Tech Sponges Squeeze Customers


According to the Associated Press article, "Tech customers question industry's takeover spree," large technical companies have absorbed smaller tech companies to the detriment of their customers although these tech "sponges" say they're doing it "for their customers." How can there be such a disparity between the reality of customer pain and the public face of the tech companies? But why would a customer complain about their favorite tech company getting soaked up by a larger, better funded company? In a single word: Delivery.

Delivery is how efficiently customers are served by a provider. And, it's a major pain point for technology consumers. Large companies have such a complex and multilayer delivery engine that they fail to respond quickly to customer's needs.
Larger companies fail where smaller ones succeed.

From the AP Article:

"When the smaller guys are gobbled up by bigger guys, in theory it's supposed to be better, but in our experience it's been worse," he says. "It's certainly not something that I'm really excited about. It has the potential to be a positive experience, but my experience has told me that more times than not, it's problematic."
Rob Ewing, senior vice president of systems and technology for InterCall, which sells conference-call services, says his company stopped buying new licenses from a provider of database software just six months after it was acquired. The main problem: The support staff was cut.
"Resolutions to issues went from less than a day to more than a week," Ewing says. "It was very frustrating."

It's generally true that smaller tech companies have less money with which to work but that fact also often makes them more innovative. Having less money makes people think of creative solutions.

From the AP article:

"The demand is not coming from the customers," says Gopal Khanna, who oversees a $600 million technology budget as chief information officer for the state of Minnesota. "On the contrary, I'm best served when there's a phenomenal amount of innovation happening. ... Sometimes creating behemoths slows down that innovation engine."

You not only see less innovation from larger companies, you also see a breakdown of communications between tech companies and the customer base that they purchased. Everyone at the tech companies is so busy with the acquisition, merging technologies, layoff decisions, integration activities and the general chaos that comes with mergers that communications and delivery suffer. Customers often feel as if they're betrayed. They also feel that their money will spend just as well with another company.

Some Notable Technology Mergers

Tech advisors are now telling the corporate consumer to use vendors that aren't likely to get soaked up by a larger corporate sponge. This isn't always easy and requires constant vigilance.

From the AP Article:

Leo Collins, Chief Information Officer of Lions Gate Entertainment, says smart tech buyers look for suppliers that are the likeliest to stick around over the long haul. If a supplier starts to struggle, he tries to move away from it before it is bought, which reduces the risk of being stuck with outdated or unsupported technologies.

Some mergers haven't fared well for the buyer or the customer. Some notable examples are AOL/Time Warner, WorldCom/MCI and Apple/NeXT.

And, a final analysis of mergers and acquisitions from Steve Tobak, managing partner of Invisor Consulting LLC.

From a corporate governance standpoint, all significant mergers should be scrutinized by some really smart, experienced and disinterested (and therefore objective--this is key) people. Why boards don't do that as a matter of course I have no idea.
The burden of proof for mergers to make sense should be as high as their risk, their failure rate and the pain they inevitably cost shareholders.

The bottom line on tech mergers and acquisitions is that someone's going to be hurt in the process: The customer, the acquired company or the buyer. Often enough, it's all three.

About the Author

My new book, Practical Virtualization Solutions, is out.

Catch my radio talk show with co-host Jason Perlow[URL=] The Frugal Tech Show[/URL], every Friday at 6:30pm Eastern. You can call in or just listen in. Live Interviews with Today's Technology Leaders (C-Level Executives) whose products and services save money for businesses.

And check out my columns, [URL=]Cover Your Assets[/URL], at [URL=][/URL] helps you with more money-saving tips for your IT infrastructure and Linux Magazine's Virtual Reality at

Techwriter10 42 Practically a Posting Shark

I don't agree that someone *has* to get hurt. The customer will get hurt if the purchasing company is making the purchase for the purpose of moth-balling the products. In the case YouTube, 3-Com, VMware and Skype, that didn't happen. The brands live on and the purchasing companies continue to improve and support the original products (although in the case of Skype and YouTube we are talking about free services; but they have continued to upgrade and support them). We just don't know about MySQL or Palm because it's simply too soon to say.

I have seen cases where it does play out as you describe and the customers don't get a good deal, but it doesn't have to be that way. Often, the company that's purchased has to deal with layoffs because of redundancies between the two companies, but that's a different story.

Good piece.


khess 95 Practically a Master Poster


Yeah, that's what I was getting at. Someone always gets hurt. Layoffs hurt. But you're right, it doesn't have to hurt everyone.

Be a part of the DaniWeb community

We're a friendly, industry-focused community of 1.19 million developers, IT pros, digital marketers, and technology enthusiasts learning and sharing knowledge.