Google brand tops the charts

Google has knocked Microsoft from its perch as the world's top-ranked brand, according to findings released on Monday.

by Fairfax Digital

The rankings, compiled by market research firm Millward Brown, also put Google ahead of well-established brands like General Electric, No. 2; Coca-Cola, No. 4; Wal-Mart Stores, No. 7; and IBM, No. 9.

Some key factors seen this year in building brand recognition ranged from corporate responsibility to serving customers in emerging markets like Brazil and India, according to the study.

The top-ranked brand from a non-US-based company was China Mobile, which dropped a spot but still came in at No. 5.

The rankings were based on publicly available financial data along with primary research, including interviews with a million consumers worldwide, Millward Brown said.

For Google, which ranked No. 7 a year ago, the jump to the top underscores how quickly the web search leader has become an everyday name. The company uses relatively little advertising, instead relying on word-of-mouth promotion.

By contrast, Microsoft's slide down to third place from first comes even as the software company has been rolling out its new Windows Vista operating system with a massive global marketing blitz.

Eileen Campbell, global chief executive of Millward Brown, said the rankings showed "a blend of good business leadership, responsible financial management and powerful marketing ... can be leveraged to create and grow corporate wealth."

Some of the other big movers on the list included Apple which rose 13 spots to No. 16 and Starbucks, which rose 13 spots to No. 35. Those losing ground in the brand rankings included Intel, Home Depot and Dell. Millward Brown is a unit of WPP Group and the findings were published in cooperation with the Financial Times.

Lead Tracking Key Part of CRM Solutions, Say CRM.Today.com Survey Participants

A survey of users at CRMToday.com suggests that lead tracking is what most participants are looking for in a customer relationship management (CRM) solution. Based on their individual responses, participants receive immediate name-brand suggestions of CRM solutions that would work well for their particular business and can also download a free white paper. CRMToday.com features many CRM resources geared toward serving professionals’ CRM needs.

From a survey of its users, CRMToday.com announces that lead tracking is what nearly 60 percent of more than 2,500 participants say they’re looking for to grow their business (http://www.crm2day.com/). CRMToday.com, a business-to-business online resource, offers tools and advice to help professionals choose from among the many available customer relationship management (CRM) options, including lead tracking systems. After filling out the current user survey, participants immediately receive name-brand suggestions of CRM solutions that might work well for their company. Participants can also download a free white paper, "The CRM Journey: From Productivity to Profit."

According to CRMToday.com, "Most of the fastest growing B2B companies do not rely solely on just one sales lead generation method. They have a complete arsenal of sales lead generation tools at their fingertips." The article lists a number of lead generation methods, including ongoing relationships, partner referrals, Internet marketing, telemarketing, email, direct mail, print and special events (http://www.crm2day.com/library/50391.php).

"Shopping for CRM is like shopping for a car," according to BusinessWeek.com. "First you need to think through your needs. Otherwise it's like not knowing if you want to buy a Silverado or a Corvette. …Once you know your needs, research those CRM solutions that meet them. Then pick one and get started."

The many lead tracking systems available today and the necessity of using and tracking multiple lead generation methods can make it difficult for business owners to find the best lead tracking system for their company. CRMToday.com (http://www.crm2day.com/) offers many resources to help business owners understand the strengths of various lead tracking systems and choose the one that will be most effective for their business.

See Sqware Peg on "Your Business Success" in June

Sqware Peg is pleased to announce our appearance on Channel 9's Sunday morning program "Your Business Success".

The 'Your Business Success' series on the Nine Network provides practical business advice from Australia's leading business entrepreneurs applied to a real life businesses. Each week a different business entrepreneur shares their business knowledge; from Maxine Horn - Fone Zone, Brian Singer - RipCurl, Paul Cave - Sydney Bridge Climb, Geoff Harris Flight Centre and many of Australia's other leading entrepeneurs.

Every SUNDAY MORNING on CHANNEL 9 at the new time of 8.30am.

Keep a look out for Salesforce.com and Sqware Peg by watching each week and keeping up-to-date on our blog.


