Will social software startups "collapse into the orbit" of the big vendors?

Will social software startups "collapse into the orbit" of the big vendors?

Summary: With Microsoft finally making a major acquisition move in social software, are we now seeing the roll up of the entire social business industry? Or is this just an minor story in a vast parade of change when it comes to how enterprises are moving to social software?

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While investors want to get their returns, in the end, companies that put their customers first and foremost tend to do better than those that do not. Will the end game of social software result in most of the products under the wings of big firms? With this week's announcement -- be sure to read Larry Dignan's great analysis of this move -- that Microsoft is acquiring enterprise microblogging firm Yammer, the rollup of the industry has perhaps now reached a seminal phase. Or has it?

While a few companies in both enterprise and consumer social media have stood out and created their own destiny, for instance Facebook most recently joined LinkedIn and Jive as stand-alone masters of the social universe as public companies, most companies in the industry with a decent value proposition are instead going the acquisition route.

So, as the social media industry in all its forms matures, we might be seeing the broad outlines for the end game. Or, as it turns out, at least the ongoing game. Firms that offer successful collaboration software, social customer service, social marketing, and social media analytics are all currently in play or likely targets as they reach an interesting size. Yet, most don't have the kind of traction to achieve a dramatic IPO or even a major acquisition that would please their investors. In fact, I find that there are still too many social media companies and they haven't shaken out enough yet.

Yet there is significant pressure for acquirers to make moves now. Fueling these particular flames are data such as iDC's latest prediction that social software and team collaboration will be two of the three big areas that lead growth in the software industry this year. Industry leaders just can't afford not to get invested where the market has traction.

The Social Media Acquisition Solar Systems: IBM, Microsoft, SAP, Oracle, Jive, RightNow, Yammer, Rypple, Radian6, LinkedIn, Twitter, Facebook, VMWare, SocialCast, Slideshare, SocialText, Adobe, CubeTree, BuddyMedia, Collective Intellect, Vitrue, Assistly, SuccessFactors, Social Business

Thus, given the large IPOs that are possible for companies that can build the right offerings out the right pieces (see: Facebook) or have a desperate need to continue growing (i.e. the major software vendors such as Oracle, SAP, Microsoft, and IBM) the lack of a shakeout won't stop them. In fact, some would say it's smart to acquire companies early, when they first show promise, rather than wait until they prove their mettle and skyrocket in value, and therefore acquisition cost.

Unfortunately, this isn't always good for the acquired companies or their customers. As social media startups get picked over and rolled up by larger companies and either 1) incorporated into existing products or 2) inserted into a suite of often only tangentially related offerings to increase the completeness of it, several important issues are coming up:

A) Loss of focus on social. Many of the acquiring companies have a wide variety of product offerings, interests, and competencies. Acquisitions dilute the company being absorbed, often losing much of what make it special in the first place. The founders, often the driving force behind the startup, largely get cashed out and marginalized in the new organization. The result is blunting and erosion of the unique elements and underlying strengths of the acquired product, particularly with social software, which is very different than traditional enterprise software.

B) A retrograde shift to the old enterprise world. Many of the acquiring companies in social are traditional enterprise software vendors that are decades old. While I've worked with IBM, Microsoft, SAP, and Oracle over the years, and like and respect them, they often just don't have the sensibilities of today's highly consumerized, social, mobile, and cloudy world. It's one of the reasons that the big vendors want their hands on the exciting new startups: It's a great way to get fresh blood, even though the proverbial "pickle" (the startup) tends to be brined (the giant enterprise vendor) far more than the brine gets pickled. This is unfortunate for businesses, because we're at several major tipping points for how software operates, is sold, is delivered, and provides value.

Related: Consumerization of tech: The new enterprise disruptor

How social startups are being metabolized by the industry: A breakdown

All this said, I recently performed an analysis of the major software acquisitions in the social computing space over the last few years and came away with a few interesting conclusions. You can see a view of this in the social industry "solar system" above. I partitioned this view into:

  1. "Big social", the giant public social networks like Facebook, Twitter, and LinkedIn.
  2. The new guard, or the newest generation of enterprise software vendors.
  3. The old guard, the long-standing firms in the space that have survived numerous generations of software innovation.
  4. The startups, these are the social startups themselves, though I've only listed the ones that have been involved in acquisitions.

From this we can see that the established industry players with large war chests do most of the acquiring. For example:

  • Salesforce: BuddyMedia, Rypple, Assistly, and Radian6
  • Jive: Proximal Labs, filtrbox
  • Oracle: Collective Intellect, Vitrue, and RightNow
  • Facebook: Instagram, Gowalla, Glancee, divvyshot, Hot Potato, Friendfeed, Lightbox, ShareGrove, and more.
  • LinkedIn: Slideshare, and Rapportive.

