Enterprise Software Vendor Consolidation in 2003 Not Unlike Mainframe Vendor Consolidation in 1960s

Mergers and their consequences have again been very much on CIOs’ minds with PeopleSoft’s recent acquisition of J.D. Edwards and Oracle’s threatened takeover of PeopleSoft. The familiar refrain—what will become of the end users?

It’s a scenario with ample precedent. Back in the days when John Kennedy lived in the White House, eight vendors dominated the U.S. mainframe market. IBM’s share reached as high as

60 percent. The rest was divided among the so-called Seven Dwarfs: Burroughs, Control Data, GE, Honeywell, NCR, RCA and Univac. A few years later, Honeywell acquired GE’s computer division and Univac swallowed RCA’s leaving a gaggle of IBM-wannabees known by the acronym BUNCH. As consolidations winnowed the bunch, each stage left another customer group bereft of its chosen computer architecture and struggling to adapt.

The lessons from data centers past are both encouraging and disconcerting. Veterans of the mainframe market shakeout say the vendors did try to support their customers’ migrations to new systems. On the other hand, they and observers warn that 2003 is not 1963, or even 1983. Today’s technology markets are more competitive, and vendor-user relations are not as genteel.

The bottom line: CIOs should expect some important bumps as mature enterprise software markets such as ERP move toward consolidation. The mainframe veterans certainly saw their share.

“There were lots of sleepless nights,” recalls Paul Strassmann, a former CIO at Xerox, which itself briefly entered the mainframe business. Strassmann, who also served as CIO at the Defense Department, says he was hired by Xerox in about 1970 “to get rid of our IBM mainframes and install our own Xerox mainframes.” He did. Xerox ran more than 100 of the systems, he says, but then in 1974, Xerox sold its mainframe business to Honeywell.

Honeywell worked hard for several years trying to make the marriage work, but eventually there weren’t enough spare circuit boards for the Xerox machines, and field service engineers had to develop workarounds, Strassmann says. “Our maintenance costs went up and up,” he adds. So, Xerox migrated to Honeywell iron.

Then, in the 1980s, Strassmann’s data centers took another blow when Honeywell sold what was left of its mainframe operations to a “maintenance only” unit of Wang Laboratories. The Wang engineers could fix things, says Strassmann, but if you wanted major parts or additional equipment, you had to search the used market. “It was as if they cut off both arms at the elbow,” he says.

Despite Strassmann’s experiences, though, John Phelps, a vice president at Gartner and himself a 30-year IBM veteran, says most of the mainframe transitions of years past were heavily supported by the surviving vendor. “Usually the vendors developed extensive conversion programs,” he says, referring to both software programs and support teams. “It wasn’t a large universe of customers, so vendors didn’t want to alienate them,” he adds.

George Gray, a systems programmer for the Georgia Department of Administrative Services, says that the 1986 Sperry/Univac takeover of Burroughs “was very scary at the time, but they managed to keep delivering the product, especially the software.” And today Gray still runs what he terms the great-grandchild of his 1986 Burroughs machine, called ClearPath Plus from Unisys (formed from the mergers of Sperry and Univac and Burroughs). Support levels did deteriorate, though—something Gray attributes to industry changes rather than to the merger.

Outsourcing expert Robert E. Zahler, a partner at Washington law firm ShawPittman, says the mainframe market shakeout occurred in an emerging market.

“The Seven Dwarfs weren’t stable economically,” Zahler says, whereas today’s mergers occur in a mature market. Thus, he predicts that J.D. Edwards will disappear within PeopleSoft, whose own products may fade if it is taken over. “The product lines will evolve, and the outlying functions will gradually disappear,” he says. And the users will have to learn to like it.