A tale of two mergers — and the lessons they offer

Two mergers in the news recently —from opposite ends of the spectrum of the IT industry — nicely demonstrate where it’s worth focusing one’s attention in order to understand our business.Oracle gobbling up Siebel is surely the last in an absurd sequence of corporate mergers in the heavyweight software business. It’s sad, but not surprising, that Oracle has such limited capability for innovation that it has no avenues for investment that might deliver better shareholder value other than buying its competitors. And now it will be even more of a behemoth, more unwieldy and inarguably less agile.
Perhaps this doesn’t much matter, since corporate computing is at the moment a sleepy backwater in the overall IT landscape, albeit a segment worth many billions of dollars.
The story of eBay and Skype is a more interesting one. In the e-commerce arena Google, eBay, Yahoo, Amazon and others are slugging it out to become (or remain) a dominant player, but the core technologies shift constantly, and so does the basis for competition. What can eBay be up to? A phone conversation is inherently synchronous — both parties have to be there to participate — whereas an eBay transaction is inherently asynchronous.
Aside from acquiring a customer base, it’s not immediately clear where the synergies are between Skype and eBay. The answer surely is in the well-understood notion of a platform.
E-commerce, despite its success, is a very small component of commerce in general. The greatest growth opportunities for eBay, Google and company are in infusing everyday, non-electronic, economic transactions with an electronic component and being paid for this value added. Whether this value is added in highly-targeted search (e.g. Google’s AdWords), location-based search, fulfillment, payment, or post-sales support, there is money to be made. And that explains the diversification into apparently unrelated technologies. The platform for support of these transactions has to encompass more than just the search engine, price discovery — or settlement mechanisms of an earlier era in e-commerce.
Besides providing richer functionality, smart e-commerce contenders also expose their functionality in ways that third parties can exploit. They are also well-versed in bundling products creatively and innovatively. eBay knows this well, since a huge proportion of its traffic is generated through its application programming interface. And of course Google just keeps producing wonderful tools such as Google Catalogs and Google Earth. These companies are platform companies, in just the same way as Sun Microsystems or Microsoft, but rather more entertaining.
This platform competition has lessons for Oracle and their like, since they too need to compete in a Web services world. It is difficult, though, for companies whose fundamental business model is based on a roach-motel mentality with respect to their customers (viz, the immense difficulty of product substitution), to build platforms whose basic quality is openness.
Ironically, as Oracle strives to integrate products from PeopleSoft and Siebel, it will be learning first-hand how open architecture wins. Meanwhile, elsewhere in Silicon Valley, unrelated companies are building generic capabilities on which the future competitors with Oracle, SAP and others will base their products.