Hitwise predicts which Web 2.0 firms will win

They're relatively unknown now, but if you're a Young Digerati or a Bohemian Mix, a new survey suggests you already know and use them..

by ITNews

Based on an extensive filter of 25 million Internet users and some 860,000 Web sites, Bill Tancer, the general manager of Hitwise, said Yelp, StumbleUpon, Veoh, WeeWorld, Imeem, and Piczo have the potential to be the next YouTube, Wikipedia, or Flickr.

"These sites are ones that attract a certain kind of user and have the best chance of crossing the chasm between early adopters and the mainstream media," Tancer said during a keynote presentation at the Web 2.0 Expo in San Francisco this week.

Tancer said the six companies are ones that have yet to "pop" or break out into the Web's popular consciousness -- similar to sites like MySpace, Twitter, and Digg, which were relatively unknown a few years ago and now have massive amounts of users.

Hitwise's prediction is the result of an extensive filtering of traffic patterns that show Web 2.0 usage compared with overall Internet traffic has expanded from 2 percent in its first year to 12.28 percent as of Monday.

"That's 668 percent growth in just two years for the top participatory sites in the United States," Tancer said. The report included following mainstream sites like Wikipedia, YouTube, and Flickr.

Using YouTube, Wikipedia, and Flickr as case studies, Tancer tracked the demographics of content consumers and content producers. Based on Hitwise's ages 18 to 34 and 35 to 55 categories, Tancer noted that the younger crowd consumed the majority of content while the older crowd mainly was responsible for uploading photos, videos, or editing Wikipedia entries.

Even more astounding was Tancer's assertion that a small number of user categories -- Money and Brains, Young Digerati, and Bohemian Mix -- was responsible for setting the trends. While Hitwise has loose definitions of the three groups, they make up only a small percentage, sometimes as little as 0.2 percent.

"It's not an 80-20 split anymore, however," Tancer noted. "It's more like a 1-9-90 ratio with one percent making the content, nine percent trading and sharing the content, and the remaining 90 percent consuming the content.


Why should you be considering Digital marketing as part of your advertising mix?

Information by Cebit:

  • Paid search advertising is estimated to grow by more than 28% between 2006 & 2009*
  • The digital media industry in Australia:
    - Earnings increased by 66% to over $1 billion in ad revenue in 2006**
    - Search advertising grew the fastest of the four online sectors**
    - Consumers spent more than $7 billion online in Australia in 2006**
    - At the end last year 11.5 million Australians were connected to the internet either at home or at work (Nielsen/NetRatings)
  • There are over 800 million searches per month in Australia**
    - Google has around 76% of this traffic
  • Australian PPC (pay per click) search market share by search engine:*
    - Google Adwords 60%
    - Yahoo! Search Marketing 33% (YSM sell PPC on both 9msn & Yahoo! in Australia)
    - Sensis at 7%
  • Paid search advertising is 18% of the total online advertising market in Australia & this reached $70 million in 2004 *

*Frost & Sullivan Australia, 2005
** BRW, February 22, 2007 issue

Marketing in the Google Era

Sqware Peg's marketing division and the world's first on-demand marketing agency in conjuction with Salesforce.com, agency On-Demand® is pleased to present the following CMO Breakfast Briefing:

Marketing in the Google Era
7 Proven Techniques for Marketing in the 21st Century

Wednesday 2nd May 2007
Time: 7:30am - 9:00am
Location: The Pavillion (Bottom of Tower 3) Darling Park, 201 Sussex St, Sydney

You will learn how to:

Invest in your web properties

  • Invest in search marketing
  • Make your message relevant
  • Create landing pages for each program
  • Measure everything in real-time
  • Use the web for PR
  • Engage your community

To Register or for More Information, please email: will@sqwarepeg.com

Work surfing 'underestimated'

ADVERTISERS who will spend well over $1 billion this year to market their brands on the internet are using audience data that dramatically underestimates web use at work, key online publishers claim.

by Lara Sinclair

News Digital Media, Fairfax Digital and Telstra directories arm Sensis all say that data from Nielsen/Net Ratings fails to accurately measure traffic to news and information websites that peaks during the day.

Some publishers, who hold individual measurement contracts with Nielsen/Net Ratings understood to be worth millions of dollars, have asked the company to improve the quality of its at-work data.

The difference in traffic numbers to sites such as news.com.au, smh.com.au and whitepages.-com.au is believed to be material, or greater than 5 per cent, and could be more, publishers said.
Internet search and entertainment portals such as Google, Yahoo7 and Ninemsn are believed to be less affected.

