Serial acquisitions vs. serial innovation
Big IT vendors have been gobbling up players of all sizes, but is the future in acquisitions or innovation?
Gaining market share by buying up smaller companies in key tech sectors is an established practice in the software industry and has been for years. But is it the future?
In the past three years Oracle, CA, and Hewlett-Packard have been on acquisition sprees, buying their way into markets that they felt rounded out their product portfolios.
CA spent almost $1 billion rounding out its cloud computing capabilities in a series of buying sprees in 2009 and 2010. HP dropped a bomb on the software world with its hotly debated $12 billion purchase of Autonomy this August. And Oracle has made nine acquisitions in 2011 alone (that I know of), the latest being CRM provider RightNow for $1.5 billion.
But serial acquirers may be missing out on the true innovation, according to New Relic CEO and co-founder Lew Cirne and the application performance management vendor's newly appointed president and chief operating officer, Chris Cook.
I talked about this with Cirne and Cook--both CA alums by way of the Wily Technology acquisition in 2006--during a discussion about their latest technology release, Server Monitoring, and walked away with a new perspective on the future of enterprise software.
New Relic's new Server Monitoring technology, which offers system resource data in the context of application performance, may not disrupt the market on its own--companies like Nagios have been delivering infrastructure monitoring functionality for years. But this new release marks the second time in six months that New Relic has added a major capability to its existing product, for free.
And because the application is delivered as a service, customers get almost immediate access to new features. The software-as-a-service (SaaS), or cloud-based model of delivery, has clearly proven efficient and continues to be where much of innovation occurs these days.
According to Cirne, the SaaS model lets companies focus on technology innovation rather than sales and has allowed New Relic to provide in just months what it took other companies in their billion-dollar market multiple years, and acquisitions, to provide.
This quick pace of innovation and deployment in enterprise software will become the norm in another five to 10 years, with SaaS vendors leading the charge.
Cirne thinks we'll see the rise of even more software companies like Zendesk, Zuora and 37 Signals that focus on product quality, customer experience and low-touch sales that spend their time innovating both product offerings and business models.
The main question is when and if enterprises will trust their internal applications to be managed by vendors in the cloud. Integration is already a part of most SaaS products, but it remains to be seen how and when hosted applications will run key pieces of enterprise infrastructure.