ANALYSIS
The New M&A: Mergers and Acquaintances

What a week. It's amazing how much news you can make by throwing around a few billion dollars. We found that out by observing the sound (though maybe not the fury) of SAP (NYSE: SAP) and Oracle (Nasdaq: ORCL) placing billion dollar bets on the future outlines of the enterprise software industry.

In the last week or so, Oracle announced its offer to purchase BEA Systems (Nasdaq: BEAS) for US$6.7 billion and SAP announcing an agreement with Business Objects worth $6.8 billion. Don't break out the French champagne yet though, at least for Oracle, as some analysts say that deal might need a little sweetening.

Buying Behavior

The effect on the CRM world could be significant for two reasons. First, there are a lot of companies that are best of breed buyers of each of these acquired companies' products as well as users of third party CRM solutions. Whether you are Salesforce.com (NYSE: CRM) with customers using Business Objects, or a NetSuite, or RightNow (Nasdaq: RNOW) whose customers might integrate solutions using BEA middleware, you may be watching as your orbit comes more in line with a big enterprise player you hoped to avoid.

The second reason is also interesting because these acquisitions suggest the inevitable end of BI (business intelligence) and middleware markets led by independent entities. In BI, there's still Cognos (Nasdaq: COGN), but some analysts are already questioning how long that will last and who will buy them. The candidates include IBM (NYSE: IBM), HP (NYSE: HPQ) and (again) Oracle.

All this buying behavior is a signal of a top in mature markets. Whether the subject is middleware or BI, the markets have said that these kinds of solutions are no longer nice things to have or the playthings of early adopters. No. They are essential to any company's IT infrastructure and rolling them into the product suites of enterprise software vendors is necessary for any vendor worthy of the description.

This kind of M&A activity is one of the hallmarks of late market cycles as the big fish get eaten by even bigger fish, and sometimes the reasons have less to do with products, services or even customers than they have to do with finance.

The Oracle's BEA acquisition is at least partially about taking a competitor in a specific market off the street, but it is also about removing a potential acquisition for a competitor such as IBM or SAP. In the end, Oracle may have needed BEA less than other companies -- Oracle is already known as a middleware player, whereas according to some analysts, SAP, for example, could have used a fresh infusion of the technology.

At the same time, SAP already had business intelligence but may have felt a need to bolster its offerings in light of Oracle's acquisition of Hyperion earlier this year as well as its ownership of the analytics embedded in the Siebel product set.

Eliminating the Competition

It seems to be part of Oracle's strategy to take as many competitors off the market as possible while simultaneously depriving rivals of the oxygen they might need to be competitive. It happened in CRM, for example, when Oracle bought Peoplesoft and JD Edwards (each of which had offerings for multiple overlapping markets), as well as Siebel Systems.

As strategy, it makes perfect sense. In a few quick purchases, Oracle deprived companies like SAP of the acquisition targets they could have used and forced them to pursue a strategy of building applications in-house, which at the time SAP said it favored anyhow.

Nevertheless, time has shown that a roll-your-own strategy, while having benefits, also has delays. For example, while Oracle has been selling Siebel CRM OnDemand these last two years, SAP only recently announced its SAP Business ByDesign, which will not even be officially available until 2008.

Cooperation, the New Merger

Fast forward now to the future of CRM and you get a glimpse of another form of merger: cooperation. The Sales 2.0 Conference is convening in San Francisco at the end of the month, and I think it will be eye-opening at least for the differences in the ways companies address each other. The idea sprang from the fertile imaginations of guru Geoffrey Moore and David Thompson, CEO of Genius.com, for a way to share information among like-minded sales aficionados who see sales as part social networking.

As the name implies, Sales 2.0 takes its lead from Web 2.0 concepts like SOA (service-oriented architecture), which enables multiple applications to work together and deliver a 1 + 1 = 3 benefit to users.

We've all heard about mash-ups of data with maps, which are a useful but trivial example of this phenomenon. Looking at the platinum sponsor list which includes Oracle, WebEx, Genius.com, Landslide, InsideView and other sponsors such as Brainshark, EchoSign, LucidEra and Salesramp (I am not going to list all of them), you realize there is a different dynamic at work.

With the exceptions of Oracle and WebEx, none of the participants is in any real position to participate in major M&A activity -- a good thing because this market may be too young for us to make a lot of insightful bets. At the same time, though, all have an interest in further improving the end-to-end sales process.

In a situation where you can't simply carve out a niche by buying up one or several companies, you are forced to cooperate. Sales 2.0 may say a great deal about the future of selling, but it will also point out the necessity of -- and the integral place for -- the software platform in any 2.0 strategy.

Ironically, if executed properly, a platform strategy could yield the same kinds of results in the future that last week's M&A activity is providing for an older software model. We've already seen SaaS (Software as a Service) and on-demand change or disrupt development strategies and then sales, marketing , service, support and integration strategies. Finance may be next.