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Software Companies - Merge or Die?
pillageplunder writes "This article in Businessweek points out that large software companies like Siebel, BMC and Veritas are all warning that 2nd quarter results would be lower, and predicts a shakeout. According to the article, 'Investment bankers say half of the sector's 600 publicly traded companies are likely to be eliminated.' Ouch!"
Now less companies will be offering software jobs to non-Indians. This is great news.
Since stock analysts are the guys who really run the show with publicly traded companies, one has to wonder why anyone listens to them when it comes to software anymore?
Seastead this.
in mature industries you can count members with the fingers of your hands
Without competition software will just get worse, with no need to improve.
Large companies have a tendency to acquire smaller companies and keep them as a separate department, but they inevitably get phased out over time and absorbed into the larger entity. How many people really want to deal with the software giants past a point?
Its going to be ugly in software. 75% of firms are on borrowed time.
Or, Microsoft has a 1 out of 2 chance of eliminating their competition... depends how you look at it.
Blame all than open source/free software out there.
If a software company want to survive, it must try with a different business model. Maybe based on service/support and not just licences.
-- When did Ignorance Become a Point of View?
Don't ever make your company public. Once you do, it stops being a company and instead a money-collector. Instead of a commercial entity which produces (hopefully) a superior product, you are controlled by people who more than likely don't give a rat's ass about what is made, unless it's money. This is the problem, they don't care how the money is made, so they'll press for cutting corners at every opportunity, and make a prime target for "mergers". Mergers are just an excuse to cut even more corners, by taking advantage of economy of scale. However, once one player in the field does this, the others must follow or be eaten up. Thus is perpetuates until we reach a number of large companies which are too large and bloated to react to demand and conditions, and fudge the books, or stifle innovation in order to keep what rightfully should be a corpse alive. True innovation will always be carried out by dedicated individuals or small groups, possibly in a private company, but these large ones are just disasters waiting to happen.
I really have a tough time relating to an article that has to explain that IT is an accronym for info-tech. Stupid analysts are just guessing anyway, half of software companies being gobbled up seems a bit overstated.
in bed.
In general large software companies are, for lack of a better word evil. They produce inferior products at criminally high prices, industry rates for ASP development are still at $200 - $300 / hr, MS spends 300k per year per employee. The developers are certainly not getting most of this money and the clients certainly not getting good work or code for these horrendous rates. The large software companies produce the poor products and rely on slick marketing to the sell their products to ill technically informed clients/managers. These companies seems to use the strategy of charge the client as much as possible, pay the developers as little as possible, both client and developer get screwed, managemeent gets rich for nothing. I think its a good thing many of these companies are going away, its just their scam is over. Its not that people don't need software, its that the're tired of getting ripped off for it. I believe that these companies are just being replaced or put out of business by small companies and individual developers working directly for non-tech clients. Its the big US companies that have been the most enthusiastic about replacing US workers with H1-B's outsourcing etc, small companies tend to use better quality, long term local talent. Anyhow this seems like the trend I've seen. Due the large availibilty of developers, cheap bandwidth, cheap hardware, and free development tools/platforms, its seems like the large companies are going to have ahard time, but I think this will be better in the long run for both developers and clients/users. M
The barriers to producing software are very low; a single person can do it (not something like an office suite, but something simpler). The don't need a huge factory floor, etc. Besides, software is often a service, not a product.
A more appropriate example might be restaurants. Sure, you've got the big conglomerates like McDonalds, Pepsi/Pizza Hut/KFC/Taco Bell, but then you've got mid-sized chains like AppleBees, small chains with 10 restaurants in a city, and then single family places who run a restaurant on the ground floor and live above it.
If you want a quick cheap meal like you've had 1000 times before, you may go to McDonalds. If you want something out of the main stream with wine and personal service, you may go to the Italian bistro down the street.
It's the same with software. If you want an office suite, go to MS. If you want payroll software, SAP or PeopleSoft. If you want someone to design a web application for you, you'd be crazy to go to a large company, even if they *would* take your business. Go find a local shop and pay them.
B.S to you. Linux needs to improve. Check its market penetration.
If you're selling stuff to casemodders and gamers, hardware is a great business to be in, but in business... except for a few areas like the art department... it's impossible to buy a computer that isn't much much faster than you really need. I've got a 2.something GHz PC in my desk, and all I run on it locally is a browser, Lotus Notes, a word processor, and source code editors. All the shiny new hardware is back in the dinosaur pen... oh, they're smaller and faster dinosaurs, but from the point of view of the user or the developer it's not that far from writing SQL to run on a mainframe to display data on a 3270 and writing SQL to run on a webserver to display data on a web browser.
And nobody sees the shiny new hardware in the dinosaur pen, it's just there. You'll be able to sell people desktop upgrades for a while yet, but pretty soon the days of coming up with new bloated software to force hardware sales will be over.
So, from my perspective, "hardware is a necessary evil". New hardware means new platforms to support, new incompatible sets of drivers to deal with. Even if the hardware's cheaper upgrading costs enough you might was well stick with the hardware you already have that's paid off... it's "free". And this is increasingly becoming the prevailing opinion... our desktop replacement rate is way down.
The days when hardware was exciting are essentially gone. One computer is much like another, back in the server room, and one PC on the desktop is pretty much like another... even if it's faster, it's hard to tell because the newtork and the server are the real bottlenecks. The only reason people around here care much about PC upgrades these days is they're handing out nice flat panel displays when you get a new PC.
