QWIP, QYX and VYDEC. Remember them? Of course you dont, but at one time those companies were key in Exxons plans to become a major player in office automation systems. By 1985—and after about $2 billion in lost investments—Exxon figured out that people dont necessarily want to buy information processing where they buy gasoline. Sometimes diversification is just a dumb idea.
But sometimes diversification turns out to be a good idea, even for an oil company. At about the same time that Exxon was trying to persuade you to put a tiger in your word processor as well as in your gas tank, another oil company embarked on a diversification strategy. Sun Oil (now Sunoco) expanded into a bunch of businesses, including computer services. Last week, the descendant of that computer services business, SunGard Data
Systems, was acquired by a group of private equity companies for $11.3 billion in a leveraged buyout. The price is a big one to attach to a company that runs crucial transaction and recovery IT operations for many large companies but is almost invisible to the consumer and media communities.
The SunGard acquisition is only the latest in what Id say is a wild celebration of the workaday world of IT. SunGard, Ascential (which was bought by IBM) and Retek (the object of a much-fought-over buyout bid by Oracle) are all companies that run, develop or build technology infrastructure operations for midsize and large companies.
In an economy where high-profile businesses on the market lack buyers (do you want to buy a major league baseball team, or how about an entire hockey league?), the companies doing the nitty-gritty work of systems integration, data security and backup are suddenly the most popular partners at the dance.
If you want more evidence of the celebration of the solid over the cerebral, of the blue suit, white shirt and tie over the executive as superstar, you dont have to look any further than Hewlett-Packard. After dispensing with Carly Fiorina and her entourage, private jet and carefully staged appearances, HP went to Dayton, Ohio, for its next CEO; it selected Mark Hurd, a 25-year veteran of NCR, the company that began in 1884 making mechanical cash registers.
Why the sudden interest in the mundane business of making technology systems actually do something of value? The improving economy means that the tech investment pace is picking up. Rather than simply snipping away at the budget, CIOs are spending money and paying attention to systems that deliver value. As a result, tech vendors and executives who understand the value equation are rising in importance. In return for their tech dollars, CIOs want systems integration, data security and backup. And the technology companies that are often the best at those tasks are the ones that have often operated outside the media and consumer spotlights.
I dont see the consolidation of these companies stopping any time soon; neither do a few knowledgeable execs I spoke with. “There are multiple factors all leading to a continued industry consolidation,” said Howard Elias, executive vice president of corporate marketing for EMC. Elias—who has made stops at Compaq, HP and Digital Equipment during his career—said the difficulty of building integrated systems and the desire of customers to develop their businesses rather than their IT infrastructures lead customers to look for vendors with the scale and scope to fulfill their tech needs.
“I agree that well eventually get a half-dozen mega-players,” said John Jordan, an independent consultant. However, Jordan said that any comparison with the auto industry (which, as we know, has boiled down domestically to three major automobile manufacturers) should also take into account the rise of international competitors.
If the SunGard buyout represents the last laugh of big oils romance with technology, the spate of buyouts for back-end technology companies may be only the beginning of an international competition for the wallets of corporate technology customers.
Editor in Chief Eric Lundquist can be reached at [email protected].
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