Scale effect failure: split is older technology giant save his life?

if you are a divorce lawyer today that may mean that you are very successful, but if a firm’s lawyers “divorce”, that your life is more of a peak. In the first two weeks we have learned that eBay and PayPal from, set up his own company, HP will also take the consumption of its hardware department and enterprise service department is divided into two separate companies, Symantec also said will split into two independent companies.

just like two afterwards just know each other is not suitable for young couples the anger of the high school, these companies seem to be independent life is full of expectation, and of course the same excited and the Wall Street investors, announced the three rapid rise of the separation of markets, especially the eBay is up 7.5%. And some of the lawyers and bankers also is in the heart secretly pleased, after all, they can also split the activities of the enterprise from these fortunes.

but these based on “separation” excitement belies a deeper problem: from when to start the enterprise become a stumbling block to the development of the scale? About ten years ago, HP and compaq reached a cooperation agreement, thus creating one of the world’s biggest technology company. At the same time, Microsoft and the department of justice antitrust battles between also entered the final crucial stage, trying to and they will be the fate of the division. In the final months of 2012, eBay agreed to buy PayPal, it is also a startup after the bursting of the dotcom bubble in one of the most large-scale acquisitions.

the relationship between the scale and the enterprise development seems to be no longer as important as before. Once upon a time, in the technology industry in the larger can represents the interests of the harvest, the more particularly in sales. Big companies like Microsoft, HP and cisco are relying on a strong, deep and lasting between the government and various relations with the world trade company to sell their company’s related software licensing, hardware products and other services. Sales of these products are often accompanied by long-term contracts for sales of these enterprises has brought the huge advantage, can ensure that they are in for many years a stable income at the same time, also can prevent the market competition and startup swallowed his stronghold.

but the overall concept of “Microsoft store” status was in decline gradually. In today’s enterprises to develop new business at the same time IT was forced to face control cost pressure, therefore in the process of purchasing more than any time before we’re willing to think to compare different manufacturer’s products or services, for software licensing, and long-term maintenance contracts are ever vigilant.

perhaps more importantly, the “software as a service” has been on the way of March 500 has achieved significant development, the movement is not only to the traditional software licensing caused the pressure of competition, and also the enterprise CIO brings new ideas. They now for all the service from a supplier to purchase only worry more, for the practice of “vendor lock-in” more alert. Therefore, when the long-term contract to renew, the CIO will start looking for new options to meet their own needs, it is not surprising. Sales because of the scale benefit has been diminishing, in fact, today may have become a disadvantage.

the size in the past also means easier financing and lower costs. Unlike start-ups and small businesses, these larger technology companies in the past to control on the bond market has a very envy, that they can through the way of issuing corporate bonds with relatively low cost to raise funds. The dynamic changes in the cost of capital means that the cost for a new product line technology giant is relatively low or once the market demand with the protection they can also rapidly expanding the scale of a department.

in the past, when faced with the changes of science and technology industry, diversified product line was a huge competitive advantage technology giants. “Cash cow” products from some of the legacy of the earnings can be used for subsidies to the next generation products and related services. HP, for example, the company’s earnings from the printer business billions of dollars, but the money can be used for investment such as cloud service innovation in the field of new projects. In addition, the size also help these enterprises to tackle the challenges brought by the recession: once the recession, the enterprise can reconfigure different lines of business income, in order to avoid these business devastating blow.

as start-ups can easily raise money, the the competitive advantage of the technology giant fade away. Bonds and other forms of corporate bonds may still better than late growth equity investments, but these startups, apparently no longer eager to, after all, the number of startups reached $1 billion in market value has reached a new record. No matter what kind of hope, enterprise strategists have bigger for enterprises in recession no substantial help. As the business environment deterioration is aggravating, and the negative impact of the recession continues to do not come loose, HP has only tens of thousands of job cuts.

of course, this “economic moat” surrounding the cash cow pattern of enterprise group will continue to exist. Just look at Google, apple, or Facebook, will know that this model is still at work. But if in the field of enterprise software, the model must have come to an end.

fundamentally speaking, the enterprise will experience consumer companies for many years in the face of things: speed. As the reduction in the number of long-term sales contracts as a decline in the cost of assets, the enterprise of a startup now can be the chance of products directly to consumers more than ever before. Large scale still has some advantages, but one of the big disadvantage is that can’t make strategies in time to adjust to the rapid development of industry. Just look at PayPal – and still is one of the biggest Internet payment processing services, but the rise of the market share after being Stripe, Balanced and Braintree (more than a year ago the company acquired by PayPal) reactions such as agile company swallowed.

in short, the large scale is no longer the most companies pursue the decisive qualities. Now market demand for products listed speed is faster than ever before, the purchase agreement also has more flexibility. It will require companies to reduce the communication link on the basis of further improve the efficiency of organization and management, to ensure that the product ideas won’t because of the endless meetings and make competitive products in the first to launch a startup stuck. In the 1990 s, these strategies may work, but wait for the 21st century, the same strategy can no longer guarantee the same technology companies can continue to develop.

in just two weeks there have been three tech giants in the separation, so now the question is: who will be next? Microsoft itself through layoffs and the painful period of restructuring, and companies such as VMWare, Cisco, Oracle, and SAP will they these peers (HP), painful but must wield love to say goodbye? Only time will tell us the answer, of course, some lawyers and bankers have already drawing up relevant documents, ready to “girding to pigs and sheep”.

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