But, there is plenty of other software for niche markets where a proprietary company can still make an impact. The realm of OSS is expanding all the time, but they're not filling the niche markets yet, at least not completely. Also, you miss the fact that a lot (maybe most) software is written for a client, not written and then sold to a client.
You're kidding, right? If I'd been paid more unemployment, I would have spent my time working on personal projects instead of looking for a job. I suspect that would slow down growth, not speed it up.
In response to the grandparent's comment: Your view of whether the economy is improving or not is probably maps to whether or not you have a job. It's looking pretty good for me right now. After 12 months of unemployment and freelancing, I finally landed a job at a company that earned enough to pay a bonus.
Anonymous Kev
Proudly posting as AC since 1997
(Finally got a dang account in 2004)
...these "investment" bankers are the same toads which suggested Timer-Warner merge with AOL and the many other content & distribution companies which are all now being sold off in pieces (i.e. DE-merged).
As such, I hope these software companies ignore this "advice". These bankers are proven investment moron in it for themselves and their greedy friends.
The only benifit to this might be we'll be able to see some more perp walks on CNN.
Rich...
They all keep shouting how offshore outsourcing will cut costs, boost the bottom line, cure cancer and bring world peace. That the savings are so COMMANDING that they MUST get rid of US and Western European jobs to send the work where the labor is cheap.
I'm sure we'll soon be seeing an emergence of Indian and Chinese software companies producing software that competes directly with the Western bigwigs. Guess where they got that knowledge?
---------
There is inferior bacteria on the interior of your posterior.
Sigh. Time for business 101...
Giving out rebates that customers don't cash increases your profit.
Large companies market themselves as valuing integrity because it plays well with sucker^H^H^H^Hcustomers and increases your profit.
Making better products is expensive. It lowers your profit. Especially since people will buy pretty much anything anyway.
Hiring people from countries where you market your products is expensive and therefore lowers your profit. What's more some of them are educated and troublesome and have silly ideas like unions and workplace security.
Draining the economy is ok because this is long term, long term is in the future, the future doesn't exist. What is important is maximising your profit.
Making things right the first time means spending on R&D. R&D is expensive and may not yield results. A dubious business move.
Friendly customer support is expensive. It requires qualified support people who are expensive. This is not acceptable. It hurts profits.
Warranties are not good for business. They hurt profit. They cost money and divert customers from buying a new product.
That's it for today class, for next week, please write a business plan to privatize a major world religion. Consider going public after two years and buying your two major competitors after four.
Please leave in an orderly fashion.
May contain traces of nut.
Made from the freshest electrons.
Given this, the successful (read, profitable) small software company has three choices: 1) Get acquired by someone like MS, Sun, Oracle, or whomever; 2) go public and grow, grow, grow; or 3) stay small and play the reinvention game. It's tough.
I thoroughly empathize with the poster, though, because a small, profitable, private software company is a great place to work. If you are at one now, congratulations! Enjoy it.
Isn't that why you went in the business anyway? If you didn't, I quite frankly don't understand you.
You start a business to make a profit, not to save the world or serve the poor.
Says who? I can start a business for any "purpose" I like, and turning a profit is simply a requisite to staying in business... it doesn't have to be my sole reason for *being* in business. And nothing says I have to sacrifice any and everything under the sun, seeking to maximize profit down to the last penny. As long as I make enough to stay afloat, I can happily continue running my business, serving any "purpose" I please.
// TODO: Insert Cool Sig
I think this may be true to an extent, but mainly concerning out of the box generic software. I've been saying that Microsoft will be the last company to make billions selling software to the masses. Certain things (operating systems, accounting packages, office suites) will become commoditized, but there will still be a market for custom solutions which I don't see dying out anytime soon. With a car, you buy from a major manufacturer but there are still many companies that make auto accessories and that service and customize vehicles. Even if some of the most common software application companies consolidate, I still see a huge opportunity for smaller companies to contribute to the overall computer market. People seem to prefer custom solutions, which may completely drive their business, to be put together by a firm that is nearby and who they have close contact with.
Good point, but I'm not blaming India. I'm just expressing dismay about my withering job prospects. I am about to complete a Masters in Computer Science this winter, and I'm really afraid there wont be any jobs out there when I graduate. Articles like this are just depressing.
I'm certainly not blaming India for the lack of jobs, but it is undeniable that a great deal of jobs that used to be done in the US are now being outsourced there. I don't blame the Indians at all. Everyone has a right to try to make a living.
The notes section of ESR's Magic Cauldron has a wonderful comment that suggests that since programmers and support staff appear on the books as a liability, expanding by hiring more staff is a net loss. However, the aquisition of another software company, which is primarily valuable because it is a bunch of other programmers and support staff, is seen as an investment on the books.
It all seems so bizarre that the factory model treats software as if it has some sale value, when it's really the service provided by the programmers and support staff that has real value. In this topsy turvy way of looking at things the accounting systems artificially encourage mergers rather than increasing staff because the former appears as growth, while the latter appears to be a loss.
All of this is why we end up with huge companies that produce mostly shelfware with a point upgrade cycle that is not backwards compatible so that customers are forced to keep sending in money or be abandonned. An honest service model would be much better for everybody.
Signatures are a waste of bandwi (buffering...)
IT (well, the good stuff) is a service now, not a product. Rather than massed conglomerates manufacturing a generic product (which is largely the case for cars, for example, or the increasingly stressed Microsoft), software/IT is about providing specific skills, industry knowledge and support services. This is better achieved by small, highly focused organisations.
Large companies will slowly be replaced by boutique industry/regional focused businesses who understand their CUSTOMER better than the competition, rather than massive faceless companies who take 2 years just to work out their customer's name.