Enterprise Social Software Headed for Consolidation Cycle During Recession

What do companies like Socialtext, MindTouch, Jive Software, Awareness, Yammer and NewsGator have in common? As providers of messaging and collaboration enterprise applications, they all may be fodder for acquisition in 2009. Gartner analyst Matt Cain says 60 percent of such vendors will get bought or go under, with the recession paving the way for more deals at cheaper prices.

Startups in the social collaboration software market are facing the combination of a maturing market ripe for consolidation and a bear market, where larger enterprise vendors may look to bargain-shop and cherry-pick the best-of-breed providers.
Gartner analyst Matt Cain said in a new report that providers of blog, RSS, wiki and other newfangled collaboration technologies may have it tougher than others because of where they are in their maturation cycles.
There are literally hundreds of vendors in this space, from giants like IBM to smaller startups such as Jive Software, NewsGator, Socialtext, MindTouch, Yammer and Awareness. Cain predicted that more than 60 percent of the current social software vendors will exit the market through acquisition or failure by 2012.
While spending on social software suites to build communities is becoming the modus operandi for enterprises, Cain said he expects 2009 through 2011 to be marked by technology and vendor consolidation.
Large enterprise-focused software vendors, such as Microsoft, Oracle and SAP, are now eyeing enterprise social software players whose products they can use to fill gaps in their portfolios. Cain wrote in a report:

"This is no different from any market maturation cycle, where in the early stages of new technology, there's still quite a bit of differences between feature sets and no particular vendor is able to capture 15 to 20 percent of the market and so you have this tremendous flowering of companies that's being [given] copious VC money. We've all seen this movie before and so we fast forward a couple of years and the vast majority of seedlings has been plowed under or they've gone into a new line of business or been acquired. Very, very few of those guys are remaining as stand-alone entities. "

However, Cain admitted in an interview with eWEEK that the 60 percent figure for social software consolidation or exit is "light" because it doesn't factor in the current recession. The economy is in an unpredictable funk, and startups are falling like lifeless trees, their employees scattered like leaves to other, more solid concerns.
Cain chose to stick with his 60 percent number, but allowed that the recession could significantly ratchet up the percentage of companies that deal, fold or start a new game.