IT Market
No safe bets when it comes to buying IT

IT Market

If the whole PeopleSoft/Oracle spectacle has done one thing, it has been to reinforce the industry mantra that end-user buying today should be based heavily on ‘corporate’ criteria. We’re talking about vendor reputation and financial stability, ease of integration with the existing infrastructure (or with other stuff being bought at the same time), supportability, cultural fit, and so on.

Product functionality/features and specific service excellence are less important than they once were, the story goes. That basically means buying from big, safe, established powerful players, and not from smaller or newer outfits. The motivation? Partly the financial and (supposed) technical attractions of buying from vendors with broader product sets, service portfolio, geographic reach, and industrial expertise.

But partly it’s the feeling that the software and services industries are consolidating rapidly, and that buying from a smaller player means you’re playing with fire, because they won’t be around much longer. Even if they get acquired (rather than going bust), the predator will most likely ditch their products or services and migrate users to its own offerings.

It’s a good argument and it’s probably saved many a chief information officer’s job, particularly during the post-bubble massacre of software houses and niche consultancies since 2001. Who wants to be stuck with unsupported software or half-finished projects?

But don’t get carried away with this logic. Let’s leave aside the ironic problem that successful vendors are more prone to overstretching and resourcing problems that cause knock-on problems for their end users.

The mantra works best when dealing with very small vendors, where the chance of supplier failure is highest. Yet, let’s put things in perspective. If the offering is really good, and the potential damage from supplier failure can be contained, why worry too much? Especially if the payback is fast?

Anyway, all your potential suppliers may be in the same boat, at least for some niche solutions. As one corporate buyer put it recently: ‘We dropped the question whether the supplier’s financially viable, because few if any could say yes.’ Maybe it’s coincidence, but I see signs of a rehabilitation of stand-alone solutions from smaller players.

The second problem is that it’s almost impossible to find anyone who’s got anything like a secure future. If a biggie like PeopleSoft is fighting for its very life, and if even SAP – by far the biggest business applications vendor on the planet – considers being bought by Microsoft, just who constitutes a safe bet – IBM, HP. Microsoft, Oracle, Accenture, Cisco and Intel perhaps. Can they give you everything you need? Er, no. If you only buy from them, will you get competitive advantage? Probably not.

The third problem is that the roles of winner and loser can get strangely inverted. Let’s say you only buy from predators — companies you think won’t be bought. How do you know that your predator won’t junk its own product/service in favour of those from the company it’s acquiring? After all, it’s probably consciously buying something that’s better than its own offering. Sure, if Oracle buys BEA, it’s probably WebLogic that’ll lose out. But life isn’t always so simple. You’re only really safe when the acquirer moves into a new area, which is pretty rare.

The bet-on-winners rule is neither simple nor foolproof. At the low end, the risks aren’t always worth worrying about. At the high end, it’s turning into a big lottery. Perhaps it’s most relevant in the middle; for example, mid-range ERP supplies and IT consultancies. It’s certainly more relevant for enterprise-wide applications and outsourcing services than it is for point solutions and discrete consultancy services. I’m not saying it’s completely irrelevant, but it’s got real limits.

Sure, try to guess who will acquire whom, and who’s going to go bust. But don’t base buying decisions primarily on that. If your investment project has a decent payback time, then such long-term questions could be academic, given the timescales involved. Buy what fits your company best.

Douglas Hayward is an analyst at Ovum