Be it Automobile , Aviation or Heavy Metal Industries, everyone felt the heat of recession but regardless IT fared better than most. In spite of worst economic meltdowns in history, acquisitions among big vendors continued to reshape the market, operating-system wars extended to mobile battlefields, microblogging became a powerful source of real-time information, and the take-up of small, Net-connected devices was stronger than ever.

But how good is this wave of mergers and acquisitions for the future? ( By future I mean upcoming innovation and future of Startups which target innovation not business)

Whenever your biggest competitor takes you over, it blunts the competitive spirit that can drive innovations. Thats what concerns me most, the spirit of innovation is somehow compromised because of takeovers.

Not always always a potential Merger or Takeover can be taken as a positive sign of ever increasing competition and globalization. And particularly not right now when it comes to web and social media startups, many of which are still more focused on innovation and building up audiences than on making profits. Rushing them into deals to fulfill long-delayed plans for an exit strategy could derail the evolution of a strong business plan.

From an investment standpoint, founders and venture capitalists have good reasons to cash out now. Market caps of public tech giants are rising — the Nasdaq gaining big time – and so are their cash stockpiles. For Instance Microsoft has a stock pile of about $49 billion in cash; similar is the story of Google with $24 billion. High-profile Multi Billion dollar deals like the ones we had in recent times have a way of spurring on other acquisitions.

TimeWarner buying AOL and eBay buying Skype come to mind. Even snapping up a hot startup for its technology or talent — Google buying Dodgeball or Yahoo buying Flickr – can lead to culture clashes, customer anger and other disappointing results.

I  tried to re-compile the list of some major takeovers which are substantial enough to change the future of computing.   We are talking about some multibillion dollar mergers and acquisitions, where the Big gets even Bigger.

Oracle eclipses the SUN @ $7.4 Billion

This Merger can be coined as “father of all the Tech Mergers” announced last year. If the announced the deal went through, Oracle,  the industry’s largest database software vendor would get an entry into the server and storage markets worldwide.

The acquisition, still pending, was announced in April, and may even be blocked because European regulators are contending that combining Oracle’s technology with Sun’s open source MySQL database would violate competition laws. Lets see if this deal goes through.

Xerox snaps up ACS in $6.4 billion

Another major takeover, Xerox pays about $6.4 billion in cash and stock for Affiliated Computer Services (ACS), a large IT and outsourcing firm. With this merger Xerox hopes it will give it a bigger foothold in the business services space. While the deal will surely boost Xerox, investors wondered whether it overpriced the deal.

Calling the ACS deal “a game-changer” for Xerox, Burns, CEO of the company, said it would help Xerox “expand our business and benefit from stronger revenue and earnings growth.” The deal will triple the service component of Xerox’s revenue to roughly $10 billion annually from $3.5 billion, according to the company.

Dell – Perot Catch-Up Deal worth $ 3.9 Billion

Buying Perot was a part of Dell’s plan to expand its footprint in the IT services market, which was  a necessity in a time when hardware sales were falling. Dell offered a staggering $3.9 billion for Perot Systems, a 68% premium over Perot’s actual stock value. Dell’s purchase can also be seen as a response to rival HP’s $13.9 billion acquisition the previous year of EDS — another services company founded by Perot.

Cisco-Tandberg worth  $3.4 billion

Cisco, already a major player in collaboration products with WebEx and TelePresence, signed an agreement in October to purchase videoconferencing vendor Tandberg, which makes both video devices and network infrastructure products. The acquisition, if completed, could have both a direct and indirect impact on Cisco’s bottom line, because expanded use of videoconferencing may increase network traffic, letting Cisco sell more switches and routers.

HP Acquires 3Com For $2.7 Billion

HP launched a straightforward assault on Cisco in their own Game of Networks. HP’s increasing influence in data center networking and convergence markets will have a big boost with its purchase of 3Com, a maker of switches, routers and security products. HP says the acquisition will further its data center strategy “built on the convergence of servers, storage, networking, management, facilities and services.” The acquisition of 3Com also help to expand HP’s Ethernet switching offerings, add routing solutions and significantly strengthen the company’s position in China thanks to 3Com’s strong presence in China. The transaction is expected to close in the first half of 2010.

