Gartner Dataquest forecasts strong consolidation for the software industry

DECEMBER 17--As companies become much more conservative in their buying decision for software products, the software industry is entering a period of consolidation that is likely to extend into 2003, according to Dataquest Inc., a unit of Gartner Inc. (Stamford, CT; www.gartner.com). Over the past three years, more than 25% of leading software companies have become the subject of merger, acquisition, and divestiture (MAD). Over the next three years, Gartner Dataquest analysts expect this pace to reach 50%.

"In many cases, strong brand names will survive under a new owner where the equity justifies it," said Joanne Correia, vice president for Gartner Dataquest's Software Industry Research group. "The demise of software vendors will also become more commonplace as the assets left by some failing companies don't attract a new owner, however cheap they are to acquire. Vendors should be actively seeking MAD opportunities while they still have substantial residual or purchasing value."

Buyer behavior will continue to stay cautious and more focused on the bottom line for the foreseeable future. Gartner Dataquest analysts said annual growth for the worldwide software license market will be flat in 2001, recovering to 4% growth in 2002 and 8% in 2003.