The year 2016 witnessed a major rise and impact of new technologies like social, mobile, analytics and cloud (SMAC) across businesses and organisations, not just in terms of the adoption, usage and investments but also it gained the status of new mainstream technologies.
Tech based strategic acquisition
“Many of traditional IT vendors are seeing dropping margins and are faced with the challenge of moving up the value chain to stay relevant with the time,” says Sanchit Vir Gogia, Chief Analyst & CEO – Greyhound Research.
“Another example is IBM, a traditional IT company but today it has now moved away from servers, storage and mainframe business. Company today is pushing its cognitive Watson offering. It wants to be lean and mean company with a focus on long-term growth,” adds Gogia.
For many of the IT vendors, Gogia says the need is to go up high in the value chain that too at a speed of the change that is taking place today.
On the other hand, enterprises and organisations across sectors are also under the influence of this technological change, which is also affecting businesses of most IT companies in terms of the demand of technology solutions and services.
“Enterprises are not signing long term contracts with tech vendors, even the size of such deals has gone down,” points out Gogia.
Citing his ‘pearl string strategy,’ Gogia explains that enterprises today are working with multiple vendors hence the contract sizes are smaller but the spread is wide mainly because organisations want ‘economy of scale.’
In fact, Gogia points that the Dell –EMC deal, which is considered as the biggest M&A deal ($ 67 billion) in the IT industry is purely focused on the IT infrastructure and the economy of scale. And that’s a big market opportunity, which Dell is trying to address today.
Consolidation on the way
“This (trend) is likely to trigger a bigger consolidation in the IT industry and will continue in near future as well. Companies like IBM are trimming in size as now it is focusing more on digital sales, which needs less number of people compared to the traditional sales,” says Gogia.
Private Equity more than just investors
By opting for private equity investments these tech companies, according to Gogia are able to work on a long term growth strategies rather than getting regularly scrutinized by investors when their stocks are listed.