I have collected the figures and numbers from various sources including PCWorld, Gigaom and Wikipedia. Let me know if you have a suggestion or correction to make. Please forgive me for the grammar, I was always bad in Grammar since school

Article Previosuly mirror-posted by me at Global Thoughtz.

Anand

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Microsoft’s 1st fiscal quarter earnings were blow out.  Its profit soared 23 percent to $4.29 billion, or 45 cents per share, from $3.48 billion, or 35 cents per share, during the same period last year, as brisk sales of the new ‘Halo 3′ video game, Windows and Office helped it breeze past Wall Street’s expectations.  Because of this the stock hit 6 years high.  The result, driven by products including Windows Vista and Office 2007, was viewed as evidence that the 32-year-old company still has growth potential. Underneath all this good news, I think, survival of Microsoft itself is at stake.

Let’s start by looking at Microsoft’s Business Strategy.  Its core asset is its Operating System (initially DOS and then all the UI built on top of it).  Using its core asset Microsoft has built a software empire.  The ‘network affect’ created by its near monopoly market share (90%) of its Operating System (OS) has enabled an ecosystem of software solution providers around it.  These value added software application have created the franchise of its OS more valuable.  Microsoft itself builds and sells several add-on applications on top of its operating system.  Microsoft Office is the most important of all the applications that’s built on top of its OS and has become the ‘cash cow’.

Microsoft’s strong ‘economic moat’ has been constantly attacked over the past 8-10 years.  But it has aggressively managed to defend itself.  Now, several disruptive offensive forces are making Microsoft’s moat vulnerable.  First of all, SaaS or On-Demand software delivery model is going to be a formidable challenge to all the software applications written specifically for Microsoft OS.  For example, Google Doc is a tempting alternative to Microsoft Office for the individuals and small organizations.  There are several other open source on-demand applications that are getting ready for the prime time to challenge Office software.  With Microsoft Office software being challenged with a new delivery model, it will no longer  remain the cash cow.  The advances in distributed computing and software security will keep pushing the boundary on SaaS delivery model.  SaaS, with it pay-as-you-use payment model along with mobility access are some of the positive factors that will make even the large organizations investigate its usefulness in their organization.   This is forcing software solution providers to break away from sole Microsoft OS franchise.  Soon, most applications will also be offering with the On-Demand delivery model.

The other disruptive force is Virtualization.  There is a huge demand to ‘maximize’ server utilization, and this is making Virtualization the highest priority for many company’s CIO.  This trend will entice the application vendors to write their own kernels designed to run in virtual environment and knock off Microsoft OS from the server. With more technological innovation, virtualization will make Microsoft OS less relevant.  

The third disruptive force is Demographics.  The ‘iPod’ generation worldwide is more comfortable with Apple product and considers PC as “Dad’s” computer.  The anecdotal evidence point out that majority of students entering university now own Apple computer.  In few years the ‘iPod’ generation that will be joining the work force will be not ‘savvy’ enough to use PCs.  The large organization’s IT department will be forced to provide infrastructure to support Apple Computer to attract new work force.     

Virtualization, Demographic changes and On Demand Delivery model will work in tandem to make Microsoft’s core asset irrelevant.  Its not that Microsoft does not understand the threats but it’s too big and too slow to change and challenge these above mentioned disruptive forces. Does that mean that Microsoft will vanish into thin air some day soon?  Not really, but change is urgently needed at Redmond.

Currently, Microsoft organization looks a lot like IBM of 1970s.  IBM had almost monopoly on the mainframe business and its ‘cash cow’ was add-on hardware services after installation.  With the rapid emergence of PCs (lead by Microsoft), IBM tried several ways to fend off that disruptive force (first with denial, then by building their own OS).  When every thing failed they went through massive restructuring.  IBM evolved from a Mainframe Hardware Vendor into a Software Solution Provider.  IBM of today is vastly different from IBM of 1970s.  I contend that Microsoft will go through some painful metamorphosis similar to that of IBM.  It will be forced to reinvent itself into a new company.  Steve Ballmer is too much of an insider to effectively bring about successful change management.  They need an outsider with new set of eyes and ears.  I personally believe Ray Ozzie will be elevated to a more powerful role to guide Microsoft through these changes.  They may even hire a few executives from outside to bring in some much needed changes.  Microsoft will still be relevant in 2020 but what will be its core competency then, will be interesting to monitor.  The days are numbered for the Microsoft in its current incarnation.   

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