Monday, December 8, 2008

Vendor risk

Back in 2004 (I still can't believe that I have been blogging that long!) I wrote a post that discussed the risk of buying into a web content management software market that seemed on the verge of a consolidation. A few months later I wrote another post about the attractiveness and potential risk of mid-market products that were innovating with a much greater pace than the upper tier vendors.

That consolidation hasn't happened and I am not sure if it ever will. There is still a concern about product continuity but it may be that the upper market products are riskier than the middle tier. Just look at events like the OpenText acquisition of RedDot, Oracle's acquisition of Stellent, and constant speculation about other upper tier companies. I am telling my clients to watch out for "portfolio" style software "enterprise software" companies.

Portfolio companies collect software products - usually by acquisition. They used to offer the promise of integrating their products into nice cohesive solutions but those solutions have (for the most part) not materialized. Their failure to build integrated solutions was not from incompetence; software integration was never the goal. These companies were looking to integrate customer bases, not technology. The problem with a portfolio company is that its strategy for a software product line can be at odds with the best interest of its customers. If a portfolio company has redundant or unprofitable products, it will try to eliminate them. Oracle doesn't want to own three portals. OpenText doesn't want to manage three WCM platforms. It wants to find a winner and slowly starve the rest. One day Serena decided that they didn't want to be in the web content management business. Because they have plenty of other products to sell, they could afford to lose interest in Collage. History tells us that the risk of a large company discontinuing a product is far greater than a medium size company going out of business.

My new advice is to be careful of companies that have a habit of acquiring products. If you become their customer, they might lose interest in the product that you bought and they probably will not integrate their disparate portfolio into a well integrated solution. Nevertheless, if you look at your requirements and you find that the best fit happens to be a portfolio product (the actual software today - not the promised integrated vision), you should still buy it. Just mitigate your risk by keeping the pay-off horizon below four years and having a good exit strategy. To quote myself from 2004:
Plan an exit strategy as part of the selection. Look for open standards and interoperability that will make the solution substitutable, wholly or in part. Make sure that your content is does not get locked up in proprietary formats. Stick with technologies that you feel comfortable supporting. Spread your bets. Your content will outlive any technology choice you make today. Plan for it.

That way, no matter what your software vendor does, your risks will be contained.