Consolidation of Tech Vendors: Balancing Value and Complexity

The technology industry is no stranger to consolidation as companies strive to expand their portfolios, offer more features, and increase profitability. However, this trend often leads to larger product bundles, which can result in higher prices and increased complexity for customers.

One recent example is VMware, which, after its acquisition by Broadcom, transitioned from over 160 individual products to just two bundled offerings. While Broadcom’s VMware Cloud Foundation division argues that these new bundles provide better value by offering more features, some CIOs are skeptical.

“CIOs now have to pay higher prices despite not actually wanting all those features,” said Todd Florence, CIO of Estes Express Lines, a trucking company based in Richmond, Virginia. Chad Simpson, CIO of CITY Furniture, a home furnishings retailer in Florida, shared a similar sentiment, noting that the acquisition strategies of companies like Salesforce ultimately drive up pricing models over time.

Consolidation has both advantages and disadvantages for customers. On the one hand, dealing with fewer vendors can reduce complexity. However, there is also the risk of higher prices or the retirement of favored tools, as seen in Adobe’s acquisition of Macromedia, which led to the discontinuation of Flash and other tools.

Barry Brunsman, a principal in KPMG’s CIO advisory organization, explains that technology vendors, like any other business, are looking to expand their share of the market and increase profits. Acquisitions allow them to combine new tools and features, often selling them at higher prices. This strategy can result in customers being offered a “Ferrari” when all they need is a “Toyota.”

CIOs are calling for more flexible and modular offerings from software vendors, similar to how cloud services are sold. This would allow customers to select only the features they need, avoiding unnecessary costs and complexity.

While some areas, such as cybersecurity, benefit from consolidation by reducing the attack surface and integration costs, customers remain cautious about the potential drawbacks of large product bundles. As M&A activity continues to shape the tech industry, it is crucial for vendors to strike a balance between offering value through feature-rich offerings and considering the preferences and needs of their customers.

FAQ:

1. What is the impact of consolidation in the technology industry?
Consolidation in the technology industry often leads to larger product bundles, resulting in higher prices and increased complexity for customers.

2. Can you provide an example of consolidation in the industry?
An example of consolidation in the industry is VMware, which transitioned from over 160 individual products to just two bundled offerings after its acquisition by Broadcom.

3. Are customers happy with the new bundled offerings?
Some customers, particularly CIOs, are skeptical of the new bundled offerings as they may have to pay higher prices for features they do not necessarily need or want.

4. What are the advantages of consolidation for customers?
Consolidation can reduce complexity for customers by dealing with fewer vendors.

5. What are the disadvantages of consolidation for customers?
The disadvantages of consolidation for customers include the risk of higher prices and the retirement of favored tools or features.

6. How do technology vendors benefit from acquisitions?
Acquisitions allow technology vendors to combine new tools and features, often selling them at higher prices, thus increasing their share of the market and profits.

7. What do CIOs suggest for software vendors?
CIOs suggest that software vendors should offer more flexible and modular offerings, allowing customers to select only the features they need to avoid unnecessary costs and complexity.

8. How does consolidation impact areas like cybersecurity?
Consolidation in areas like cybersecurity can benefit customers by reducing the attack surface and integration costs.

9. What should vendors consider in the face of ongoing M&A activity?
Vendors should strike a balance between offering value through feature-rich offerings and considering the preferences and needs of their customers in the face of ongoing M&A activity.

Definitions:

– Consolidation: The process of merging or combining businesses or assets to create a larger entity.
– Product bundles: A collection of products or services that are sold together as a package.
– CIO: Chief Information Officer, a senior executive responsible for the information technology strategy and management of an organization.
– Acquisitions: The process of one company purchasing another company or its assets.
– Attack surface: The potential points of vulnerability or entry for a malicious attack on a system or network.
– Integration costs: The expenses and effort required to combine or merge different systems, technologies, or organizations.

Related links:
VMware
Broadcom
Salesforce
Adobe
KPMG