| In many industries, there is a non-stoppable trend towards larger and larger companies. In retailing, Wal-Mart is crushing their competitors, who are also extremely large but they do not have the economies of scale that Wal-Mart. (In addition, Wal-Mart has better management.) In some cases, large companies succeed because consumers want the perceived value of purchasing from a large company. Dell and HP basically own the server and desktop computer market, and there is no reason to assume this will change in the next ten years. People feel that Dell will not go out of business. One of the industries hurting most right now is the automobile industry. GM and Chrysler say they will run out of money unless the U.S. government provides several billions of dollars in aid soon. Ford says it does not need government financing but it has pledged all of its assets in a collateral-based loan. Yet almost no one is willing to buy a car from a small automobile company, they are viewed as risker than GM or Chrysler. In choosing software companies, one factor sophisticated purchasers look at is, "How likely is this company to be in business 5 and 10 years from now?" When you commit to a software package, you are making a huge investment in time and energy, far beyond the purchase price of the software. You want to know that in the future, the software company will continue to enhance the product and will be around to provide technical support. This is why companies, for example, purchase software from Oracle, even though Oracle is ridiculously. People expect Oracle to be in business ten years from now. Yes, open source to some extent mitigates this risk, but putting aside very successful open source projects (Linux, Apache, MySQL, how do I know that they will be around ten years from now. Do I really want to writing the code myself?) Law firms have consolidated tremendously in the past decade. Large clients want one firm that can provide experise in dozen of areas of the law and can handle complex transactions that span the globe. In Boston, ten years a 100 lawyer firm was considered to be a large sophisticated firm. Now such firms (at least on the corporate side) have merged with other firms to create 500 attorney firms. In public accounting, the Big Eight has consolidated into the Big Four. Clients want the brand name that only a Big Four firm can provide. There is no clear trend here. In some industries, consolidation is taking place and will never stop. In other industries, it is the opposite effect. James Mitchell
www.bostonconvivium.com
jmitchell@kensingtonllc.com |