"Fairfax, News and Sensis are in agreement," Sensis digital marketing chief Anthony Saines said. "The (Nielsen data) under-represents (traffic generated by) large businesses."
The publishers also believe the number of people whose online movements at work are measured is too small.

"A huge amount of our traffic comes through work," News Digital Media chief operating officer Nick Leeder said. "It seems drastically under-reported. If that's not being picked up, media buyers are buying advertising based on wrong data."

A Nielsen/Net Ratings spokesman said its Net View internet data measured the online activities of 4365 Australians in February. Of those, 4067 were measured at home and 385 were measured at their workplace (87 people were tracked in both).

The company supplies information such as the number of visits per person to various websites and the time spent on them.

Skype hype puts word in your mouth

THE online telephony revolution is poised to become a word-of-mouth business tool, with consumers being able to connect with businesses recommended by their friends with the click of a button.

by Simon Canning - The Australian

Advertising is the new frontier for Voice over Internet Protocol (VoIP) pioneer Skype, which hopes to have more than 1 million businesses listed globally on its websites by the end of the year.

Skype offers computer users the ability to talk free of charge over the internet, and also offers services to allow people to phone traditional mobile and landline numbers at a discount to normal telcos.

The operator is competing with the likes of Yahoo Messenger, MSN Messenger, Buddy Talk and Glo Phone, as well as VoIP service providers such as Engin, My Net Fone and Freshtel.
Skype Asia Pacific vice-president Scott Bagby said he saw the new system, called Skype Find, as closing the loop between search and people actually contacting a business by phone.

He said it also gave new impetus to word-of-mouth marketing.
"Skype Find is a user-generated directory," Mr Bagby said. "Basically it allows people to recommend to friends small businesses like, say, restaurants and stuff.

"It will also help encourage advertisers to attract more buyers. It reinvigorates the pay-for-call model that has been languishing on the web for a couple of years now."
Under the Skype Find model, people will be able to use word of mouth to recommend businesses by placing the business on their Skype profile.

Businesses signing up for the Skype model will be able to use the telephone component of Skype to let consumers call them directly from their PC through the phone icon on the Skype page.
And they will not be bound by national borders, enabling people to talk to businesses around the world.

"It is a global collection of local businesses," Mr Bagby said.
"It's all about communication and it is a logical step for the buyers to contact the sellers directly and Skype enables that. It allows you to call them directly."
Calls are placed by simply pressing a button on the Skype web page.
The model also allows people to see which businesses are the most called.
"We can enable a shortlist result of the most called and we can see which one in an area is the hottest," Mr Bagby said.

"There is a huge marketing opportunity for these services. Global local search and online advertising opportunities will be expanding from $15 billion to $31 billion by 2010."
While Skype claims to have more than 171 million registered users worldwide, Mr Bagby declined to say how many there were in Australia other than to say the number was "significant".

Skype has also launched a second version called Skype Prime, which allows people offering services such as financial advice, tutoring or other verbal services to market themselves through Skype.

Skype e-commerce chief Sten Tamkivi said: "Skype Prime opens up a whole new market by letting you sell your knowledge to Skype's global community."

Market Research & Consumer Insights 2007

Optimising Market Research & Translating Insights For Bottom Line Results

25th - 27th June 2007 Star Room - Imax Complex, Sydney


Market Research and Consumer Insights 2007 is the next in IIR's successful marketing series. It has been specifically produced to provide you with a perspective on Australia's challenges and innovative approach to shopper segmentation, research methods and analyzing and translating insights into fresh marketing strategies.

The most significant issues across industry will be addressed, including retail initiatives, collaboration & co-creation, market research fundamentals and fundamentals of quantitative methods.

Dont miss our very own Sqware Peg Marketing guru, Will Scully-Power, as he presents - "PAIN Marketing - How successful Companies are Improving Sales & Marketing Results through Marketing Automation" (Wednesday 27th June, 1.00 - 4.00pm).

Google moves to attract developers

GOOGLE will host an international software developers day devoted to tailoring programs to its search engine.

by Australian IT - San Francisco correspondents

"Google Developer Day" will take place on May 31, 2007 and feature workshops, speeches and discussion groups focused Google's applications and developer tools.

