CIOs, the guardians of a company's technology infrastructure, are becoming increasingly concerned about a trend in the software industry: the rise of bundled software packages. This shift in vendor strategies, driven by a surge in business-technology acquisitions, raises questions about value and control for businesses, potentially leading to higher costs and management complexities.
One example is VMware, a company that traditionally offered over 160 individual products. Following their acquisition by Broadcom, they condensed the offerings into two primary bundles. While Broadcom claims these bundles offer increased value due to their comprehensive features, CIOs like Todd Florence of Estes Express Lines disagree. He expressed concerns about overlapping functionalities and the increased difficulty in managing such complex packages.
Similar concerns are echoed by Chad Simpson, CIO of CITY Furniture, with regards to Salesforce. He observed a pattern of Salesforce acquiring smaller companies to expand their capabilities, ultimately leading to higher pricing models. While Salesforce emphasizes the benefits of their recent Unlimited Edition+ bundle in terms of value, reduced complexity, and increased competitiveness, questions linger for many CIOs.
Business-technology acquisitions bring both benefits and drawbacks. On the one hand, consolidation can streamline vendor relations, reducing complexity. However, it can also lead to price hikes or the discontinuation of favorite tools, as seen with Adobe's acquisition of Macromedia, which ultimately led to the demise of Flash and other products.
Barry Brunsman, from KPMG's CIO advisory organization, highlights the economic motivations behind such acquisitions. He states that "technology vendors, like any other business, aim to expand their market share and customer loyalty by offering bundled solutions."
While M&A activity in the tech sector saw a decline compared to 2021, recent large-scale deals by giants like Cisco, IBM, and Hewlett Packard Enterprise indicate a potential resurgence. This trend has CIOs like Chad Simpson worried. He reiterates the classic analogy of selling a Ferrari when all a customer needs is a Toyota. Acquisitions, according to him, exacerbate this trend, leading to higher unit prices regardless of individual needs.
Many CIOs, like Sathish Muthukrishnan of Ally Financial, advocate for a shift towards flexible, modular software offerings similar to cloud services. He expresses concerns about reduced pricing leverage and a potential shift in vendor focus from growth to capital efficiency following acquisitions, potentially compromising customer service.
However, not all acquisitions raise concerns. Dominic Lajoie of Coveo, an AI search and personalization company, finds value in consolidation within specific areas, like cybersecurity. He highlights the benefits of having fewer vendors with broader capabilities, leading to a reduced attack surface, better negotiation leverage, and deeper expertise within the chosen vendor ecosystem. Additionally, consolidated platforms like the upcoming integration of Slack into Salesforce can help reduce duplicate functionality and integration costs.
While Lajoie acknowledges the potential benefits of such consolidation, he emphasizes the need for careful evaluation by CIOs. He states, "We question whether the evolving landscape and offerings still align with our needs. Depending on the conclusion, we either work with the vendor or potentially part ways."
