IT Megamergers' Effects on IT Departments: What They Mean for You

The rumor about Cisco acquiring EMC -- which means acquiring VMware -- has been floating around Wall Street for a few months. So like everything else on Wall Street at the beginning of October 2008, it's now time for "Main Street IT departments" to think about such a deal's implications -- and the implications of other possible megamerger deals among your IT suppliers. Plunging share prices make such deals likelier and likelier. What's that mean for you in the IT group?

The first question to ask is "Who is your IT supplier?" About 50 IT suppliers claim you. That's why when you add up the IBM Software Group, Microsoft, Oracle, SAP and so forth PR count for number of users, it totals the population of the planet. However, as an upcoming IT Business Edge article on IT channels explains, the answer to the question is often "none of the above." If your IT supplier is a regional or industry-specific value-added IT distributor, stop reading. All you have to do is let your key supplier worry about the likely upcoming megamergers.

But if you deal direct -- meaning you are probably a larger enterprise--the next question is "What do you expect of your IT suppliers?" Despite the fact that they all get lumped together in the trade press (and investment analyses), most of these companies sort themselves into separate buckets:

Technology providers: CA, Cisco, EMC/VMware, Intel, Red Hat, Sun, and -- likely but still to be decided -- Oracle.
IT product/service (including SaaS) providers: Ariba for procurement, FiServ in banking, McKesson in healthcare delivery, SAP in 28 different industries, almost all remaining traditional independent software vendors and start-up or restart SaaS players -- including but still to be decided -- Microsoft.
IT-enabled business services providers: Accenture, ADP, HP/EDS, IBM/PwC, SAIC, and many more.

Apple, Google, Intuit and similar consumer IT providers have some enterprise implications. From your perspective, they are most like technology providers.

Each of these buckets provides IT groups different benefits. Very simplistically:

Technology providers offer low-cost IT commodities on which you should expect little service (and make sure you are not paying for it).
IT product/service providers are increasingly delivering everything they do online; if there's a guy hanging around your shop with one of their logos on his shirt, you're probably paying them too much.
"IT-enabled business service provider" is investment-analyst speak for outsourcing.

As long as the megamergers are within the "technology provider" group such as the rumored EMC/Cicso deal or the recent Oracle/BEA merger, nothing should change for you. Especially as open source technology permeates the technology provider's R&D efforts, commodity prices could drop.

In the "IT product/service group," on the other hand, deals like SAP's recent acquisition of Business Objects may drive prices up. You're seeing that with the maintenance price rises we have discussed often. SAP is likely to follow with more acquisitions and all the remaining smaller ISVs are at risk of following Geac, Marcam, MAPICS, Solomon, Sterling Commerce and on and on into IT market history.

Other interesting plays might include cross-group moves such as IBM coming "back down" into this space by acquiring a Lawson, although IBM has consistently said it does not want to do that. If an IBM or other company in that camp makes such a move, it would be more than likely done to support its "business service provider" strategy (see next paragraph) rather than to re-enter the product/service provider category.

As for outsourcing, I'm sorry to bring it up. Although you don't want to think about it, your C-level management is. Your strategy should be to think of your group as a separate company and make the argument -- where applicable -- where doing something in-house actually provides the enterprise better return on investment and lower total cost of ownership than going outside.