When viewed a year ago, Oracle’s (ORCL) ‘stack’ of software applications had some very noticeable gaps vs. competitors SAP (SAP), IBM (IBM), and Microsoft (MSFT).  While some see Oracle’s recent acquisitions of PeopleSoft and now Seibel (SEBL) as buying customers, viewing the software market as an ecosystem reveals both the logic and necessity of the mergers, given the industry’s evolution towards re-integration and the simplicity of single solutions providers. 

This systemic method of industry analysis is one of the many tools discussed in the recently released book Hunter or Hunted: Technology, Innovation, and Competitive Strategy, authored by technology executive and business school professor Dave Rochlin.  The book outlines how ecosystem dynamics, lifecycle behavior, and competitive barriers should influence both the timing and direction of technology acquisitions. 

In contrast to Oracle’s strategy, according to Rochlin, “The reasons put forth by Ebay (EBAY)  for spending billions to acquire Skype -- to improve the eBay user experience and create new revenue streams -- violate several important strategic ‘rules’ identified in the text.”  These include: 

• Leverage assets: Ebay already has a large captive user base. While Skype’s technology as a tool for users may make sense, eBay has little need to pay such a high premium for Skype’s installed base, and could have found other alternatives to access similar technology at a much lower cost.
  
• Distinguish between valuable Intellectual Property and a fast start:  It does not appear that Skype owns a patent portfolio that justifies a valuation in the billions. Yahoo (YHOO), AOL (TWX) and many others are already starting to integrate IP telephony into their offerings.   
  
• Don’t buy in on hype, unless you can monetize it.   Skype is cashing in on the hype surrounding IP telephony, while Ebay, since they are already public, is diluting earnings and will not be similarly rewarded.   

As Rochlin comments, “Purchasing Skype is likely an attempt to acquire another growth business with network economics, rather than shore up the core. Like with Paypal, they may ultimately try and leverage a strong user network into a dominant Internet business that can live outside of the confines of eBay. As the book points out, this strategy has merit for a maturing company, but it seems that eBay won’t explicitly admit to it.”

About the book:

Hunter or Hunted: Technology, Innovation, and Competitive Strategy, by Dave Rochlin, is available in bookstores nationwide and via most major online booksellers. It is intended for technologists, executives, and others who seeking to reduce the ambiguity inherent in most technology-related strategic decision-making.  The book is published by Thomson/Texere  (TOC) a global leader in providing integrated information solutions to business and professional customers. ISBN 0-324-26128-4. The book’s website is http://www.hunterorhunted.com

Note:  All product and company names mentioned herein are the trademarks of their respective owners.

www.hunterorhunted.com