The Big Boys Fight Back

Some say that instead of innovating on their own, big platform companies are now relying on emerging vendors to act as their de facto R&D bodies, swooping in to snatch an upstart when it looks like they're onto something that will enhance the bigger vendor's offerings.

Yet, big vendors, like Eaton and Brother, are also putting their money where their mouth is by using their financial muscle to internally develop innovative new offerings that trump well-established rivals.

But whether the spending is for in-house initiatives or for outside companies, it's clear that the industry giants aren't going to stand by idly while emerging vendors or Google grab all the high-tech glory.

Among the most visible signs of the giants fighting back are Microsoft's recently completed buyout of Tellme Networks and Cisco's much bigger acquisition of Webex. These dueling deals were announced a day apart.

Tellme is a dot-com-bomb survivor noted for its voice and search technology--which does not yet run on Microsoft's own speech engine. (The betting is it soon will.) What Tellme brings to the table is mobile search technology and speech-as-a-service expertise that could fit in well with Microsoft's grand unified communications vision. And, perhaps most importantly, it has big, important customers like many of the telco carriers who use its technology to run their automated 411 call system.

Cisco's nearly $3 billion buyout of Webex, announced in March, was viewed by some as a coup for that company, which wants to push its vision of unified communications. Webex brings with it not only the de facto standard for Web conferencing but a universally known brand name, $300 million in cash plus an extremely able sales force, observers said.

On another front, EMC bought its way into the now-red-hot virtualization market when it acquired VMware three years ago. By most accounts, it's done a very good job leaving VMware alone to do what it needs to do to continue its market leadership in the face of startups like Xensource and Virtual Iron.

Reasons to drop an emerging vendor, ranked by importance blank 2007 2006 Inadequate technical support 83.0 n/c Concern over long-term viability 75.0 65.25 Lack of field engagement/ resources 73.17 55.75 Poor margins 73.0 n/c Training costs/ requirements 70.33 59.5 Too much trouble to manage new relationship 69.33 47.25 Lack of sufficient co-op/marketing funds 59.17 n/c Base: 123 solution providers in 2007; 155 in 2006 Scores based on a score of 1 to 5 in 2006, score of 1 to 7 in 2007, both normalized to a 100-point scale for reporting purposes. n/c = not collected

With VMware, EMC apparently wants the best of all worlds. In April the VMware subsidiary filed for an IPO, which some analysts think will be the hottest launch since Google. EMC said earlier this year it wanted to sell a 10 percent stake in EMC.

On the security front, Symantec, which has seen its fair share of acquisitions in the past year, recently closed its buyout of Altiris, whose technology helps business manage and support diverse network devices.

VARs that are aligned with big vendor partners--and many that are not--need to keep an eye on this M&A bender if only to stay ahead of the curve.

There are times when a big vendor buyout can help a VAR get into new lines of work.

Microsoft's acquisition of Great Plains in 2001 enabled InterDyn AKA of New York, a Great Plains accounting VAR, to expand into collaboration practice with portals and into business intelligence/OLAP as well, said Alan Kahn, CEO of the New York Microsoft partner.

Chris Rapp, executive vice president of business development at Apex IT, Minneapolis, agrees with that new-line-of-work assessment. ApexIT, which had been a PeopleSoft CRM specialist, has now, thanks to Oracle's voracious buyouts of PeopleSoft, Siebel and other companies, broadened its base to work with PeopleSoft ERP, Oracle E-Business Suite and Siebel CRM, he said.

Is your primary contact with emerging vendors directly with the vendors or through your distributor(s)? blank 2007 2006 Directly with the vendor 85.7% 88.2% Through my distributor(s) 14.3% 11.8% Base: 88 solution providers with emerging vendor ties in 2007; 155 in 2006

But Oracle's buying binge hasn't been limited to huge horizontal plays. It's also buying into vertical niches and those buys can also help deepen a partners existing domain-specific business, he said.

"If you have a lot of retail customers, you might open a retail practice when Oracle buys Retek," he noted. Similarly, an Oracle partner with a big transportation focus might have done the same after Oracle acquired G-Log.

Eaton, a $12.4 billion diversified industrial manufacturer, has used its financial muscle to deliver a breakthrough product with its Powerware BladeUPS. That product was the result of a multimillion- dollar R&D effort aimed at delivering a more energy-efficient UPS in a smaller footprint for the exploding blade market.

Jeff Lerner, president of US Tech, a Franklin Lakes, N.J., data center power specialist that serves the global market, calls the new Powerware modular BladeUPS a "revolutionary" breakthrough in the UPS market that puts the heat on the competition. "To be honest, I didn't believe it when I first saw it," he said. "But then I got a chance to put my hands on it and see how it's installed. It's pretty cool and it's priced right."