The theme of the event will be "Building Blocks for Better Web Applications."

"We're very excited to hold this first-ever worldwide Google developer gathering," Google vice president Marissa Mayer said.

The day will be an opportunity for software developers to collaborate and ask Google engineers questions, Ms Mayer said.

Google rival Yahoo hosts an annual "Hack Day" at which software developers spend 24 hours tinkering with and combining Yahoo applications in innovative ways.

Google Developer Day will take place at Google offices and offsite locations in Mountain View, Sao Paulo, Madrid, London, Paris, Hamburg, Moscow, Beijing, Tokyo and Sydney.

Google will stream live webcasts of the event from its Mountain View office and provide a YouTube channel with videos of Google Developer Day sessions around the world.

Google bought YouTube last year in a $1.65 billion ($2 billion) deal.


Dimensions 2007 Marketing & Sales Summit

The 3rd annual DIMENSIONS Summit arrives in Sydney providing an engaging, challenging, share and exchange program tackling the big management issues of our time.

The twelve months following DIMENSIONS 07 will see dramatically 'shifting sands' in the marketplace - DIMENSIONS 07 will prepare you for this shift. The summit promises to lead the change in marketing and sales, face down the future by exploring concepts and ideas, enhance ROI on existing paths to market, establish new channels, update strategic plans and provide solutions allowing the integration of lateral and differentiation-based marketing trends.

Dates: 21/22 August 2007
Venue: Shangri-La Hotel, Sydney

The confirmed speakers, selected by the National Advisory Group (comprising over 100 experienced managers from diverse companies) have been selected for their achievement and excellence in their field. Sqware Peg General Manager William Scully-Power will speak on marketing trends in a feature presentation titled, "The Future of marketing is on-demand".



Batting Averages and Clickthrough Rates

by Sean Whiteley

John Gartner is obviously a fan of the book, Moneyball: The Art of Winning an Unfair Game, as am I. Moneyball is a book by Michael M. Lewis released in 2003 about the general manager of the Oakland Athletics, Billy Beane, and his team's approach to running the organization. One of the central tenants of Moneyball, is that in the game of baseball, real statistical analysis has shown that on base percentage and slugging percentage are better indicators of offensive success, and that avoiding an out is more important than getting a hit. In his article, Do Your Metrics Measure Up, John analogizes a batting average in baseball, to a clickthrough ratio for marketers. This begs the question, which metrics are most important to your marketing organization?

The Internet has fundamentally changed the way we all live an work. This has never been more true for marketers. As marketing dollars and advertising spend has shifted from Madison Avenue to Amphitheatre Parkway, marketers can measure almost every aspect of the performance of their marketing programs in real-time. One of the potential effects of this, aside from Google's repeated quarterly revenue home runs, is a potentially overwhelming amount of statistical information associated with your various marketing programs. If you get lost in a sea of stats, and lose track of what is important, it is very easy to miss your targets, which in the b2b world is likely along the lines of pipeline, revenue, and profitability.

John's article certainly shares our mindset. While clickthrough rates, quality scores, and conversion rates are key metrics to track closely, if you live in the b2b world, be careful not to get so bogged down in the myriad of metrics that you lose sight of your original goals:
Driving new leads, pipeline, revenue, and profitability for your organization.

Marketers Turn to Web 2.0

James Connolly published a good article in B-to-B magazine this week titled Techs Turn to Web2.0. The article the covers new-era web technologies that have changed the game for marketers, and folds nicely into the content that we've recently been delivering in our Marketing in the Google Era webinar series.

For marketers... Web 2.0 may present the first real opportunity for them to listen to their customers, according to experts who say marketers have tended to be insulated from their customers by sales and engineering groups.

The topics in the article of particular relevance include corporate blogging and community development. Although the content is geared to technology marketers, the concepts are generally applicable across a wide variety of industries.


Does Software Consolidation Stifle Innovation?

