Oracle’s (ORCL) unsolicited $6.67 billion bid for BEA Systems (BEAS), deemed not enough by the prey, is a sign that the era of mid-sized software companies is coming to an end. Ben Worthen, who writes the wonderful Wall Street Journal’s The Business Technology Blog, sums it up nicely:
The only obvious losers in this deal are other midsize software companies and their customers. Between SAP’s acquisition of Business Objects earlier this week and the potential BEA deal, it’s clear that the era of the midsize software company is over. The big guys need to grow, and the only way they can continue to do so is by buying smaller companies. This should cause uncertainty at mid-size software companies, which is never good for customers.
Like software, another industry that is crying for a similar consolidation is telecom. There have been few deals such as Ericsson’s (ERICY) $2 billion purchase of Redback Networks, or Nokia (NOK) teaming up with Siemens to form Nokia-Siemens Networks (NSN), but those are not enough.
While the number of carriers, a.k.a. customers, has gone down drastically, the number of hardware vendors hasn’t changed much. The power is now in the hands of incumbent carriers, who can afford to play off increasingly desperate telecom equipment makers. A few senior executives have acknowledged this in private conversations.
Recent trials and tribulations of smallish vendors such as Tellabs (TLAB) and Adtran (ADTN) have borne the brunt of the blowback from carrier consolidation. And there are many more such mid-sized companies that are in the vise-like grip of the incumbents.
One of the reasons why we haven’t seen the rise of a consolidator is because telecom has a history of botched pairings. With the exception of Cisco Systems (CSCO), no one has shown any ability to absorb companies with even a modicum of competency. Look at the post-merger Alcatel-Lucent (ALA) and you get my drift.
Maybe telecom needs its own Larry Ellison! Anyone?
5 thoughts on “What Does the End of the Mid-Sized Tech Company Mean for Telecoms?”
With all the uncertaintly in telecom, you’d think someone would jump on this ball and start running.
There isn’t a single player trying to capture all the mindshare right now. Why is this? So much focus on “everything” 2.0, social this and social that, telecoms are just sitting around wondering what in the hell is going on.
Acquiring smaller companies works when you know how to fit it into an established market. 2.0 anything is an emerging market and if the “big” guys botch established markets, do you think they’ll be able to integrate into an emerging mkt? Doubtful.
Only time will tell before someone or something takes the full spotlight in telecom.
It’s up for grabs!
History is that every company bought by Lucent and the like was killed off – Ascend, Livingstone, and others. Carrier Access, Hatteras, and similar companies could get squeezed, IF the big guys could actually do what they say (which they can’t). Nortel, Fujitsu, Lucent-Alcatel, Nokia-Siemens, and Ericcsson compete with the same basic stuff. CLEC’s, RLEC’s and specialized functions are keeping some of the smaller players alive. But the players keep consolidating — so few choices for the consumer and for the vendor. (The vendors should have seen this coming and helped fight the mergers. Short sighted idiots).
“The vendors should have seen this coming and helped fight the mergers. Short sighted idiots.”
Vendor X executive: “Mr. FCC Commissioner, this merger between SBC and (AT&T, BellSouth, Ameritech, Pacific Telesis, all of the above) is anticompetitive, against the public interest, and should not be permitted to go forward.
Six months later:
SBC Executive: “Thank you for sharing your unique insight with the FCC. Oh, and by the way, don’t bother to reply to that multi-bazillion dollar RFP we just sent out.”
Cisco’s john Chambers is likely to be the rule-proving exception. Look around, there are precious few leaders capable of processifying (can I say that?) the minutia of acquiring and assimilating smaller companies and repeatedly turning the effort into a strategic advantage in new markets to the extend that Chambers has at Cisco.
But seriously, as regards the telecoms biz, the lack of a healthy mergers and acquisitions market, the dearth of true innovation using new technologies already being deployed elsewhere, the strangling of other companies bent on innovating around the incumbents (see “Vonage sued into chapter 11 by telecoms incumbents”); does anyone else see the deadening hand of the FCC in all this?
With all the technology, creativity and investment available, is the FCC really necessary, or even helpful?
Mid sized vendors in telecom will never go away. They are the ones who tryly innovate and really set the direction in this market. The fact that we have only seen one success story over the last 20 years (cisco) is because of the recent downturn. Had we not seen the downturn, the likes of Nortel would not have been around by now. But give them 10 years more. In 10 years time you will only see those legacy vendors surviving who have wireless orientation (Ericsson, Motorola, Nokia). In 10 years time when telephony becomes a software led service, a dozen Ciscos will be dominating the scene. We are talking about a major paradigm shift here and these things take decades.