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Software Market Consolidation to Ramp Up

The software industry has had its fair share of acquisitions in the last couple of years and at least one research firm predicts the trend will continue. The 451 said the network and application management market is poised for a great deal of consolidation.

The New York-based company said vendors such as Hewlett Packard, IBM, Computer Associates and others will shell out as much as $3 billion to $4 billion to round out their software portfolios over the next 18 months. Acquisition targets, according to the group, could include BMC Software, NetIQ, Opsware, Quest Software and RadView.

The 451 expects the application performance management space, as well as network and application visualization and analytics tech companies to be the target of contraction.

Certain purchases in 2003 and 2004 have shed light on the buying patterns of bellwether vendors. Most recently, IBM purchased Cyanea Systems to flesh out its application performance management portfolio. That buy was a complementary follow-up to Big Blue's earlier purchase of Candle Corporation.

However, perennial storage management software leader Veritas Software may have gotten the ball rolling back in December 2002 when it agreed to acquire Precise Software Solutions for $609 million. Veritas went on to acquire application visualization provider Ejasent for $59 million in 2004.

What do the acquisitive interests of IBM and Veritas have in common? Both Big Blue and Veritas are proponents of on-demand or utility computing methods, which have become extremely attractive to customers looking to simplify their data centers while keeping their return on investment intact and their total-cost-of-ownership down.

Rachel Chalmers, enterprise software analyst with The 451 Group and lead author of the report, corroborates the notion that next-generation computing methods such as on-demand or utility computing are helping to drive the industry contraction.

Until recently, makers of network management software have existed apart from application management software vendors. But the demand for unified tools that manage applications and networks with a holistic view are causing the network and application worlds to collide.

"And next-generation computing models - such as grid and on-demand computing - require a unified management platform to reach their full potential," Chalmers said.

To wit, the analysts said she expects the convergence and consolidation will take place in four major waves as products with very focused functions continue to be incorporated in product suites.

Take IBM's recent buy of Cyanea. Big Blue already has plenty of management software in its Tivoli brand, but Cyanea will lend a finer granularity of control to the Tivoli portfolio. This trend could make it tough on so-called best-of-breed or standalone vendors to survive because customers generally prefer to get all of their needs met by one vendor.

The result: standalone vendors become acquisition bait.

"Pure plays in application performance management must be acquired to grow, and the publicly traded framework vendors need to add features to improve enterprise control and meet customer needs," Chalmers said.

While BMC, Quest, NetIQ and a few other publicly-traded concerns may be attractive to the other giants, primary acquisition targets in the private sector could include application management companies AltaWorks and ProactiveNet. On the data visualization and analytics side, Collation, Relicore and Troux Technologies are all viable options, according to Chalmers.

Ultimately, Chalmers said the winners in the convergence game will be those companies that manage to create unified systems around central repositories and analysis layers.