Musical instrument maker Yamaha uses Oracle for ERP, but it bypassed the company's CRM software for Salesforce.com's on-demand product, using Tibco Software to connect its Salesforce.com apps with its ERP system. The main reason it chose Salesforce.com was because software as a service offered faster implementation and reduced complexity, says David Bergstrom, Yamaha's corporate planning manager. He's having a hard time understanding how Oracle's acquisition strategy will benefit his company. "It seems like it's just gotten more complicated for them," he says, considering the "menu of things" Oracle offers up. "It's not as simple, clean, and clear as with a Salesforce.com solution." Gartner analyst Alexa Bona says she has heard a fair amount of grumbling from Oracle customers about the maintenance Oracle provides after it acquires a software vendor. As support and other personnel from those acquired companies get laid off or move on, "some customers feel some of the skills sets are missing, yet support fees are higher," Bona says.

Case in point: Oracle Customer Aon, the $10 billion-a-year insurance company, has rolled out Salesforce.com to more than 5,000 employees worldwide. "The software option wasn't a positive one for us," says Phil Clement, head of Aon's sales systems.

By Mary Hayes

The software industry is quickly settling into a gang of four: IBM, Microsoft, Oracle, and SAP. Where will the next billion-dollar competitor come from?

Barry Libenson, CIO at Ingersoll Rand, considers himself fortunate. While the odds increase every day that the company's key software vendors will get caught up in disruptive takeovers, so far Ingersoll Rand has landed on the right side of every deal. "The companies we've aligned ourselves with are doing the acquiring," he notes, pointing to Oracle as a primary example. "The scary thing is when you're at the other end of the spectrum. Then you're at the mercy of who's doing the acquiring."

There's reason to be concerned, or at least cautious. With software industry consolidation barreling along, far outpacing any other U.S. industry, CIOs must plan carefully and think fast. Will an acquiring company stop innovating the technology you've standardized on, content to feed on a steady diet of your maintenance fees? Will a clammy-palmed salesman fronting a software giant replace your straight line to a smaller vendor's CEO? Or will the acquisition bring positive change, with a vendor's new parent investing more in research and development and giving you access to a larger, more knowledgeable support team?

Software consolidation isn't the voracious monster some people perceive it to be. True, it's driven by big vendors desperate for growth. But technology managers needn't fear that consolidation will eat away at competition or innovation in the software industry: There are still plenty of new ideas and novel approaches seeping in.


When it comes to acquisitions, software dominates all technology sectors, accounting for 40% of the $298 billion in tech M&A deals done last year and half of the $306 billion in deals in 2005, according to Thomson Financial. The runner-up: Internet companies, which accounted for just 18% of last year's tech M&As.

While software always has been an acquisitive industry, the deals are getting bigger and more complex. Last year, 1,726 software companies were acquired, the highest number since 2000, according to investment firm Software Equity Group. But more impressive was the size of some of those deals: Hewlett-Packard's $4.5 billion acquisition of Mercury Interactive, EMC's $2.1 billion purchase of RSA Security, and IBM's acquisitions of FileNet and Internet Security Systems, both of which exceeded $1 billion.

These deals came on the heels of Oracle's big-bucks, high-profile acquisitions of PeopleSoft, Siebel, and Retek--as well as 23 other companies--over the past two years. IBM isn't far behind, with 22 notches on its belt over the same period. Microsoft has bought more than 25 companies in that time, though most of them were tiny startups acquired under the radar.
This year, megadeal watchers are training an eye on Cognos and Business Objects, both with annual revenue in the $1 billion range, as potential acquisitions. Business intelligence is hot, and the biggest vendors want in--hence Microsoft's acquisition of ProClarity last April. NCR's recent decision to spin off billion-dollar-plus data warehousing specialist Teradata is viewed by some as making Teradata a more attractive acquisition target to big tech companies or even a private equity firm. Siemens last week acquired UGS, a maker of product life-cycle management software, for $3.5 billion in cash from three private equity firms.

In the past four years, 430 publicly traded software companies, most of which had grown through acquisitions themselves, have been swallowed up, says Ken Bender, managing director at Software Equity Group. Also, more private investors are getting into the fray. Witness Hellman & Friedman's recent $1.3 billion acquisition of Intergraph. "Private equity firms and larger software companies are awash in cash," says Bender.

Revenue-hungry vendors are eyeing the software-as-a-service model, too, which is getting tons of interest from both the venture capital and the user communities. A buyout of Salesforce.com, one of the most successful SaaS companies, would provide a big IT vendor a splashy entrée. IDC predicted last month that Salesforce will be acquired this year.


