Tech Antitrust

If you're a typical CEO, you've probably had a few nights where you lay in bed pondering where all that money your company spends on technology goes. If you've studied your CIO's budget, you may have asked the question, "What are these software maintenance contracts, and why the hell are they so damn expensive?" Or you may have questioned why your company has to make large capital investments every four or five years to buy new switches for your global private network. In short, you may wonder if you're paying too much for technology and if your vendors are treating you fairly.

Now, is there a dirtier word in the CEO's world than "antitrust?" CEOs never like to be told what to do, and I'll include myself in that group. CEOs focus on increasing revenue and profit -- the big always want to be bigger, and they don't want the government or anyone else telling them they can't grow. 

But if you look at history, antitrust has generated benefits for your company. Theodore Roosevelt is arguably the father of 20th century American capitalism, through his fight to reduce the power of concentrated monopolies, then called trusts. If your corporation is based in the US, it may have been founded under the protection of Roosevelt's antitrust umbrella. In 1969, the Nixon administration pressed forward with action against IBM, stimulating the company to unbundle software from hardware. This sparked the formation of a new market for independent software companies -- their products lie at the heart of your operation today. Ronald Reagan's administration used antitrust to break up the US phone monopoly AT&T, setting the stage for sharply lowered long-distance pricing for your company. 

Enough with the history lesson -- what does this mean to you? Let's face it: You and your CIO want two things: 1) reasonable, competitive pricing, and 2) new technology that could make your operation more efficient. From 1980 to 2010, the number of tech companies in the Fortune 500 increased 115%. But there has been increased concentration in some markets -- enterprise software, network equipment, and systems providers (the big vendors that can "offer it all"). The latter category has fallen from 12 companies in 1980 to seven in 2009.  
 
So don't be surprised if regulators put their antennae up and prepare to use antitrust to ensure that: 1) prices for users of technology (especially at the enterprise level) remain fair, and 2) markets remain open, enabling new technology companies to blossom. Remember what happened to the car industry in the US? When it boiled down to three players, it began a long, slow slide toward mediocrity. A plodding tech market dominated by a few big dumb companies would be disastrous for your company -- and for the economy.

Comments

A few big dumb companies ...

George, thank you for pointing towards where we are heading. I have previously commented that too large businesses distort free markets. I just don't understand the rationale behind allowing that market concentration/consolidation and then regulating it again. It is the stockmarket that creates these behemoths financially and it would be easy and much better to stop it right there before it starts. It is however not just a problem where a vendor can offer it all.

In IT it is also the self-fulfilling prohecy of analyst reporting being focused too much on the market dominating companies. Small players are continuously rated as more risky whose innovative ideas 'have to be accepted by the market'. IT-buyers want to play it safe and buy the 'leaders' enforcing that distortion themselves. You will be glad to hear that Forrester provides a more balanced reporting than for example Gartner, but clearly it is the top analysts reported companies that are regularly acquired by those large vendors further propping up their solution as 'leading.' Being top-rated by the analysts community is like a pre-due-dilligence for the buyer. Spending a lot of money on analysts is a good investment for those who want to sell out.

So analysts fuel that process towards a few big dumb companies too ...

Do analysts stimulate concentration?

Thanks for the comment Max -- always insightful.

In the case of Forrester we always strive to be fair and accurate -- as we approach any vendor, large or small. In our history big vendors have continually complained that we are always ready to spotlight renegade vendors with new technologies that, "...might make the incumbents obsolete." We make money from vendors, but we make the majority of our revenue from users of technology -- and we can't serve them unless we objectively evaluate the small and the large suppliers. Our bias is with quality technology that could help our user clients, not with specific vendors.