Sales force

Austin American-Statesman - - METRO & STATE - By Jor­dan Robert­son

→ Group buy­ing faded away in dot-com bust, but Austin’s FanForce re­viv­ing it for oth­ers

SAN FRAN­CISCO — The world’s largest technology com­pa­nies have been on a buy­ing spree, spend­ing bil­lions to snap up smaller com­pa­nies. And, of­ten, the buy­ers say they’re do­ing it for their cus­tomers: busi­nesses, hos­pi­tals, schools and govern­ment agen­cies.

As tech com­pa­nies get big­ger, they say, they can of­fer a broader va­ri­ety of prod­ucts and make it eas­ier for cus­tomers to do one-stop shop­ping.

Yet if you ask the cus­tomers, you hear a dif­fer­ent story. Of­ten they get new headaches with multi­bil­lion-dol­lar deals by the likes of Or­a­cle, IBM, SAP, Dell and Hewlett-Packard. When you add the chal­lenges that come with any cor­po­rate ac­qui­si­tion, it’s not hard to en­vi­sion a re­verse trend even­tu­ally build­ing: a drive to split up tech com­pa­nies that have grown too large.

In other words, the tech con­sol­i­da­tion of the past few years could turn out to have wasted share­hold­ers’ money.

“The de­mand is not com­ing from the cus­tomers,” said Gopal Khanna, who over­sees a $600 mil­lion technology bud­get as chief in­for-

ma­tion of­fi­cer for the state of Min­nesota. “On the con­trary, I’m best served when there’s a phe­nom­e­nal amount of in­no­va­tion hap­pen­ing. … Some­times cre­at­ing be­he­moths slows down that in­no­va­tion en­gine.”

Technology com­pa­nies have spent more than $350 bil­lion buy­ing other com­pa­nies world­wide over the past 3½ years, ac­cord­ing to Cap­i­tal IQ, a di­vi­sion of Stan­dard & Poor’s.

Hewlett-Packard Co., the world’s biggest in­for­ma­tion­tech­nol­ogy com­pany by rev­enue, has been one of the most ac­tive, in a hunt for profit in mar­kets other than printer ink. So has Or­a­cle Corp., which wants to sell more types of busi­ness soft­ware and now makes com­puter servers af­ter its $7 bil­lion pickup of Sun Mi­crosys­tems Inc. IBM Corp. plans to spend $20 bil­lion over the next five years on ac­qui­si­tions to strengthen its ser­vices and soft­ware di­vi­sions.

The com­pa­nies say they want to give their cus­tomers more op­tions, bet­ter prices and smarter ser­vice. It’s some­what like buy­ing In­ter­net, cable TV and tele­phone ser­vice from one com­pany: You’ll save money by buy­ing the bun­dle, and when you need things fixed, you have only “one throat to choke,” in tech-in­dus­try par­lance.

The flip side is that a cus­tomer ac­cus­tomed to deal­ing with a spe­cialty maker of soft­ware or hard­ware of­ten gets worse ser­vice af­ter that sup­plier is taken over.

Larry Bonfante, chief in­for­ma­tion of­fi­cer of the United States Ten­nis As­so­ci­a­tion, started bat­tling re­cently with one of his sup­pli­ers, which sup­ports USTA’s com­puter ap­pli­ca­tions and runs its help desk. Bonfante won’t name the com­pany but said it was bought a year ago by a large, pub­licly traded com­pany.

“Our ser­vice and our re­la­tion­ship with that com­pany since then has gone ab­so­lutely into the tank,” Bonfante said.

Bonfante said ser­vice im­proved af­ter he put the com­pany on no­tice, but he said he’s still watch­ing the sit­u­a­tion closely.

Rob Ewing, se­nior vice pres­i­dent of sys­tems and technology for In­ter­Call, which sells con­fer­ence-call ser­vices, said his com­pany stopped buy­ing li­censes from a provider of data­base soft­ware six months af­ter it was acquired. The prob­lem: Sup­port staff has been cut.

