Everyone knows that “software is eating the world” and the “sharing economy” is fundamentally disrupting a growing number of traditional industries. However, few would have expected a widening assortment of old-line companies to respond so quickly to these threats and take the lead in transforming their business operations into powerful, new software-centric organizations.
Microsoft’s CEO, Satya Nadella, sees the rapid shift to the cloud as driven by “not just the Silicon Valley startups anymore, it is the core enterprise that is also becoming a digital company.”
This trend will accelerate in 2017, and it will raise the bar for software startups and consulting firms seeking to win a share of the growing enterprise revenue opportunities.
Acquiring ISVs
The clear leader of this movement of industrial companies to software/digital businesses is GE. The company has hired thousands of software developers. It has built its own cloud-powered Platform-as-a-Service (PaaS), Predix. GE has even begun acquiring ISVs with its recent purchase of Meridium, Inc., which offers asset performance management (APM) software and services for industrial companies.
Addressing customer demands
GE isn’t alone in its aggressive shift to the software world among traditional industrial companies. Honeywell has received the same level of attention, but it has also accelerated its efforts to transform its business via internal software development and external acquisitions. Last July, Honeywell signed an agreement to acquire Intelligrated, supply chain and warehouse automation leader, for $1.5 billion. At the time of the acquisition, the president/CEO of Honeywell Automation and Control Solutions, Alex Ismail, said, “This acquisition fits with our vision for a connected industrial company and a connected worker.”
Acquiring expertise
Netherlands-based Royal Philips has also become a more software-centric health technology company as it tries to keep pace with the escalating demands of improving people’s health through better diagnostic imaging, image-guided therapy, patient monitoring, health informatics and home care solutions. In addition to building its software development group organically, it has also made a series of strategic acquisitions to deepen its software skills and expand its software portfolio. Most recently, Philips acquired Wellcentive, a leading provider of population health management software solutions.
One of the biggest software acquisitions by an enterprise was GM’s purchase of Cruise Automation for an estimated $1 billion, including $581 million at the closing. The automaker bought the 40-employee startup to quickly gain the software expertise necessary to accelerate its efforts to build autonomous driving systems for driverless vehicles.
Strategic mergers
However, enterprise companies are not only targeting startups for acquisition to expand their software businesses but are also fueling the merger of enterprises in many industries. For instance, German chemical company Bayer identified the growth of digitally assisted farming as a key reason for its $66 billion acquisition of Monsanto in September. The acquisition announcement noted, “The combined business will be able to accelerate innovation and provide customers with enhanced solutions and an optimized product suite based on analytical agronomic insight supported by Digital Farming applications.”
Changing landscape for consulting services
The transactions described above clearly illustrate the growing focus on software development and solutions among leading enterprises across nearly every industry. What has gained less attention is the accompanying consulting organizations that go along with the transformation into digital businesses.
GE Digital has hired a growing number of management consultants to sell and deliver its new software solutions to other industrial companies.
Philips has also created a Healthcare Transformation Services business unit to provide consulting services “to improve the operational and financial performance of hospitals and health systems, and improve patient outcomes across the continuum of care from diagnosis to treatment and after care at home.”
Given the circumstances, it would seem the digital transformation process would be fertile ground for cloud-centric consultancies. Yet, the escalating enterprise demands have led to the most prominent cloud consultancies being gobbled up by the major systems integrators.
The recent Wipro acquisition of Appirio not only reflects the changing competitive landscape for cloud consulting services, but also the evolving nature of the enterprise computing and software services marketplace. Appirio’s CEO and co-founder, Chris Barbin, candidly stated on the company’s blog at the time of the acquisition announcement, “Over the last few years, customers have been pushing us for deeper digital capabilities, transformational skills, enhanced account management capabilities, more verticals, and to be in 60 global locations rather than the six we are in now. They’ve also been clamoring for additional technologies: Microsoft, Amazon, Adobe and NetSuite to name a few.”
Appirio’s acquisition by Wipro followed Bluewolf being bought by IBM earlier this year, and Cloud Sherpas being purchased by Accenture in 2015. And, ironically, the acquirers are finding themselves competing with their biggest customers in driving the business benefits of the digital transformation process.
So, as the major players in nearly every industry aggressively move from being product-centric suppliers to software-enabled services providers, they are not only becoming software developers but consulting companies as well.
Jeffrey Kaplan is the managing director of THINKstrategies, founder of the Cloud Computing Showplace and host of the Connected Cloud Summit executive forum series. He can be reached at jkaplan@thinkstrategies.com.