtime analytics and data integration wherewithal, respectively, to Oracle's apps and middleware fold.

Microsoft, Redmond, Wash., filled in a "group policy gap" with its acquisition in early October of DesktopStandard. A week later, it bought Colloquis, a maker of customer query software typically used by online services to automatically answer customer questions or, failing that, to route the call efficiently. That acquisition is part of Microsoft's attempt to build out its software services infrastructure.

That's all fine and dandy on paper. But when vendor buyouts happen, solution providers have to read between the lines and look after their own interests and vote their business accordingly.

One fear among VARs is that these companies, all of which regularly tout their R&D largesse and innovative zeal, are really relying on acquisitions for fresh technology and a leg up on the competition. The feeling is these big companies are out of big ideas, so they're looking outside.

Closer to home, solution providers realize that as a vendor adds more and more products, or more layers to its stack, they will be affected. They must scrutinize how their vendor partners—whether they are the buyer or seller in a given deal—will be affected by the transaction. Of particular concern to security VARs, for example, is EMC's buyout of RSA Security. Acuity, an RSA partner, is watching for the impact of the deal on its own business. Another deal under the microscope is IBM's buyout of Internet Security Systems (ISS.)

Don't Sit On The Sidelines
Vendor M&A should not be a spectator sport for VARs, said Andrew Plato, CEO of Anitian Enterprise Security, a Portland, Ore. security specialist.

"Assuming you resell the acquired company's products, you really have to spend some time figuring out what the buyer's strategy is. Will what they're doing align with our business or will they try to poach our business?" Plato noted.

He was initially concerned with the news of Armonk, N.Y.-based IBM's buyout of ISS, one of his strategic vendors. "In that case, we ended up thinking it's a good thing because ISS needed deeper pockets and a better internal organization. IBM will probably poach some real high-end business, but there will be a lot more midtier business for us," he said.

Plato was less enthused about Symantec's earlier buyout of Sygate, which he felt confused the market. "What is their strategy? Am I going to keep selling Symantec Client security only to find out when I book the order that it's now Sygate and, by the way, costs more money?"

Acuity's Gilden said his company was very worried about EMC, Hopkinton, Mass., folding in RSA. "We are a big RSA partner and we are not a big EMC partner," he noted. "How will those two coming together affect our RSA business? Is Dell going to be selling RSA now? And what is IBM going to do with ISS?"

VARs that pride themselves on knitting together collections of "best-of-breed" software modules from many vendors now see the most powerful vendors—IBM, SAP, Oracle, Microsoft, EMC—offering fuller stacks on their own. One VAR that may have fielded, say, BEA application servers, Oracle databases and Microsoft applications might decide to cast his lot with one vendor that now covers all those bases, for example. And he might worry that as vendors consolidate wares from many companies, they're also consolidating channels. Infor, for example, an ERP software giant built on myriad acquisitions, is requiring its channel partners to dump competitive ERP products to retain their status with the Atlanta vendor.