“Res­o­lu­tions to is­sues went from less than a day to more than a week,” Ewing said. “It was very frus­trat­ing.”

Tech ac­qui­si­tions aren’t the only ones that of­ten go bad. A study by Har­vard Busi­ness School pro­fes­sor Michael Porter ex­am­ined 33 large U.S. cor­po­ra­tions over a 36-year pe­riod and found that they sold off many more ac­qui­si­tions than they kept. Com­pa­nies with ac­qui­si­tion strate­gies re­duced — rather than en­hanced — share­holder value.

Deals in technology can be even riskier than av­er­age be­cause of the com­plex­ity of the in­dus­try’s prod­ucts. Al­though ac­qui­si­tions can of­fer short­term fi­nan­cial boosts for the buyer, technology ages quickly, and acquired com­pa­nies re­quire sub­stan­tial in­vest­ment to keep their edge.

“When technology com­pa­nies merge, you of­ten have a ‘two plus two equals three’ equa­tion,” said Michael Cusumano, a pro­fes­sor at the Mas­sachusetts In­sti­tute of Technology’s Sloan School of Man­age­ment.

It can take years for an acquired tech com­pany to be fully in­te­grated with its buyer, which is one rea­son his­tory is pep­pered with ex­am­ples of ac­qui­si­tion flame­outs that re­pelled cus­tomers.

One of the most no­to­ri­ous was Com­paq Com­puter’s 1998 takeover of com­put­ing pi­o­neer Dig­i­tal Equip­ment Corp., known as DEC.

Like many frus­trated DEC cus­tomers, Robert Rosen, at the time di­rec­tor of in­for­ma­tion man­age­ment for the Army Re­search Lab­o­ra­tory, bailed on DEC be­cause the com­pany’s per­for­mance de­te­ri­o­rated. The lab re­placed its DEC servers with ma­chines from IBM and Sun Mi­crosys­tems.

Rosen, now chief in­for­ma­tion of­fi­cer of the Na­tional In­sti­tute of Arthri­tis and Mus­cu­loskele­tal and Skin Dis­eases of the Na­tional In­sti­tutes of Health, said he learned to try to pick com­put­ing sup- pli­ers that aren’t likely to be acquired.

IBM and sev­eral other large, ac­quir­ing com­pa­nies de­clined to com­ment or con­nect The As­so­ci­ated Press with cus­tomers who are happy about the in­dus­try’s con­sol­i­da­tion.

Hewlett-Packard, which also de­clined to com­ment, re­ferred the AP to one cus­tomer, Christo­pher Rence, chief in­for­ma­tion of­fi­cer of Fair Isaac Corp., the com­pany be­hind FICO con­sumer credit scores.

Rence said most ac­qui­si­tions among his sup­pli­ers have worked out for his com­pany. Still, he wor­ries that con­sol­i­da­tion leaves him with less ne­go­ti­at­ing lever­age.

“When they con­sol­i­date, you’re al­ways go­ing to lose some­thing — that’s just re­al­ity,” he said. “But I guess I look at it as: When a big com­pany ac­quires some­thing, they’ve got the pock­ets to go in­vest in some of those ar­eas — and what­ever they in­vest in, it’s def­i­nitely go­ing to ben­e­fit me.”

Re­signed to the idea that the in­dus­try is con­sol­i­dat­ing, many tech buy­ers try to plan ac­cord­ingly.

Leo Collins, chief in­for­ma­tion of­fi­cer of Lions Gate En­ter­tain­ment, said smart tech buy­ers look for sup­pli­ers that are the like­li­est to stick around over the long haul. If a sup­plier starts to strug­gle, he tries to move away from it be­fore it is bought, which re­duces the risk of be­ing stuck with out­dated or un­sup­ported tech­nolo­gies.

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