The flip side is that a customer accustomed to dealing with a specialty maker of software or hardware often gets worse service after that supplier is taken over.
Campus IT officials said that while web-based learning has improved in the era of consolidation and acquisitions in the technology sector, Blackboard’s purchase of companies like Wimba and Elluminate could crush competition, and therefore innovation.
“Certainly, synchronous learning is an important part of online and blended learning today,” said Ray Schroeder, director of the University of Illinois Springfield’s Center for Online Learning, Research, and Services. “But I have concerns with the concentration of so many of the previously independent providers in our field becoming part of Blackboard. Competition is good for the consumer, in this case the colleges and universities.”
Tech acquisitions aren’t the only ones that often go bad. A seminal study by Harvard Business School professor Michael Porter examined 33 large U.S. corporations over a 36-year period and found that that they sold off many more acquisitions than they kept. Companies with acquisition strategies reduced, instead of created, shareholder value. Porter’s findings were first published in 1987, but recent studies have reinforced the conclusion.
Deals in technology can be even riskier than average, because of the complexity of the industry’s products. Although acquisitions can offer short-term financial boosts for the buyer, technology ages quickly, and acquired companies require substantial investment to keep their edge.
“When technology companies merge, you often have a two-plus-two-equals-three equation,” says Michael Cusumano, a professor at the Massachusetts Institute of Technology’s Sloan School of Management.
Undoing the poor results can be costly. VeriSign Inc. spent more than $20 billion bulking up on acquisitions in a spree that started during the dot-com days. The internet technology company got too unwieldy, and it has spent the last three years selling most of what it bought. VeriSign has gotten less than $1 billion selling off such acquisitions.
It can take years for an acquired tech company to be fully integrated with its buyer, which is one reason history is peppered with examples of acquisition flameouts that repelled customers.
One of the most famous was Compaq Computer’s 1998 takeover of computing pioneer Digital Equipment Corp., known as DEC. Like many frustrated DEC customers, Robert Rosen, who at the time was director of information management for the Army Research Laboratory, bailed on DEC because the company’s performance deteriorated under Compaq. The lab replaced its DEC servers with machines from IBM and Sun Microsystems.
Rosen, now chief information officer of the National Institute of Arthritis and Musculoskeletal and Skin Diseases of the National Institutes of Health, told the Associated Press (AP) he learned to try to pick computing suppliers that aren’t likely to be acquired.
“I sit here and I think: What mergers have really benefited everybody, both the companies and the customers? And there aren’t a whole lot. There are a lot more that go bad than are successful,” said Rosen, a former president of Share Inc., an organization of IBM customers. “I have never seen a merger that saves the customer money.”