Why all the big deals? Theories typically center on industry maturity, vendors in search of new growth and market opportunities, or a combination of the two. Some view consolidation as the natural progression of an aging industry, invariably dredging up a comparison to the global auto industry. But consider that both software suppliers and buyers have more cash to spend than in years past. IT budgets have increased steadily since bottoming out five or six years ago, and it's universally forecast that spending on software will continue to rise this year, as long as something unexpected doesn't derail the economy. Meanwhile, software companies, which were under Wall Street pressure to focus on profitability several years ago, have shifted back to revenue-growth strategies to capture more of those rising IT budgets. So they're buying companies with technologies that either complement their own or drive their businesses into new areas.

Gary Scholten, CIO at $9 billion-a-year Principal Financial Group, says he has highlighted software industry consolidation as a "risk issue and an opportunity" with the company's board. Scholten learned the hard way. A while back, one of the financial services company's software providers was acquired by an IT infrastructure vendor that wanted to take the software in a completely different direction, one that didn't mesh with Principal Financial's IT infrastructure. So Principal had to dump the software and transition to something else.

On the other hand, acquisition by a larger company can put a struggling software supplier on more solid financial footing and allow it to scale its architecture, Scholten says. And consolidation can actually increase a customer's influence with an alpha vendor. For example, Principal Financial's influence with Oracle has increased as Oracle has acquired companies Principal does business with. "For every negotiation we have with them, that plays a part," Scholten says. Premier customer status can mean better volume licensing deals, better access to vendor executives, and inclusion on customer advisory boards to influence the vendor's technology road map and strategic direction.


Despite rising budgets, the dictate to run a lean IT organization hasn't changed. Working with fewer vendors means spending less money managing relationships. As a major Siebel account and a large Oracle customer, Ingersoll Rand's Libenson says he had significant negotiations going on with both companies. Now he deals with only one. "The fewer companies I have to deal with, the easier my job is," Libenson says. And he applauds Oracle's acquisition of Oblix, which Ingersoll Rand was using for identity management. "It really legitimized the technology and helped tremendously from an integration perspective," he says.

Still, when it comes to software moving from one owner to another, integration is a major concern, along with upgrades and licensing. Oracle co-president Charles Phillips said at Oracle OpenWorld in October that there will be "no forced march" migrations from one application platform to another, even as the vendor continues its own march toward the integrated applications framework known as Fusion, the first part of which is due next year. Oracle will provide upgrades soon for its Oracle E-Business suite and the JD Edwards, PeopleSoft, and Siebel product lines. The JD Edwards upgrade will be the first in 10 years, the company says. In December, Oracle announced an umbrella software licensing scheme for all its applications, in an effort to eliminate the complexity of sifting through the various schemes of PeopleSoft, Siebel, and others.

Ingersoll Rand's Libenson has had some experience integrating Oracle's and Siebel's apps, and he'd like to see Oracle make faster progress. "But being realistic, integrating two monolithic platforms is a huge amount of work," he says.

Oracle's acquisition strategy is losing it some deals. Sport Chalet, a $350 million-a-year retailer, chose SAP's retail offering over Oracle's because of the lack of integration between Oracle financial apps and the retail apps of Retek (acquired by Oracle in 2005), says Sport Chalet CFO Howard Kaminsky.

Musical instrument maker Yamaha uses Oracle for ERP, but it bypassed the company's CRM software for Salesforce's on-demand product, using Tibco Software to connect its Salesforce apps with its ERP system. The main reason it chose Salesforce was because software as a service offered faster implementation and reduced complexity, says David Bergstrom, Yamaha's corporate planning manager. He's having a hard time understanding how Oracle's acquisition strategy will benefit his company. "It seems like it's just gotten more complicated for them," he says, considering the "menu of things" Oracle offers up. "It's not as simple, clean, and clear as with a Salesforce solution."

Gartner analyst Alexa Bona says she has heard a fair amount of grumbling from Oracle customers about the maintenance Oracle provides after it acquires a software vendor. As support and other personnel from those acquired companies get laid off or move on, "some customers feel some of the skills sets are missing, yet support fees are higher," Bona says.
Not so, argues Oracle senior VP Sonny Singh. Oracle surveys its customers periodically on their experiences with support and communications, and their understanding of Oracle's vision, Singh says. In the last year, Oracle's customer satisfaction rate, as measured by its Global Customers Program surveys, is up 16%, though he won't disclose the base number for that increase other than to say it was high.

