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How many software companies will survive?
October 26, 2007
We have seen a great deal of consolidation in the software side of the distribution industry. Prophet 21 was buying everyone up and then they got acquired. Infor started as a West German company named Agilisys three years ago and is now generating over $3 billion in revenue. Eclipse got purchased for a price north of $100 million. Where will it end?
The question is important for a number of reasons. First, every user needs to feel comfortable that their software will be supported for the foreseeable future. Second, if you are looking for software, which players will stick around? Third, what happens to users who get caught in the consolidation?
The answers are many and varied. The most important good news is that the consolidation of distribution-centric software has not resulted in the mass “sunsetting” of products. In the past, some purchased companies in other industries were basically put out of business so that everyone would have to migrate to the new owners’ systems.
In the industrial supply space, we have seen a great deal of emphasis from buyers on domain expertise. This means some smaller packages have been very successful by understanding the details of business in the sub-vertical areas. I believe this will continue and that niche players will continue to crop up and stay active in many industries.
Each of these systems will be a property the larger guys might want to swallow. In order to get a return on the investment, it will be important to keep the customer base happy. Historically, what we see happening is that the support and technical people are kept and the sales and administrative personnel are let go.
This way they can maintain the package for an extended period while building domain expertise and application-specific processes in the primary application system. Over an extended period, the vendor will move customers to the new platform with a minimum of disruption. So far, the companies that have followed this path seem to be successful.
We will continue to monitor the situation and report back.
Posted by Steve Epner on October 26, 2007 | Comments (0)