A Positive Spin on Consolidation of the Computing Industry

Posted by: Steve Hamm on September 14

One of the great things about being a reporter is the surprises you find when you’re putting together a story. When I was developing my recently published story about Oracle Corp. and consolidation in the corporate computing world, I called up a couple of former executives of software companies expecting to hear them decry the trend. Instead, I found two fans of consolidation.

First, I talked to Bill Coleman, a one-time executive at Sun, now being taken over by Oracle, and founder of BEA Systems, bought by Oracle last year, and of Cassatt, bought by CA this year. “I believe we’re in the final phase of the maturation of the IT industry,” he told me. “There isn’t any more disruptive innovation. The functionality of the systems isn’t disruptive. That’s when things commoditize. It’s happening in all of the IT industry and Oracle is a sign of it.”

My immediate reaction was: Well, isn’t the oncoming shift to Cloud Computing the biggest disruption of all?

The way Coleman sees things, Cloud is the ultimate expression of commoditization and consolidation. When corporations buy most of their services from the cloud, the data center, hardware, software, communications, and services are consolidated. There will be a lot of incremental innovation in e-commerce and social networking services built on top of the Cloud technology infrastructure.

He sees this switch as a great thing for the consumers of technology-based services but a very tough business for technology suppliers. “Once we get to the phase where you can buy all the application services on the Cloud from any provider, pricing will drop like crazy,” he told me.

Between today and the maturation of the cloud model, which he expects to take place in 2020 or so, he sees a rough patch for customers when some of the early Cloud providers (He named Microsoft, Google, and Amazon.com) try to lock in their customers with proprietary technology. “Ultimately, though, your applications will be easily movable and you won’t get stuck. You will be able to bid one supplier against another overnight if you want to.”

So, if Coleman’s right, the handful of huge cloud computing providers of the future will have to be nimble, efficient, and flexible—not words you normally associate with tech industry giants. So this will require a massive transformation of the organizations in the tech industry.

Late in our conversation, Coleman amended what he said earlier about disruptive innovation being over in IT. “Cloud computing will be the final major disruptive innovation,” he said.

Agreed, though maybe not final final.

The second guy I talked to was Craig Conway, former CEO of PeopleSoft before it was taken over by Oracle, and, previously, an executive at Oracle. Unlike me, Conway isn’t concerned that the consolidation of the industry will stifle innovation by making it harder for start ups to form and grow. In spite of the dearth of IPOs, he told me, “There’s still a strong motivation to found a company and grow it and do something innovative.” Now, though, instead of small companies going public or growing up to become big companies, they’re being acquired by the big companies and replenishing them with innovations. “It’s like a vascular system. You start with the small veins and wind up in the big organs,” Conway told me.

He believes that this feeder system solves the innovator’s dilemma as spelled out by Clayton Christensen. “Far from consolidation signaling the dominance of large companies, it underscores the innovation of small companies and the difficulty of being innovative as a large company,” he told me.

This makes sense—to a point. Clearly, Cisco, IBM, and Oracle have used acquisitions to pick up innovative technologies. But corporate technology purchasers have become wary of depending on start ups for key pieces of technology. If start ups can’t get started, they can’t develop products and feed into the big companies. So, in my view, we don’t have a healthy innovation ecosystem.

I’m looking for some smart and brave CIOs to begin to experiment with start up technologies again—and get the innovation stream flowing again.

If you hear of some, drop me a note: steve_hamm@businessweek.com

TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/