SAP, An Industry, And Their Customers Grow UpSAP, An Industry, And Their Customers Grow Up

The software industry is consolidating, we're told, because that's what mature industries do. But it's also what many mature customers demand.When industry growth slows down, as is the case in software, companies tend to combine to boost their revenue while realizing economies of scale. Broken down to its most basic equation, 1+ 1 = 2 or more on the revenue side, but less than 2 on the cost side.

As industries mature, their customers rework the math as well. For starters, CIOs want to reduce overwhelming complexity by managing fewer software vendors. They also want tighter product integration, and they want to place their bets on companies with staying power.

Mergers and acquisitions are never easy for the principals, and rarely easy for their customers. The record so far is mixed. The customers we talk with are generally happy with the acquisitions their software vendors have made. Even PeopleSoft founder Dave Duffield, who battled Larry Ellison and crew to keep the company independent, concedes that Oracle has done a decent job serving customers. As always, your experience may vary. As SAP acquires Business Objects, announcing on Sunday it will pay $6.8 billion for the business intelligence software vendor, it says it plans to let Business Objects operate as a standalone entity and maintain its branding.

Whether the deal ultimately succeeds, for SAP and customers, will hinge on whether SAP can integrate Business Objects' analytical apps into its ERP platform, rather than just bring two sets of maturing software suites to two sets of maturing customers.