Consolidation in the Computer Industry

November 1994

As the end of the year beckons, it seems a good time to sum up the state of the industry and comment on some noticeable trends. Many of them are indicative of a maturing personal computer industry and a client/server layer which is beginning to come of age. From the vendor perspective, one can speak of strategies like harvesting and consolidation. But it is important to also focus on the customer point of view, where the problems of how to justify new generations of hardware and software in organizations already well-penetrated with aging technology, and a growing sophistication (and cynicism) play important roles.

Consolidation: This summer and fall have seen a startling number of acquisitions and mergers, following upon the giant merger earlier this year of WordPerfect and Novell (which included the acquisition of the Borland QuattroPro product). We wouldn't even attempt to make an exhaustive list here, but some of the ones which seemed interesting or important to us included:

• Lotus's acquisition of SoftSwitch, making it clear that Lotus in the future will rely more on EMail, groupware and high-end workgroup and enterprise products and less on personal productivity applications and suites. This is appropriate, because Novell's entry to the suite market, with the Word Perfect/Borland acquisitions; further development and integration work is sure to push Lotus into third position in the suites wars. (Last week, InfoWorld ranked the Big Three Suite players at Microsoft 73%, Lotus 20% and Borland (Novell's PerfectOffice replacement isn't shipping yet) 8%.)

• Oracle's acquisition of Digital's rDB. This is interesting for two reasons: it's part of the deconstruction of Digital, as it tries to slim down and reorganize the company to a profitable size and focus and it's part of Oracle's campaign to continue to fill out its product line. Oracle is continuing to shop. It tried (and failed) to purchase the client/server relational data base product from Gupta and is believed to still be in shopping mode for a low-end product in this category. Oracle is also filling out its office offering with EMail, document management, and workflow products that were internally developed, but we wouldn't be surprised to see Oracle seek out and acquire groupware products. (The current rumor is that they are changing their stock basis to permit them the flexibility and funding for a large acquisition -- say, Lotus?) They also are likely to continue to be in the market for vertical market client/server solutions that are data-base intense, and for applications development tools to integrate with their main data base product offering.

• Borland's acquisition of HP's Dashboard. To most on-lookers, this probably looks singularly unexciting. HP has been relatively low-key as a software vendor, so it's easy to overlook the fact that Dashboard has 1 million users. And Borland will initially publish Dashboard as a companion product to its other popular desktop utility, Sidekick, so it's easy to miss the real possibilities.

Do note that what Dashboard really can be is a place to install anything. That means Borland could use it to launch a catalog business for utilities, with an initial catalog stored in the product and updates to the catalog downloaded from bulletin boards or other on-line sources to the Dashboard. Products ordered by Dashboard owners would have an easy install path -- they'd go directly onto the Dashboard. You can see the possibilities: utilities for now; objects later. Brilliant! (We have a separate article on Dashboard later in this issue.)

• Microsoft's acquisition of Intuit. (We have separate articles on the transfer of Money to Novell and the Intuit acquisition later in this issue.) Never mind the price -- or the fact that they had to "sell" their Money product to Novell (it has a tidy 10% market share and several bank deals of its own) in order to have a chance of Department of Justice approval. The real points are these:

(1) Microsoft recognizes the importance of the upcoming market in electronic commerce and means to be a major player;

(2) Microsoft can overcome its ego investment in its own software and set it aside in favor of buying market share and market control;

(3) (The big one) Microsoft is continuing to expand into new markets, which is why this large and very successful company is different than other large and successful companies. If you can keep reinventing yourself, you can be much larger and more durable.

Of course, much could go wrong.

• D of J could refuse to approve the deal, saying that while it doesn't further concentrate the Personal Financial Management software category, it certainly further concentrates the PC software market. But this is based on looking on broad rather than narrow interpretations of markets, which hasn't been done much lately.

* Microsoft could just be bad at understanding this category, interfere too much with Scott Cook's management of it on their behalf, and Quicken could loose market share.

* It could still be too soon for electronic commerce; very fewelectronic banking experiments have worked at all so far and we haven't found any that are actually profitable. TV shopping isn't on-line shopping -- people are making phone calls and talking to live humans; that's different We may still be too far ahead of the infrastructure or the culture may not be far enough along.

I would guess Microsoft would just consider that a minor stumble on the way to the right goal, just as seven years of investing in Windows before 3.0 struck it rich was a kind of Children's Crusade. That's another Microsoft strength; the willingness to be persistent when they think they're on the right track, adding incremental improvements and waiting for the market break to occur. Watch.

Harvesting: Mature companies and technologies are using tried and true techniques to wring the most (and last) out of what they've got. Examples abound.

• Many companies are using their names to brand other products in an attempt to leverage their reputations into other markets. IBM and Digital now have nearly identical marketing campaigns for their newest lines of PC's (IBM's new branding strategy, which we recently discussed and Digital's new PC product line, which we'll cover shortly). They both depend on name recognition and selling reputation, reliability, and support.

• Most of the PC Software companies are attempting to take their mature personal productivity products (in existing or down-scaled form) into other markets. This is a classic harvesting maneuver. Maneuvers range from moving into more exotic foreign markets, beyond a few standard European and English Empire ones, to moving aggressively into the SOHO, home, children's and education markets. Some of these strategies will work; others are doomed to failure since the products are already out-paced by others or are inappropriate for the target markets.

• Hardware vendors who are stuck with their aging hardware technologies are trying standard strategies for extending their life while they work on getting the next generation of hardware ready for market. Look for multi-processor configurations (to hide the slow speed of existing processor technology), big price reductions (to make aging products look like bargains), and older products being offered in less sophisticated markets (to the export market, education, SOHO, etc.).

A big surprise here: the home market is demanding bigger, faster and more sophisticated machines (Pentium processors and multimedia kits) than many corporate and small business buyers; that's because of the combination of lower prices and the type of software they're interested in supporting. We may see a reverse here, where home experiences begin to drive business demand.

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