That satisfaction is in large part because of Oracle's structure, Singh says. After companies are acquired, they're placed in the appropriate vertical business unit, such as retail or utilities. That makes it easier for customers in a particular vertical to interact with the development, marketing, and implementation folks for the software they're running, because their services are all under one vertical umbrella.

Not surprisingly, Oracle's competitors are trying to poke holes in its acquisition strategy. Marc Benioff, the flamboyant founder and CEO of Salesforce, calls Oracle "the GE of software," because it runs those software business units as separate profit-and-loss centers, much like the conglomerate GE runs its aircraft engine, plastics, and broadcasting units. "It would be a breakthrough in software management if they could make it work," he says.
Steve Mills, senior VP and group executive of IBM Software, cracks, "Fusion is about confusion." IBM should talk, having practically pioneered the big-bang software acquisition--and interplatform integration headaches--with its $3.5 billion buyout of Lotus Development in 1995.
In recent years, IBM has taken a more focused, smaller-scale approach to acquisitions. Yes, it's biggest was a doozy: the $2.1 billion acquisition of development toolmaker Rational. But that was back in 2001. Mills says IBM isn't avoiding big acquisitions--it paid $1.6 billion for FileNet in a deal that closed in August--but it's more focused on the middleware market, including software related to IT infrastructure and application integration. "It gives us the greatest leverage," he says. "If we moved outside these connected spaces, we'd have a much harder time getting return." IBM's fourth-quarter earnings results showed an 11% boost in profit to $3.54 billion; the company attributed a chunk of that growth to its 2006 software acquisitions.

Mills insists that IBM has taken great care in preserving its customer relationships during acquisitions. "We invest more in technology than prior to the acquisition," he says. "We invest more in sales and support than the company did prior to the acquisition." The antithesis, he says, is the "Charles Wang model," referring to the founder and former chairman of Computer Associates, which tore through the software industry in the 1990s with acquisition after acquisition, engendering animosity among its acquired customer bases by cutting off development, milking maintenance fees, and forcing users toward software they didn't want. "I don't think customers are distressed that acquisitions are occurring; they're distressed when the acquiring company shows no level of commitment and investment in the technology," Mills says.

But IBM can't please all the people all the time, either. David Hauser, CTO of telecom firm GotVMail and a former Tivoli customer, says Tivoli changed dramatically after it was acquired by IBM 10 years ago. In just the last four years, 15 IBM acquisitions have been absorbed by the Tivoli brand. "Tivoli became too much cost, too much hassle, and really went away from its core business of monitoring," Hauser says. As Tivoli grew, Hauser had difficulty finding information about the original technology. He finally gave up and moved to an open source network monitoring tool from GroundWork called Nagios.


Principal Financial's Scholten says he'll steer clear of a hot startup's promising new technology if that company appears to be a takeover candidate. Ultimately, it will hurt innovation in the software industry if influential customers like Principal Financial shy away, he admits.

But not all technology users think that way. "I don't think people are so focused on operational efficiencies that they're incapable of seeing when something interesting, and perhaps better, is happening," says longtime industry watcher Amy Wohl. What's more, venture capital spending on tech startups is on the rise.

Certainly, consolidation means fewer choices. When you have two main ERP options, rather than the five or six that existed five years ago, you have less negotiating leverage, Scholten says.
There's no getting around the fact that the largest software companies--IBM, Microsoft, Oracle, and SAP--are getting bigger. Some insist that a weak IPO market, acquisitive IT vendors, and buyers' desire to work with fewer vendors will make it impossible for a sizable fifth or sixth rival to emerge. "You will never see another billion-dollar enterprise software company," says Glover Lawrence, managing director at McNamee Lawrence & Co., an investment firm specializing in tech M&As. "Google may eventually compete with Microsoft, but not as an enterprise software company."

Conventional wisdom--but is it true? Salesforce predicts its revenue will exceed $700 million in the coming year. Another Silicon Valley highflier, VMware, reported that its fourth-quarter revenue rose 101% over the year-earlier quarter to $232 million, putting the company on an annual run rate of $900 million. It was the fifth consecutive quarter that VMware's year-over-year growth surpassed the previous quarter's, an exception to the rule that as big software companies get bigger, growth must slow down.

