The past decade has seen the disappearance of many established companies as they were taken over by larger organisations. Lotus Development, Tivoli and Sequent were all swallowed by IBM, Corel acquired Wordperfect, and throughout the decade Computer Associates (CA) acted like a hungry shark, devouring smaller industry players. But the biggest takeover in terms of influence was Compaq's acquisition of both Tandem and Digital.
The acquisitions affected customers, rivals and the channel. Resellers generally don't like the changes imposed by mergers and takeovers because for many it means an end to relationships with individual employees within their supplier company. This is often because the employees of these companies had seen the writing on the wall and left for greener pastures. The acquisition and absorption of a company can mean the introduction of new business practices and a culture alien to the company being acquired.
Such was the case with Compaq's acquisition of Tandem and Digital. One former executive of Tandem UK from its launch in 1979 gave this rather gloomy analysis of the situation: "Digital was a company staffed by 55-year-old managers. Tandem was a company staffed by 45-year-old managers and Compaq a company staffed by 35-year-old managers. The problem was the 35-year-olds were the ones in control." Although this sounds like ageism, there is truth in this assessment. The differences in company culture and their business practices mirror the age in which the companies were born and their first years of survival.
Digital users feared for the future of both the Alpha chip - the Digital implementation of Unix now called Tru64 - and the proprietary VMS operating system. Tandem users, mainly large financial institutions, were concerned that Compaq did not understand the corporate business world and would not keep it as a going concern. For nearly three years these fears have been voiced by user associations and partners of the two companies. In fact, it was not until the arrival of Compaq's new chief executive, Michael Capellas, that some of these fears were allayed.
Capellas told the Digital users' association conference in the US, which still retains its old pre-merger name, Decus, that support for Tru64 would continue, despite Compaq's commitment to the Monterey project. He also said that Alpha would continue to be supported despite Compaq's commitment to Intel.
Robin Bloor, chief executive at consultant Bloor Research, said Compaq's attempts to integrate Tandem and Digital into its own culture during the last two years have been a disaster. "Compaq has been through an awful time, but the extraordinary thing is that this is not reflected too badly in its figures. Dell and Gateway may be doing better, but Compaq has tried to stand by its people in the channel, and the channel is what made Compaq," says Bloor.
He says the real problem has been the failure to capitalise on the Digital and Tandem technology and experience. In buying Digital, Compaq has wasted an asset, he says. While it may be true that it now has a service organisation that once belonged to Digital, Compaq has not made clear its plans for Alpha.
Fear of the unknown
Hamilton Rentals was for many years Digital's largest reseller in the UK. Martin Finn, commercial director at Hamilton, admits that fear ran through the Digital channel following the acquisition. This was because established channels do not like changes thrust upon them.
But Finn says that those fears have proved groundless. "The merger was a matter of concern in the channel, but in the UK there has never been any hint that the relationships we had built up with Digital would be lost," he says.
One of Compaq's first actions was to attempt to bury the names Tandem and Digital and to rebrand all the hardware, operating systems and applications using the Compaq name.
"The boxes may carry the Compaq badge, but to Digital users they are still Digital boxes," says Finn.
IBM, by contrast, took great pains to capitalise on the existing sales, marketing and brand strategy of the companies it acquired.
Both Lotus and Tivoli still have an identity and technical control over the development of their products, while IBM has overall strategic control.
The popular view is that IBM bought Lotus in 1995 because it wanted Notes and cc.Mail, two of Lotus's key products. But Big Blue had already been distributing these for four years and did not need to buy the company.
Bloor says that while IBM was happy to have Notes and cc.Mail, its real reason for buying Lotus was to provide a framework of middleware that would keep OS/2 alive. As a result, it paid well over the odds for the company, in effect doubling the value of the existing share quotation. Bloor says IBM failed because "OS/2 is dead".
Simon Moores, chairman of the Research Group, parent of the Lotus User Forum, says the takeover of Lotus was bad news for the channel. "Eight years ago, I wrote that the channel was starting to shrink and that the only hope for Lotus dealers was to become specialised. If you are in the channel today and hoping to make any money without being specialised, it's time to start looking for another business."
Moores agrees that while Lotus may be run as a separate company it is still a part of a much larger empire owned by IBM. "Even though it is a separate organisation it is still a footnote in IBM's product portfolio. There is still a large market around Smartsuite, but everyone knows that Microsoft owns that market with Office," he says.
A frequent complaint heard by the user group is that there is a lack of support from IBM, says Moores. "Support is rather thin on the ground because Lotus is only one part of IBM. Lotus was a big company that became a small company when it was swallowed by IBM. If you don't figure in the top 10 per cent of IBM's customers, the company is likely to say that it does not have the resources to help you," he says.
But IBM, like the other hardware manufacturers, recognises that there is no money to be made out of selling tin any more and is concentrating more on services and consultancy.
Compaq is in a similar position, particularly since Digital was moving in the same direction before the takeover. There should be an opportunity for resellers to provide the sort of support to smaller customers that the larger companies do not want, but this means resellers having to pay more for staff and training.
It might be thought that the union of Digital and Compaq should have led to greater opportunities for resellers in both camps, but Finn says there has been no increase in the number of either Digital or Compaq resellers.
"The difference between the two channels is huge; we sell in different ways. If you are selling a PC or several thousand PCs, they are still PCs. For a Compaq dealer to start selling Digital kit, it would have to learn a new operating and a completely different storage architecture. There has been no significant entry into the Alpha market at all, but neither have the Digital resellers started to go into the Compaq market," Finn says.
CA's takeovers are more to do with removing products that rival its own and gaining technology and user bases.
Ingres and Oracle both emerged at about the same time in the relational database market in the 1980s. For a while they were the main protagonists for dominance of the market, but Oracle eventually pulled ahead of its rival. In the early 1990s, Ingres was taken over by Ask, which was bought by CA in 1993.
Bloor says the motivation for CA is mainly financial. "CA buys things and then closes them. It is all done to a financial formula. With Ingres, it acquired a user base and the Jasmine project."
In many ways the consolidation of the industry is no bad thing. Finn, for example, does not regret the fact that Digital machines have been rebranded with the Compaq name.
"There were too many brand names in the industry anyway," he says. But what the mergers and acquisitions have failed to do is open opportunities for the channel. In many cases, the opportunities have narrowed.
An imperfect match
The most difficult merger to manage has been the Compaq/Tandem/Digital alliance. First, Compaq is a company committed to the Wintel camp, while Digital originally pinned its hopes for the future on the Alpha chip. There is still some doubt in the minds of analysts about Compaq's future intentions with Alpha and VMS.
There is also some disquiet in the Tandem camp that Compaq has bought into a business sector that it does not understand. Until Compaq makes its intentions clearer, there will continue to be some doubt in the mind of its partners, its customers and the channel about its future direction.
- consolidation was the name of the game in the industry in the 1990s, with many established companies being taken over by larger organisations
- takeovers have a huge impact on the channel and users because it can mean the end of long-standing relationships with individuals within a supplier company
- acquisitions can also mean a change of direction and culture for the company being acquired, leading to uncertainty over the future of its products
- acquisitions and mergers can be good because they can open up opportunities for resellers. Unfortunately, most takeovers narrow the opportunities for the channel, which puts them under increased financial pressure.
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