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Is consolidation just a myth?


According to Business Week's Oct. 14 cover story on The Age of Consolidation," the software industry--along with airlines, banking, appliances, and tire manufacturing--has been swept up in a nationwide trend toward corporate concentration. Everywhere you look these, days," proclaims Business Week, "arch rivals are falling into each other's embrace ... Almost unnoticed, with little public debate, a sweeping consolidation is transforming a variety of manufacturing and service businesses." As evidence of this trend, BW points to our own Soft*letter 100 rankings. In 1985, the industry's five largest companies controlled 55.8% of the list's total revenues; by 1990, the magazine calculates that the percentage had risen to 61.9%. In fairness, we should point out that Business Week cooked our numbers a bit, by folding together the 1990 Soft*letter 100 sales of two pairs of companies (Borland-Ashton Tate and Novell-Digital Research) whose 1991 mergers still weren't consumated when the issue went to press. The real number for 1990's top five is 58.0%--and one big reason the top five gained ground last year is that we included Novell ($510 million in sales) for the first time in our rankings. Still, there's clearly a perception in the software industry that companies are furiously merging. Fringe players have been almost completely shaken out of word processing, spreadsheets, databases, and other major markets; the best seller lists these days are dominated by a handful of titles (mostly upgrades and ports of well-entrenched products). The industry certainly feels like the dinosaurs are taking over. So we decided to take a closer look at our historical data, to see if the year-to-year Soft*letter 100 numbers reveal a consolidation trend that Business Week's charts overlooked. We compared three sets of annual revenue share numbers--the top five companies, the top ten, and microsoft (the industry's growth demon) by itself:
 Total Revenues (000) Top 10 Top 5 Microsoft
1983 $ 700,000 51.6% 36.6% 7.9%
1984 $1,022,647 58.3 45.1 12.2
1985 $1,046,025 69.0 55.8 15.5
1986 $1,478,289 67.8 57.5 17.6
1987 $2,237,756 65.4 55.7 19.6
1988 $3,259,206 66.8 54.3 21.3
1989 $4,052,854 68.3 55.1 22.5
1990 $5,704,000 73.4 58.0 25.4

The obvious trend here is growth--roughly a five-fold increase in Soft*letter 100 revenues between 1984-85 and 1990. Despite this explosive growth rate, however, revenue shares of the top companies have remained surprisingly stable over the last eight years. Between 1985 (Business Week's base year) and 1990, the industry's top ten companies moved from 69.0% to 73.4% share, while the top five moved from 55.8% to 58.0%. To us, that's hardly "sweeping consolidation." The one exception is Microsoft, which did gain substantial revenue share--from 15.5% to 25.4%--during the same period. (In fact, Microsoft's growth probably accounts for most of the increase in revenue share of the top five and top ten companies.) Ironically, Microsoft's growth in revenue share is almost entirely self-generated; this isn't a company that has ever shown much interest in gobbling up anybody. Which leaves us with a genuinely perplexing question: Is consolidation" in the software industry nothing more than a myth? If anyone can shed some light on this issue, weld love to hear the answer.
COPYRIGHT 1991 Soft-letter
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:merger trend in software industry
Date:Nov 8, 1991
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