While prolonged viewing of a diagram of Oracle Corp.’s $5.8 billion double-dummy acquisition of Siebel Systems Inc. may induce vertigo, an aerial picture of the megadeal’s impact on software purchasing is equally unsettling.
The fact is, few decisions give corporate executives more worries than buying expensive business applications. Finance chiefs have long been forced to purchase either a host of integrated applications from an individual vendor or individual applications from a host of best-of-breed vendors. And until recently, siding with one camp or the other was a difficult choice, but not a dire one.
That may be changing, thanks in large part to Oracle’s surprise bid in September of customer relationship management (CRM) purveyor — and best-of-breed poster child — Siebel. As noted in Deals (see “Two Mergers Are Better than One“), the tax advantages of the transaction likely proved irresistible for Siebel founder Thomas Siebel. Nevertheless, the sale of Siebel stunned backers of best-of-breed software. Indeed, some observers believe Oracle’s recent buying binge, coupled with the wave of consolidation rolling through the business-software industry (see “Backfilling” at the end of this article), casts doubt on the long-term viability of specialists in a software universe suddenly tilting toward generalists. “One of the big questions was how big a best-of-breed vendor could become,” notes Jim Shepherd, senior vice president at consultancy AMR Research in Boston. “Now we know. You get as big as Siebel, you start shrinking — and you’re bought.”
And if Siebel can be bought, experts say, so too can other coveted stand-alone vendors like Salesforce.com or Business Objects. “When you get Siebel acknowledging that a company of its size and resources can’t survive as a best of breed,” says Shepherd, “it sounds the death knell for that concept.”
Is Big Beautiful?
The great irony here, of course, is that most ERP (enterprise resource planning) software vendors started out as best-of-breed vendors. By adding an array of modules and bolt-ons — mostly through acquisitions — SAP, Oracle, Baan, Great Plains, and others were able to move beyond their humble supply-chain roots and into the rarefied air of enterprise software.
In recent years, however, the growing dominance of SAP has left ERP rivals with little choice but to buy or die. (SSA Global bought Baan and Microsoft bought Great Plains.) Beyond bulking up, the recent raft of acquisitions by Oracle has also served to patch holes in the company’s product suite. “Oracle is trying to gather up everything and anything it can to expand its product line to do more for the customer,” says Brian Robertson, managing director of IT strategy and transformation at McLean, Va.-based management and technology consulting firm BearingPoint Inc. Adds Robertson: “The big want to get bigger. If I were a CFO, I’d put my dollars with the bigger players.”
Not surprisingly, best-of-breed vendors bristle at the suggestion. Neal Hill, senior vice president of corporate development at Ottawa, Ontario-based business-intelligence specialist Cognos Inc., claims Oracle is hoping to convince customers that business applications are essentially a commodity product. Says Hill: “Oracle wants to ensure that the customer doesn’t have many other options.”