Big IT vendors turning to mergers to help take on cloud

More large acquisitions expected; users say they prefer fewer vendors but fear lock-in

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The major vendors can bundle services with high- and low-end products to offer large users comprehensive packages, said John Bender of Bender Consulting.

At the same time, he said, start-ups are working to come up with creative alternatives to the "unified computing" offerings. "You can make a very strong case that cloud computing is all about [offering alternatives]," he said.

The market most interested in cloud and SaaS products, for now, are small to midsize firms, such as The Jewish Home of San Francisco, a 900-employee health care provider.

Richard Navarro, director of IT at The Jewish Home of San Francisco, said the organization is using a SaaS tool from a start-up AccelOps Inc. for monitoring its IT systems. He said the response by the vendor to his support issues and product design needs is likely far better than he would get from a large vendor.

Navarro says he is familiar with outsourced environments run by major vendors. "One of the things that bugs me about those kinds of services is every time you want something or have a question, it costs money," he said. "That's the disadvantage I see with a more inclusive vendor."

In some ways, the move by big vendors to become all-inclusive is a decades' old story for IT -- and so is the market response.

When users feel locked into a vendor, "it seems to start a fragmentation and innovation process that disrupts the larger guys and rechanges the game," said Eric Openshaw, vice chairman and U.S. technology leader at Deloitte LLP. Thus a period of merger activity by enterprise vendors can help launch a counterforce, he added.

"A world where there is not much competition is a problem, certainly for public-sector buying -- but for anybody," Phyllis Koch, director of IT for the the city of Boynton Beach, Fla. "But I guess I'm torn. It is easier as an IT director not to have lots and lots of different product because then I become the integrator, as opposed to the company being the integrator for me."

Koch says her ability to migrate applications and to avoid vendor lock-in is helped by the emergence of SaaS products.

Boynton Beach has turned to SunGard Data Systems Inc. to run and manage its AS/400-based ERP system. As a result, Koch said she feels less locked-in because she believes it would now be easier to migrate to a different platform, such as x86.

Jo-ann Olsovsky, technology services vice president and CIO at BNSF Railway Co. in Fort Worth, Texas, said that large vendors have been strategically leveraging technology acquisition via mergers for quite some time.

"As a buyer of technology products and services, I'm not concerned as long as healthy competition remains," said Olsovsky. "We do our best to standardize and streamline the products we use, so certainly having fewer vendors can eliminate complexity in our infrastructure. Personally, I prefer vendors that focus more on a given strategy and invest to perfect the strength of their offering and overall expertise."

The pace of mergers that began in the last quarter of 2009 is expected to continue, unless the economy tanks again. Many tech vendors were able to jump back into the market because they concentrated on saving cash during the downturn, analysts said.

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