As the software industry consolidates, vendors gain while customers lose

Industry consolidation is bad for customers, but open source offers a way out.

The Wall Street Journal carried a story the other day about the winners and losers in the software industry's rush to consolidation. As you might guess, many of the benefits consolidators promise never pan out. In fact, industry consolidation - whatever the industry - tends to lead to higher prices because it constrains choice for buyers.

While the voluminous deal activity has meant a bonanza for shareholders -- many software stocks have soared this year, partly because of the hot merger landscape -- Mr. Gonick's [CIO, Case Western Reserve University] experience highlights the flip side: As the big software companies flesh out their integration plans internally, customers on the outside are left with unanswered questions about their future. It often takes years for software makers to integrate all the products they have bought -- if they manage to at all -- making it hard for customers to decide what to buy in the meantime. Some customers worry about losing negotiating power in the long run as the number of product choices dwindles. And all the dealmaking can crimp a CIO's ability to plan, since it's unclear which software makers will survive.

What can be done about it? Not much.

Industry consolidation is rife, whatever the industry. In software, the good news is that CIOs are increasingly turning to best-of-breed software in the form of open source. The big guys duke it out at the CIO level while open source bubbles up through the organization until its use is so widespread that buying a CRM/ECM/ERP/etc. system from one of the Proprietary Bloc simply doesn't make sense anymore.

For the first time, CIOs are ripping and replacing big proprietary systems with agile, robust open-source systems. I've seen this in CRM (SugarCRM), ECM (Alfresco), EAI/ESB (MuleSource), IT management (Hyperic), application servers (JBoss), and more. It's partly a response to the lock-in consolidation fosters, but it's also partly because these open-source systems are in many ways better than their proprietary counterparts.

Open source, the cure for the industry's common consolidation cold.

Disclosure: I am an advisor to SugarCRM and MuleSource; work for Alfresco; and can beat Hyperic's Javier Soltero in any Wii game he chooses.

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