The news about Google acquiring Postini solutions is just another indicator of a wider consolidation trend within the industry.
Back in 2000 when i was working in the UK we did some crystal ball gazing and predicted that by 2010 there would be 3 behemoths in the software industry left, with a massively fragmented innovator community vying to either get VC or be acquired. These companies were basically acquiring for growth. (incidentally we said they would be Microsoft, SAP and Oracle). This prediction was based on a whole lot of gut instinct combined with some insight gained from other technology industries, predominantly the pharmaceuticals industry who at the time were at market maturity, were consolidating at a massive rate due to an inability to meet sharemarket growth expectations with organic growth. It was in fact cheaper and faster for them to buy out competitors (with the IP and patents) than to develop the next wonder drug.
(With a couple of them you could argue that their strategic differentiator is the ability to merge or retain talent of acquired businesses, but that’s an aside).
My personal view is that this analysis is as relevant today as it was back then. So where too from here. My pick for Google and Microsoft.
Undoubtedly Google will offer more and more solutions that are business grade SaaS. I know people who think Google apps is a side show for them, and i guess in terms of revenue right now it is, but it is still a USD$100m business (according to a Google speaker at a conference i went to sorry can’t remember his name). But advertising has a revenue growth ceiling. Google has a massive consumer presence so logically all its growth will come in other segments. To this end, look for them to buy other businesses that provide standard business functions like SaaS CRM, accounts and finance, web-hosting, and DNS services. Gradually this will creep up market to include ERP, Supply chain etc business. I also think you’ll see Google become more involved in telecommunications (enhancements to Talk). Including video conferencing, small business calling packages, calling circles. All at rates that will make a Telco turn green. Why not, the have nothing to loose, its all incremental revenue for them.
A different beast all together this one. MS is to my mind suffering from the classic issues highlighted in the innovators dilemma . They are the desktop application incumbent. What motivation do they have to push SaaS? For this reason their whole MS Live play is lacking any real venom. They don’t have the channel to support it, the application developers aren’t quite there yet with their thinking (look at the turn around times for instance). Add to this their current customers aren’t buying the story (duh! Don’t sell it to them). The target group for MS Live seems ill-defined. The marketing messages at best is “me too” (its hardly a lead proposition is it?). This stuff just isn’t in their DNA. Having said that, i think if don’t correctly (ie calved off and run as a separate entity) MS could do quite well in this space due to scale. To that end I think you’ll see MS acquiring more companies to, security, storage and pureplay SaaS companies. Again speed to market, customer knowledge and channels here will be key for them
MS are clearly going to have a tremendous impact on Telecommunications, more so than Google with their consumer play. The SME PBX combined with their ICA Nortel alliance and their public internet at the access play mean they could be a real player.
I still struggle with the enterprise applications play. It still feels half cooked and has never really gotten market traction. The missing ingredient here is a consulting and operations business (again not MS’s core business). In fact when i think about it, MS has always struggled with Enterprise level plays full stop. Something they will have to address to keep their own share market masters at bay.