CTO Blog

Andy , Your reference to "A small fish being swallowed by a shark" is a case where the intent of the merger is to eliminate competition OR fulfill an appetite.

I would argue that in nature a better analogy of a merger is a marriage - where two people from different backgrounds come together and generate an offspring that hopefully betters the past generation and evolves.

Now : keep in mind that matchmaking and marriages is a difficult art and I would not be surprised if someone told me that the corporate merger failure rate is similar to the divorce rate in US.

Regarding the current merger's in IT industry:

Vertical integration and Consolidation in IT is inevitable. Look at any mature industry like Energy , Utilities , Financial Services : You will typically have 3-4 big players with >100 Billion in revenues. You will not have 20 big players in an industry. I would not be surprised if we see even bigger mergers like MSFT + HPQ OR IBM + SUN OR DELL + SUN + IBM.

I think about this, but first I'm going to merge with my wife.

@Peter: sorry, but that's obviously not a real merger, only a temporary one...

OK, Ron. But really, no value in merging?

Few things create as much added value as a place, a channel, an organisation, a concept, an object wich brings together things that were apart, into a much more valuable whole.

The earth, the sun, a city, a country, a living organism, a database, a brand, a company, a polical party, a book, a magazine, a bank, a stock exchange, google, amazon, ebay.

I could go on and on and on.

There may be very few examples of mergers in nature, but there are examples of symbiotic relationships (particularly mutualism) aplenty - see http://en.wikipedia.org/wiki/Symbiosis - specifially "[symbiosis] is increasingly recognised as an important selective force behind evolution". With Christmas around the corner, misteltoe springs to mind, as well as cleaner fish living with sharks (@Andy). Collaboration as nature's way?

@Peter: many of the examples you mention are really examples of intense collaboration: the entities are still autonomous, but work closely together to achieve a common goal. It becomes different when entities (at any scale) merge, e.g. political parties merging - typically when they are in decline - brands merging - effectively kills one of the two brands - etc. Why are Google, Amazon and eBay good examples of succesful mergers...?

I agree that I mention examples of intense collaboration. But to what extend is a company just that, and to what extend is it a fixed entity.

A prerequisite of merging two big entities is that there is an underlying level that is not fixed. It depends on the company to what extend this is the case.

But besides merging two big entities, there is also the possibility to merge lots of small things into a new whole. Google merges the information of all public websites to make all that information searchable. EBay merges product offerings of lots of parties. Brands merge different products under one name.

@Peter: well, this might just be a case of definitions. I see 'merging' as a true melting together of separate entities that form one integrated entity afterwards. In the case of Google or eBay: they don't merge the information or goods of others, they don't hold it in their databases or warehouses. Effectively, they don't own it. I would tend to see both of these companies as excellent examples of (relatively) small entities that create a very big market capture through intense collaboration rather than acquiring or owning something. In these cases, they leverage the power of the crowd.

I don’t deny that there is a lot of value in intense collaboration. But besides the parties that collaborate, there are often specific parties that do something entirely different. They facilitate the parties that want to collaborate, and I would say they merge what the collaborators are doing. And these facilitators/mergers of collaboration are the parties that gain the most value. But I wouldn’t describe them as collaborators.

They become a kind gravitational centre for a specific kind of value. And they try to keep and add to that ‘gravitation’ through acquisitions and merging with others.

@Niraj: you are right that M&A's seem to be inevitable in the IT industry. We can see that every day. It's just that I'm wondering if it is by default the most effective strategy, particularly from a mid/long-term perspective.

@Tom: indeed, symbiosis seems to be the 'natural' way of succesful collaboration. Obviously, all the players in ecosystems like this stay autonomous, but they are clearly dependent on each other and a 'win / win' situation is obviously a requirement. Reminds me of the excellent 'Keystone Advantage' book by Marco Iansiti and Roy Levien, in which they show how companies can grow and innovate through 'feeding' the business ecosystem around them, rather than acquiring it.