For over a decade, software market consolidation has been near the top of IT trends lists. For IT management and staff, the acquisition or merger of a favorite software supplier previously meant simply sending the monthly subscription maintenance check to a new address. However, as of 2008, there are more meaningful implications behind the increasing numbers, first identified by Albert Pang of IDC. What happens to a favored software supplier very much depends on why it was acquired or involved in a merger, not just that the merger or acquisition happened.

Look at it as the three "D's:" Some of the companies were desirable for their functionality and revenue stream and will continue to be aggressively supported and see new functionality added.

Other favored suppliers were part of distress sales; that does not mean they won't see new functionality but the most likely reason they were acquired was you — the IT user base. The new owner wants you to migrate to its own similar brand of software; it will be happy to accept your monthly maintenance check in the interim but will likely increase its price dramatically.

A third type of acquisition is more subtle but makes sense to the IT investment community: Your favorite software supplier decides to exit the software market or at least that part of the software business about which you care and divests itself of your favorite product.

Trying to figure out if your favored enterprise software supplier will be subject to one of these moves in 2009 is an important IT planning activity. And if your favorite software was acquired in 2007 or 2008, and you haven't thought about these possibilities, go back and see what category you fit in. Based on such analysis, you might want to start planning an enterprise software migration for 2009 or 2010. Your philosophy vis-a-vis open source terms and conditions (Ts&Cs) also matters in this analysis.

The Acquirers

The leading software suppliers — IBM, Microsoft, Oracle and SAP — have been involved in over 100 mergers and acquisitions since 2000 and are likely to keep up the pace during 2009. Almost all of their acquisitions are of "desirables," but still Oracle may have passed the old Computer Associates in terms of lining up the most disparate brands and incompatible architectures ever under one nameplate.

In addition, many of Oracle's acquisitions represent a further emerging trend in that they are really the acquisition of two or more different software products. BEA, of course, was also Fuego, Plumtree and Tuxedo. Haley was legacy Haley and Ruleburst. Skywire includes at least Docucorp, IIT and Whitehill. This is not a good sign for the IT manager or staffer. In the end, Oracle still wants you to migrate.

Smaller software suppliers tend to be in the business of picking up distressed enterprise software. This movement is led by Infor and is usually backed by a private investment firm such as Golden Gate or Francisco Partners. These firms typically exist to support management buyouts. Infor is owned by Golden Gate and "owns" the brands of at least 30 formerly separate enterprise software companies. The November 4, 2008, announcement that Francisco Partners has successfully spun out the old Hummingbird-Solution 6 brands of CABS, CMS/Data, Elite, Keystone, Lawpoint, and Novient professional services software under the Aderant nameplate is both another example of the multiple-brand phenomenon in consolidation and of another related trend: the spin-out. In Infor's and Aderant's case, they do not care if you migrate.

Acquirers are not only found among the established software market leaders. HP is working its way back into the market through acquisition, and other IT market leaders — particularly Cisco and EMC — are becoming major forces. Typically (see an explanation of whether a large IT-related company is a managed services supplier, an IT-enabled service provider, or "simply" an IT provider), this is because your software is becoming part of a more comprehensive IT deliverable. Roger Bottum of Acresso commented on this trend, saying "We echo your comment on non-traditional software companies becoming more prominent. We're seeing device manufacturers in essence becoming suppliers of special purpose computing platforms and software. With shrinking margins on devices, industries such as network/telecommunications equipment, test and measurement, medical devices, and industrial automation are investing more in software to differentiate products, reduce supply chain complexity and create new business models."

Speaking of Acresso, it is an example of the third type of financial restructuring that could affect your favorite software supplier: the divestment trend. Acresso was spun out by Macrovision. IBM has taken that tack with other IT products such as printers and PCs during the period 2000-2008 and is likely to do it with software that does not meet its overall management-services strategy. Oracle has inherited some products it probably does not really want in the process of acquiring the three dozen companies it wanted.

The Acquired

These trends are pretty obvious from the perspective of the acquired. Business Objects was very desirable to SAP, especially after Oracle acquired Hyperion. On the other hand, the acquisition of Iona by Progress was a distress sale. It won't do you any good after the fact but if you are in the middle of an evaluation and the company you are looking at hires an investment banker, as Iona did in March 2008, understand the implications.

Often a software company will be allowed to stand on its own (e.g., Sterling Commerce being acquired by SBC — which later acquired AT&T and took the latter's name). But more often than not, the brands are gone forever. For example, here are just some of the names from the 1997 Software 500 edition that are gone (but remembered daily by many on IT staffs administering no-longer-supported products): DEC, Informix, ICL, Andersen, GEAC, Peoplesoft, Platinum Technology, Sterling Software, Computervision, Netscape, J. D. Edwards, Baan, Candle, SSA, Seagate, Boole & Babbage, FileNet, CoCreate, Marcam, Cognos, JBA, Intersolv, Hyperion, McDonnell Data, Wall Data, Pure Atria, WRQ, Macromedia, Viewlogic, Policy Management, Quarterdeck, Banyan, Intentia, IDX, Rational, Comshare and Remedy. And this is based only at looking at the top 100 1997 nameplates. The churn is even more incredible further down the list.

This affects you because it limits your enterprise software choices, which theoretically increases your costs. The effort software suppliers spend on this churn reduces innovation.

The Open Source Angle in Software Market Consolidation

Choosing software suppliers that offer open source terms and conditions (Ts&Cs) is a major protective move against having to figure out all of these software market intricacies, which are typically more relevant to investors in IT than IT users. Ned Lilly, CEO of ERP provider XTuple, points out how open source Ts&Cs protect an IT manager from having a favored supplier purchased by another company, particularly if the acquisition is because the supplier was on the distressed list.

"Consider the situation for J.D. Edwards' users, for example," says Lilly. "Over a few months, they were 'acquired' and 'acquired again.' If they had had rights to the source code, they would always be sure that their application could be used and modified." This was particularly relevant to JDE World users. Because the product is based on the IBM AS/400, a subsequent owner might not have wanted to improve and enhance it.

The Ultimate Software Market Consolidation

An ultimate consolidation is possible. To the extent that enterprise software is bundled into other IT deliverables, as described by Roger Bottum, which is more possible because of some of the less viral open source Ts&Cs described by Ned Lilly, the software market may implode back into the hardware/services markets and no longer exist separately. That's not a concern for 2009 but keep it in mind for future IT planning.