But even though VMware, acquired by EMC in 2004 for $625 million, operates as an independent subsidiary (separate sales, marketing, and R&D from the mother ship), it isn't an independent company. Even if it were, "VMware is a real anomaly," CEO Diane Greene says. For a software company of its size to grow as fast as it is, it must add a new layer to the software industry's "stack." In VMware's case, it's virtualization. For Salesforce, it's software as a service. For Google, it's selling ads. "Those new layers don't come around very often," Greene says. "There aren't that many really significant new things."

Maybe. Or maybe we just haven't seen them yet. "There's not a country in the world that's not trying to foster some sort of indigenous software industry," says IBM's Mills. Salesforce's Benioff says he's searching for the next killer app, but it won't come from his company: He thinks it will come from a developer in Shanghai, Bangalore, Eastern Europe, or some other remote place, delivered over Salesforce's AppExchange platform. "There's no way that developer is going to get to a Merrill Lynch or other big customer without us," Benioff says.

SAP is hoping for something like that with its service-oriented architecture strategy. With its SOA technology, called NetWeaver, SAP doesn't need to acquire. Instead, it's partnering with hundreds of smaller vendors whose software services snap into SAP's ERP suite, mySAP, explains Bill McDermott, CEO of SAP Americas. With big software acquisitions, "you have to rewrite the code base of the individual companies, integrate the culture and people from very different companies, and then get the customer to procure disparate pieces," McDermott says. Oracle's acquired apps aren't yet service-enabled. "So theirs is like a lung-and-heart transplant," he says, "where ours is plug and play."

Software companies essentially have two growth alternatives: innovate or acquire. SAP is hoping its growth will come from the former, by way of NetWeaver and an upcoming software-as-a-service offering that, it claims, will be different than what's currently available.
There's a lot riding on that innovation. SAP's financial results last week were disappointing: Software revenue for its fourth quarter was up 7% to 1.3 billion euros and 10% to 3.1 billion euros for the year, lower than what SAP had expected. At the same time, SAP said it's preparing a software service for midsize companies that they can test on the Web before committing, will cost them considerably less than a package software suite, and, unlike Salesforce's, will let them store data on local systems. It's unclear when the offering will be available; SAP says it will provide details within a few months.

Microsoft, on the other hand, is both acquiring and innovating. Perhaps more than any software company, it's moving aggressively beyond its core software business, into unified communications, security, and mobility. And then there are the consumer products: Zune, the iPod challenger, and the wildly popular Xbox 360, itself something of a technology platform and driven by the innovation of outside developers. Salesforce's Benioff describes Microsoft--with obvious envy--as one of the few successful "multicategory, multiproduct" tech companies.

Microsoft isn't averse to throwing around its considerable weight. In November it announced new client access licenses for several products, including Exchange and SharePoint; they require additional licenses for certain features--antivirus protection, for example. That will drive up costs for some customers, but not all: Many Exchange customers already have antivirus software in place, so they won't pay Microsoft extra for that feature.

Microsoft in the past few years also has gotten more aggressive about persuading customers to buy broader license agreements, by charging higher fees for selective agreements that cover specific products. IBM executives called a meeting with several Forrester Research analysts, complaining that through its license practices, Microsoft is trying to eat up so much of IT budgets there won't be enough left for other vendors, says Forrester analyst Julie Giera. Forrester offers coaching classes for companies entering negotiations for Vista, Office 12, and other new Microsoft apps, so they end up with--and pay for--only what they need.

"All the vendors would love to have you do an all-you-can-eat buffet," says Scott Rosenberg, CEO of Miro Consulting, which helps IT buyers negotiate software licenses. "It's kind of like those vacation packages that say, 'Don't worry, relax, you don't have to worry about scrambling for your credit card, just belly up to the bar.' But unless you drink heavily or eat like a football player, you're going to overpay."

Indeed, in this era of bigger is better, it's wise to keep an eye on not only what you're consuming, but also what's getting consumed, and by whom. A few weeks of secret negotiations between two software companies could leave a customer with an impressively bigger and better vendor, or a bellyache of uncertainty and obstacles.