Subj : Barron's article on software "glut"
To   : comp.programming
From : beliavsky
Date : Sat Aug 27 2005 08:39 am

In the latest issue (Aug 29, 2005) of Barron's, a weekly financial
newspaper, there is a feature story by Eric Savitz saying that there
will be considerable consolidation in the corporate software market.
Below are some excerpts. Maybe the implications of the story are that
one is better off working at one of the software giants likely to
survive, such as Oracle, SAP, Google, or Microsoft, or to work in
corporate IT, rather than in a small software company. Of course, it is
difficult to predict the future.

"THE PROBLEM IS THIS: The enterprise, or corporate, software business
faces a world in which there is little organic growth, few compelling
new applications and a dearth of untapped customers. Companies that
need enterprise software mostly have what they need -- and then some.
Roger McNamee, a long-time technology investor and the founder of the
private-equity firm Elevation Partners, asserts that the software
business isn't just growing up; it has already reached adulthood."

....

"Pip Coburn, the former UBS technology strategist who recently formed
Coburn Ventures, a boutique investment firm, asserts that, while
mergers will continue to thin the software herd, the majority of small-
and medium-sized software companies will find themselves in a kind of
no-man's land, with stagnant growth, a dearth of bidders and, in the
case of private companies, no hope of ever going public.

He figures we could see a growing class of undead companies, the
software zombies. Coburn points out that in many cases, the premiums
being paid for public software companies have been thin. In a few
cases, as in the acquisition by the private equity firm Vector Capital
Group of the one-time high-flyer Broadvision, the companies agreed to a
"take-under," or price below the previous public market share price.
Coburn argues for selling short a basket of smaller software stocks.

Chuck Phillips, the former Morgan Stanley software analyst who now
serves as co-president of Oracle, said in an interview last week that
there are two primary factors driving the industry's consolidation. One
is customer behavior; corporate IT managers who once preferred to buy
niche products and mesh them together have switched to a strategy of
seeking more complete solutions to their computing issues. "In the
Internet boom, the opposite was true," Phillips says. "But now the old
way has proven to be a failed model, a more expensive model. Now people
want to buy packages, or outsource."

The other key consolidation driver, Phillips says, has been a shift in
technology away from proprietary systems to more open models. "The risk
of consolidating software companies was much higher 10 years ago," he
says. "Each company built proprietary technology, using proprietary
languages, and sometimes proprietary databases. There was no way to
simply plug them in. With Web services, there are standard ways of
presenting applications, which makes it easier to integrate
applications from different companies."

.