If you can't beat them, buy them

The major software vendors have nothing to fear from startups, especially when they can let them do all the hardwork and then pick up the best ones. But what does that trend mean for buyers of innovative technology?

The major software vendors get an adrenaline rush out of startups. They mostly don’t fear them. They, in fact, love them. To companies like IBM and Oracle and Salesforce.com, software startups are outsourced R&D. Why should you do the R and the D on things you don’t know well, when a true innovator is out there enabling you to not face the dilemma of ossifying around your own original idea?

To read this piece, you would need to turn up your speakers on Queen’s ‘Another One Bites the Dust.’ Freddie Mercury would be singing, and John Deacon would be pumping the simple but incredible base line, Em (D / A) Am (BGD). And then we could read the names of the fallen social vendors over the past few months alone: Collective Intellect, Meebo, Buddy Media, PowerReviews, Vitrue, (dunh/dunh/dunh… another one bites the dust), SlideShare, Tealeaf (questionable on social), Stypi, Socialtext, Crowd Factory, bluekiwi, oneDrum, Podio, RightNow (dunh/dunh/dunh… another one bites the dust).

Why would large companies such as SAP and Oracle possibly spend time developing these quaint programs when it is cheaper and less risky to just cherry pick and acquire the best ones? Pull up to the office in the Audi once a week, take the elevator up to Decision Central, allow your brain trust to run the facts and numbers, have lunch, make a decision, shake hands and get back in the elevator.

What this means for you as a buyer of innovative technology in the Social CRM field, for example, is to think of the company as a shell containing IP that will likely be plucked, like a pearl from an oyster, and strung on the necklace of another vendor. Just make sure that you have the right contractual conditions hammered into your agreement. Have you thought it out? There are another 50 software vendors that are more like moons ready to fall into the orbit of a planet with enough heft and gravity.

Don’t fight it, and don’t regret it: large vendors do not innovate at the ‘edges’ where you are seeking to best engage the consumers who buy from you. Social media, digital marketing, ad placement, content personalisation, presence-based services, collaboration and social network analysis, reputation management – all are outside of the capabilities of the ‘majors’ but not outside of their price range. They will re-platform, invest money, expand the scale.

IBM, Oracle and Microsoft, and now Google, Apple and Facebook are (perhaps) the only majors with legs. The rest are likely to collapse into the orbit of the true planets. It is all ok. Eyes wide open and with a clear vision for where you are going – and you will be able to innovate most rapidly with the innovators. As the innovative bits commoditise they will lose energy and collapse into the larger suits, just as in electron shells: fundamental, diffuse, principal, sharp – each shell of vendor has its place, and when you select wisely you can reap the benefit that will make the risk worth the while.

Michael Maoz is a research vice president and distinguished analyst in Gartner Research.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles