In the high-tech arena, many companies names really stand out. Not only for their products but also their business style. Most have connotations of both positive and some negative. But one stands out on it’s own, Computer Associates, or CA as it is more commonly known.
Strangely enough I have never meet an employee of CA. A company of such size should have at least an active partner community. I don’t mean to offend any employees when I say this but we have all heard CA used synonymously with the grim reaper, vultures, or even bottom feeders. And based on it’s latest acquisition at least one company is following their business model, Open Text.
Are you picking on CA?
Now what CA does is not a bad thing. If you think about it, without vultures there’d be a lot of road kill out there. But I really don’t see a lot of people proud to shout out that they work at CA. Maybe I do know a few but they’re just afraid to admit it. And in recent years CA has tried to change their image (note to CA, follow ValueJet’s lead and change your name (now AirTran)).
CA’s business plan has been to acquire companies with large customer bases and good , if not surprisingly quite often solid, products but lacking the marketing momentum to keep going independently. CA then keeps these as separate business units and focuses on the maintenance stream but make very little if any engineering effort to improve the product. (Note two to CA, with all the low cost labor in India maybe it’s time to do some enhancements.) They seem to continuously be buying just about any company as long as it fits that model. And the model works, even outside high-tech. Just look at Big Lots or even the Internet retailer Woot. But it doesn’t mean growth.
Are you picking on OT?
Why is it that I believe that Open Text is the next CA? Just look at today’s acquisition. Either the executives at Open Text have ADD or they’ve gone senile, or it’s their business model. You see they already owned a web content management company, Red Dot through their acquisition of Hummingbird. In fact strangely enough, Hummingbird and Open Text themselves overlapped.
Ok, so what? They’ve acquired overlapping technologies.
Well years ago I didn’t think it did either until someone very well versed in acquisitions pointed something interesting to me. Just because you buy the company doesn’t mean you buy the customers. Those of you in the customer shoes reading this know I’m right. You made your technology selection for a reason and those don’t change when company A buys competitor B. In fact, as vendor you spend more money re-acquiring those customers.
Those that know me, know that I like to see things for myself. And the interesting part is that the math was very simple. If it holds true that people make technology decisions based specific reasons that are not part of your product, you start in a negative cash position. The acquisition costs are sunk costs and all you really get you permission to see the customer. You still need to sell them on your technology, IF you’re going to combine platforms. And often you will find yourself back in competition for those same customers. That’s a high cost of customer acquisition.
But if you’re NOT going to combine platforms then it’s really about the viability of the company as a whole to keep the product alive, often the customers are happy to see the risk of a small or dying company suddenly replaced by the strength of a large company.
Ah, thanks for the finance lesson. But what about OT?
When one looks at Open Text, you quickly see it’s a multi-product company and not an ECM platform company. Sure there’s fud that get’s thrown out into the market but with Open Text you really need to choose several platforms to do what one ECM platform will do. In the end, if you:
- want collaboration there’s the Open Text Platform
- want document management then there’s the Hummingbird platform
- want digital asset management there’s the Artesia platform
- want archiving then there’s the Ixos platform
- want web content management there’s …
Oh that’s right now there’s two platforms to chose from RedDot and Vignette.
So it’s either oversight or a business plan. And if you look at the fact that we’re going on three years after the acquisition of Hummingbird and platform unification is not discussed then one can only assume that each platform will stay separate. And in these financial times very few company can run several duplicate product lines or, taking it a step further, continue to improve on duplicate platforms. To steal a phrase.
I’ve worked with Microsoft. I have friends at Microsoft. Microsoft is a partner of mine. Open Text, you are no Microsoft.
An excellent assessment. It is hard to really state how this looks without potentially insulting good Open Text people, but truth is truth.
So, for our next trick, when do the Open Source guys start consolidating and posing a bigger threat to the established base?
-Pie
If the supposition that its the maintenance revenue and not the technology that is of interest here- open source consolidation has interesting dynamics. I think open source though (no data to support this opinion) would be far less likely to consolidate overlapping technologies to the degree that OT has demonstrated.
The model could have interesting effects but I suspect there is a cultural mindset that would work against it. Accountants drive deals like this not technologists and I think the rabid territorialism and sense of technical superiority (read that “passion”) of many of these organizations would block such combinations.
The real thing about open source is what are you buying. By definition open source is open to all. What vendors like Alfresco are doing with their packaged version of open source Alfresco is to package a tested set of components and add to this a maintenance program. In fact there’s nothing out there that would stop anyone from creating a company that also offers their own variant of Alfresco.
Want proof? Just look at Linux. How long was it out in the open before Red Hat wrapped up an instance of it as Red Hat Linux. Honestly if it gains additional viability I wouldn’t be surprised to see a “Red Hat” Alfresco.
>the low cost labor in India
well this may not be true even in near future with the way things are going on in the West and specifically the US. Cost arbitrage can not be a sustainable reason to make engineering efforts.
We shouldn’t overstate cost advantage for any vendor for non-US development since all of them of any size use global resources (not necessarily India) to find lower rates. The real issue is where do they spend the money.
Consolidation is expensive – subsistance maintenance is not. So long as the revenue calculations work to their favor, just keeping a product from falling over while the money keeps coming in can continue to fund their M & A addiction.
My statement was to point out that there are cost alternatives for legacy development. There is really no TECHNICAL reason that any acquisition done for technical reasons would not continue development of a platform. If you’re not buying a company for technical reasons and it’s financial, as Lee re-stated, maintenance is cheap.
So there you go Lee . thinking OT is an American Company and is using US labor for development .. They are Canadian and use pimarily Canadian Labor ..
that is an excellent point and yes I did know that – I would never want to offend the country that gave the world William Shatner, Jim Carey and that awesome bacon. We’ll give them a pass on the Celine Dion thing
I don’t think it invalidates the point though-I suspect OT has a well established globalized cost basis as do most companies of similar size. The question is whether or not OT will be able to operate Vignette cheaper. I simply don’t think this will be the case for the Vignette acquisition – the US corporate side of the equation I was referring to in the first place. (read the post and then read what I said. don’t stop at ‘non-US’ and assume I’m talking about OT)
That’s not to say that econmies of scale don’t factor in – I just don’t think a preponderance of lower cost long-distance resources plays into this.