The MSP Software Industry: Following In Larry Ellison’s Footsteps?
This is going to be a strange week. I’m leaving a massive IT event (Oracle OpenWorld) and heading toward a smaller, highly targeted managed services conference (N-able Partner Summit). I can’t help but wonder: Is the next Larry Ellison (pictured) or Scott McNealy competing somewhere — right now — in the managed services software market? Here’s why I ask.
Sunday evening at Oracle OpenWorld, several thousand people (including me) listened to Sun co-founder Scott McNealy and Oracle CEO Larry Ellison claim the pending Oracle-Sun merger will crush IBM in the high-end server and data center markets.
But here’s the real lesson: Ellison has managed to keep Oracle at the forefront of the software industry — through Oracle’s own R&D but also through mergers and acquisitions. Major Oracle buyouts included PeopleSoft (and JD Edwards, by association), Siebel Systems and now potentially Sun (and MySQL, by association).
The key lesson: When markets mature, they consolidate around fewer players.
MSP Software Deals: Coming Soon?
The MSP software industry — though far younger and far smaller than the database, ERP and CRM markets — may soon consolidate as well.
A range of factors may trigger the consolidation.
- Cloud Computing: A lot of competitive eyes are watching Kaseya’s forthcoming SaaS software launch. Already a major player in the RMM (remote monitoring and management) market, Kaseya’s SaaS offering will have some limited ticketing software. I’m not suggesting Kaseya is going to dive deep into the PSA (professional services automation) market. But plenty of people are wondering if CEO Gerald Blackie plans to both cooperate and compete (“coopetition”) with traditional Kaseya software partners.
- Finances: The vast majority of MSP software providers are privately held. Many are venture funded. Those venture capitalists are going to want to cash out at some point — either through an IPO or a company sale.
- Market Share Buys: Sometimes, the fastest way to gain market share is to buy it — especially if you’re well-funded and/or generating a lot of cash. ConnectWise has already announced its intention to consider potential acquisitions.
Channel Chatter
Some folks are predicting at least one or two MSP software industry buyouts before the end of the year.
Nimsoft CEO Gary Read is quick to highlight Compuware’s recent buyout of Gomez, which makes Web optimization software.
Elsewhere, I’m hearing rumblings involving a small midwest software company that has some managed services expertise. The rumors started at SMB Nation Fall (Oct. 2-4, Las Vegas). Now, those same rumors are spilling over into my voicemail, though I’ve yet to confirm the speculation, and at least one source tells me I’m chasing a non-story.
Still, I sense consolidation is coming to the managed services software market. I wonder: Who will play the role of Larry Ellison?
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Great observation Joe how many years do you think before we have MSP’s the size of Oracle-Sun? I don’t see any around now…. do you think someone big will move into the MSP space or will we see something amazing come from within?
Tim
Tim: In some ways I guess we already have MSPs (like Verizon Business…) the size of Oracle-Sun.
Joe, I’m surprised a rollup hasn’t yet started in the MSP industry at all, not just in software. I thought for sure there would be a couple regional and maybe even a national MSP by now taking advantage of SAAS, cloud computing and remote tools to deliver from maybe one or a few strategically placed NOCs around the nation or region. Then again, thats the business side talking and integrating various technologies and platforms and such is something I dont really know much about. One thing I do notice is that the MSPs themselves seem to switch platforms often and dont seem married to any one, making me think maybe that integration isn’t as tough as I might think it is.
Hi Stu: I think we are seeing regional MSPs get acquired to form nation MSPs. Keep an eye on companies like Azaleos and mindSHIFT; both are good examples of buyers that are moving into new geographies and new technologies.
Hi Joe,
Great article. Just out of curiosity, why do you think some of the larger RMM and Serivce Delivery Platform companies have not started a mad rush on snatching up smaller but complimentary solutions to consolodate the market. We saw what we all thought was the begining of that with the GFI move, do you think that trend will continue?
LabTechSean: Thanks for the note. Just to be clear I’m not suggesting that all MSP software companies should or need to pursue Mamp;As.
Certainly, people are watching how GFI digests HoundDog (now called CFI Max). But remember, it can take years for a market to consolidate. In the enterprise space… PeopleSoft acquired JD Edwards in 2003; Oracle acquired PeopleSoft in 2004; Oracle acquired Siebel in 2005; and now the Oracle-Sun deal is pending. Big deals (and even small deals) take time.
Plus, there are multiple scenarios facing software providers…
1. Organic growth: some will certainly take this route. If you’re growing your top and bottom line, why potentially slow yourself down digesting an acquisition?
2. The tweener: Imagine a scenario where you’re a growing, healthy software company. Do you buy up some smaller rivals for market share or a specific technology, or do you keep your wallet closed and potentially sell your own company to a software giant? In a way, you’re caught between two options… wondering if the big guys will ever ring your doorbell but also mulling some buyouts of your own…
3. The seller: Perhaps motivated by cash flow issues or venture cap considerations.
Again, I’m not suggesting all MSP software companies need to engage in Mamp;A activities. Many won’t. Some will. Potentially soon. How’s that for a blogger making a vague prediction?
Thanks again for reading,
-jp
Joe –
You’re two blocks from PacketTrap’s office. I bet you’ll find alot more interesting stuff over here than in that overhyped event that’s been losing attendance every year over the last three. Being in the MSP space and writing about it often, you should stop by. We have inside word that interesting stuff is on the consolidation / Mamp;A horizon in the MSP space. There’s some big players that will be in soon. It’s coming.
Matt
http://www.PacketTrap.com