It is no secret that hardware has gotten pretty commoditized, the protestations of incumbent vendors notwithstanding. But, over the past few years, the growing consolidation in the business applications market is increasingly putting software at the same risk – or on the same cusp of market dominance by a handful of players.

Business apps, from ERP and middleware to BI and dashboards, rolled out across Fortune 1000 and the next ten thousand are coming from just a few dominant vendors, namely, IBM, Microsoft, Oracle and SAP. These companies, in varying degrees, have spent billions of dollars in buying out smaller vendors, especially in the past couple of years.

Last year, SAP and IBM acquired BusinessObjects and Cognos respectively in multibillion-dollar buyouts within weeks of each other. Most recently, JDA Software announced it's acquiring i2 Technologies for $346 million. Not that software deals are anything new. In fact, the industry has always thrived on M&As: in 2006 alone, over 1,700 software companies got acquired.

Have we reached an inflection point in software consolidation, where innovation and investment in better products are getting seriously affected? And will the unprecedented level of consolidation hurt the long-term interests of corporate buyers and rile technology heads, who will find the ‘lock-in’ difficult to break?

For one, Arun O Gupta, Customer Care Associate & Group CTO, Shoppers Stop, finds the growing software consolidation to be good news as well as bad. “The good news is that one vendor can provide the entire solution and this creates better accountability toward interoperability of their acquired solutions; it also offers ease of maintenance and completeness of solution…The not-so-good part is that innovation is likely to suffer in the short-term as the acquired company will see change in product strategy. The number of choices available to the customers also reduces,” he says. Another drawback of consolidation, according to Gupta, is the possible cartelization and unilateral increases in product AMC or services “as seen in the recent past.”

Shirish Gariba, CIO, Elbee Express, opines that the consolidation would be good for corporates. This is because, he argues, the giants who acquire smaller companies and products take those applications to larger markets – making them more affordable since the large companies can spread the cost with other products they are already marketing.
However, Gariba does have his reservations. Says he, “The caution is that they [large vendors] may stop doing more research on the acquired product and may want to recover the cost. If the game plan is to expand the biz application ecosystem that they already have, then it is good for customers (corporates). But if it is just to kill the competition, then it’s trouble for corporates that have already bought or deployed the software [from the acquired entity].”

Despite some caveats, most CIOs feel that, overall, consolidation is good for businesses. In a recent online poll conducted by Network Computing, in which respondents were asked whether they thought vendor consolidation is good for enterprises, over 66% answered in the affirmative.
Already, most of the big incumbents – and some mighty dark horses like Amazon and Google – have been promoting service-oriented computing concepts like SaaS and cloud computing. Such concepts increasingly disregard what software runs in a company’s innards and, instead, take the onus of delivery and innovation to the massive third-party data centers that serve multiple clients in a grid-like ambience.

Does it mean a time has come for companies to prepare themselves for ‘strategic software partnerships’ with large vendors or, alternatively, look at a silver lining in the cloud? Keep your ears to the ground.