The Fine Line Between a Technology Company and a Holding Company

Two different but unrelated stories that developed over the weekend made me think of the above topic: Sage has announced that it will change its management team in the US after disappointing results and slow growth. Oracle in turn, made yet another attempt to snap up a technology company, continuing a shopping spree of about $30 Billion (a good summary of the drama can be found in docu-drama blog).

This is the background for the question that popped into my head: at what point is a company no longer a product or technology company, becoming a holding company? And, what is the future of holding companies in the software world?

Sage is a fantastic example of a software company that became a holding company. It has perfected the process of acquiring accounting software companies right in the cash cow stage, optimizing them, and milking them even further. Sage was able to buy hundreds of code lines and run them efficiently with high margins. The trick was simple to understand (but difficult to execute): Leverage the strong brand umbrella, reduce R&D costs significantly, reduce service costs (less R&D=less bugs=less support calls), provide strong shared services and cross-sell/upsell between the different products.

Oracle was a strong technology company with a market leading position in the database area, holding a strong number two position in the ERP space. With SAP getting stronger (and dangerous both for the ERP and the database business of Oracle), Oracle has decided to acquire its way to the number one position. With a clear goal of being number one and acquisition as the main tool, Oracle has no choice but to buy and buy, until it reaches the promised land.

The fine line that Oracle is walking on (and Sage crossed years ago) is the ability to integrate all this mess into one or few clear product offerings. Sage was able to stay healthy and profitable all those years, since it had a clear strategy of no integration, no central R&D and no common technology stack. This approach brings interesting questions about the company future and its ability to stay aloft when the Internet will finally impact the accounting software world (for now it is only nibbling at the edges), but this is the strategy the company swears by.

Oracle never decided to become a holding company, and projects like Fusion will attest to it. More acquisitions will bring more conflicting technologies, more different approaches, more overlapping customers who received different promises over the years. The mission of integration will become difficult, more difficult and in some point impossible.

It will be very interesting to see how both companies face their future challenges: Sage coping with the changing world and its impact on hundreds of products in dozens of countries and Oracle making its Herculean effort to integrate $30B into one coherent solution offering.

Gadi Shamia

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The Fine Line Between a Technology Company and a Holding Company

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