Software Consolidation Is on Horizon

Last year Oracle launched a hostile takeover attempt of PeopleSoft. Last week both Microsoft and Sap announced that preliminary talks about a potential merger had been discontinued. Microsoft had approached Germany's SAP, which has a reported 54%-share of the global enterprise-software market. Microsoft has an 11% share.



When giants of the software industry such as Oracle, PeopleSoft, Microsoft, and SAP begin talking merger it's big news even when those mergers fail. Where there's talk, there's usually action—sooner or later. And many industry experts say the software business is ripe for a consolidation trend.



A merger between companies such as Microsoft and SAP would bring together a leader in selling to the largest companies (SAP) and a company (Microsoft) that has enjoyed wide penetration, particularly in smaller and midsize business markets. There are those who believe that companies such as SAP will have to merge if they are to survive. Others see little advantage to SAP combining with a Microsoft. At this point, it is pretty much pick the expert you want to agree with.



Part of what may drive the software industry to consolidation is the strengthening competition from open-source solutions. What was once seen as a crazy bunch of programmers with a utopian notion of giving away their software has gone mainstream. IBM and Apple have signed on to the open-source movement. However, open-source still has not grown with the speed to make it an immediate threat to companies such as SAP.



Time will tell how much and how fast consolidation comes to the software industry, but smaller enterprises will likely see their software choices change in the not-to-distant future. If a Microsoft-SAP or some similar merger takes place, it is likely larger-enterprise software will become more cost attractive to smaller companies. There is also the possibility that the number of software applications offered by traditional vendors to the small-business market will shrink. And then there is open-source. Whatever the outcome, change is on its way.