KEY POINTS:
Five years ago, in the fallow days of the IT industry following the dotcom collapse, I used to keep close track of around two dozen global tech companies. Now merger and acquisition activity, billion dollar buy-outs, stock swaps and takeovers have whittled that list down to about five.
Granted there's more tech being done today, but it certainly feels as though it's being done by far fewer players.
Oracle boss Larry Ellison, the master of acquisitions, reminded me of that when he opened the Oracle OpenWorld conference earlier this week. He's made at least 40 acquisitions, Peoplesoft, Agile Systems, Siebel Systems and Hyperion among the bigger ones. Last month he put billions down on the table for BEA Systems but baulked at the price being demanded and withdrew his offer.
Then came Monday's news of IBM's latest splurge - the US$4.9 billion buy-up of Canadian business intelligence software maker Cognos, a deal designed to shore up Big Blue's software business after some rival acquisition activity - namely Ellison's US$3.3 billion Hyperion purchase and SAP's US$6.8 billion acquisition of Business Objects.
The pace of consolidation is enough to make your head spin and the internet industry is no different.
Look at Google. This year it has made at least 15 acquisitions, adding to the 30-odd sealed between 2001 and 2006. YouTube, Postini, Feedburner and Google's 5 per cent stake in AOL have been among the more noticeable acquisitions but there are dozens of smaller, innovative companies sucked up by the Silicon Valley giant.
Yahoo!, Microsoft and News Corp have supplemented the online spending-spree. It seems that the tech sector is hell bent on consolidating itself into one small club of deep-pocketed owners who favour some sort of competitive detente, desperate to ensure their arsenals are all of equal size. Is the consolidation drawing to a close?
Not according to Hewlett Packard boss Mark Hurd, who produced his chequebook to pay for data centre software maker Opsware earlier in the year. The price - a respectable US$1.6 billion.
"I think you'll see continued industry consolidation and more vertical integration, not less," Hurd said from the stage at OpenWorld on Monday.
"Only a few companies are well managed and have great people. In the end, math wins."
Yes, indeed it does, but do customers win? All this consolidation may be a good way to dispose of excess cash on a company's books or outmanoeuvre competitors, but does the humble end-user gain from it?
Five years ago the answer would probably have been in the negative. But it has to be said, the IT companies have got pretty good at absorbing new acquisitions, making two plus two add up to at least four.
The telecommunications industry is a different story, the significant mergers in that industry resulting in failures, some of which are still playing out.
Software acquisitions seem to offer more hope of success. Let's consider IBM's pending Cognos purchase. Business intelligence software is hot at the moment - it's delivering real benefits to companies looking to tap their databases of information to find out ways of doing smarter business. For IBM, which also makes servers, database software and provides IT services, it was at a real disadvantage to its competitors not having a strong business intelligence package.
It makes sense for customers buying IT services, databases and servers from IBM to also pick up a business intelligence suite, tailored to the IBM environment they're working in. But what does it mean for innovation when a good deal of the hot new technology isn't being created in-house but is being scooped up from other companies in merger and acquisition activity?
Much research has been done on that subject, including an interesting study published last year by Bruno Cassiman, a professor at Spain's IESE business school. His extensive research of M&A activity showed, perhaps obviously, that companies that had complementary technology and merged went on to have improved research and development while firms that were rivals prior to merging lost momentum in R&D post-merger.
There's enough evidence littering the IT industry to prove his thesis. Companies need to hit the acquisition trail to plug holes in their armour rather than to eliminate competitors. It's something the tech leaders should keep in mind as acquisition targets start to become thin on the ground.