As Gartner Analyst Michael Maoz had this to say recently about how weak the majors are at the new disciplines, combined with the tendency of smaller yet more innovative startups to fall into the gravity wells of big vendors:

Don’t fight it, and don’t regret it: large vendors do not innovate at the ‘edges’ where you are seeking to best engage the consumers who buy from you. Social media, digital marketing, ad placement, content personalization, presence-based services, collaboration and social network analysis, reputation management – all are outside of the capabilities of the ‘majors’ but not outside of their price range. They will re-platform, invest money, expand the scale.

IBM, Oracle and Microsoft, and now Google, Apple and Facebook are (perhaps) the only majors with legs. The rest are likely to collapse into the orbit of the true planets. It is all ok. Eyes wide open and with a clear vision for where you are going – and you will be able to innovate most rapidly with the innovators.

Unfortunately, while this may be true and enterprise customers should expect it, it's not always the best for them.

Where are the customers in all this maneuvering?

However, what gets lost in all of this what's best for those who are customers of these companies. The pageantry and spectacle of M&A in the technology industry often takes on a life of its own. While investors want to get their returns, in the end, companies that put their customers first and foremost tend to do better than those that do not (in fact, the latest data show that leaders in customer experience outperform their industries by 22.5% while laggards underperform by 46.3%.)

In fact, many of the enterprise customers I work with greatly value startups as a way to hedge their bets with entrenched vendors. They are often quite disappointed when they get rolled up, realizing that they will become just one of thousands of customers. Worse, what made the product they used a shining light in their industry is at risk of becoming just another cog in a vast set of increasingly anonymous enterprise offerings.

What are companies to do then? With the increasing disposability of software in an app store supplied mobile IT landscape and frequent lack of leadership from IT when it comes to social media, organizations need to place well-hedged bets. The constant parade of vendors won't matter as much. Businesses therefore must assume that the software landscape is much more fluid than it has been even in the very recent past. New players will come and go more and more quickly, and companies must start focusing more on open standards for social software (both data and interoperability) and less on specific vendors, in order to retain flexibility and agility.

Related: Reconciling the enterprise IT portfolio with social media

In the meantime, social media is seeping in around the edges into the architectures of our organizations in a major way. Portfolio management and rationalization of social media solutions will soon become the next big challenge. At the same time, even though I tracked over 100 major social business solutions back in 2009, I'm now seeing as many new startups in the Enterprise 2.0 space as I did back then. Innovation and entrepreneurship in social business both are picking up, not slowing down.

In my next post, I'll explore these new emerging points of light as we head into the Enterprise 2.0 Conference in Boston next week and lots more news in this space. I'll post as much here as I can, in the meantime you can also catch my workshop on next-generation enterprises there, or come to the book signing for our new management book, Social Business By Design, sponsored by MoxieSoft.

Topic: Social Enterprise

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15 comments
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  • Like the graphic and great time to be a startup that does....

    interest graph + social graph + knowledge graph
    sardire
  • neat graph

    I like this article very much. Thank you

    Also didnt see much about the latest in Social Automation and Intelligent assistants working the social networks. I have found companies like s3o a great tool for my everyday life and wonder if this fits into the mix. Also was wondering about facebook moving into these areas through acquisitions. i saw the other day about Microsoft consider buying social business companies. I always thought business social networks are beneficial as it would help interaction between departments. Yet not sure Microsoft's stance as they have Sharepoint which is basically the same thing in terms of social business interaction. Maybe they will integrate it into the yammer thing.
    Sarah-moore
  • Fists of ham

    As I'm sure you know, the history of these things is that big companies are not all that good at picking winners, and when they do pick a winner they usually screw it up for all the reasons you listed. The result is that the winner of one of these 'new' segments is often a startup that managed to bob and weave its way through the acquisition binge without getting acquired.

    How many "CRM" startups were acquired? It's like the VCs were starting them up just to sell them off. The result? Salesforce.com.
    Robert Hahn
  • Vendor understanding of vertical industries is critical

    Regardless of vendor size, an understanding of and experience with processes unique to vertical industries and how to apply social networking technologies to same will be a significant factor in determining a vendor's viability, especially where it is not just technology deployment, but mapping that technology to the culture of an enterprise.
    Don N
  • New Guard

    Another new guard http://www.mangospring.com in the space that continues to
    1. Provide a social software product for enterprise with a consumer like user experience on Web & Mobile.
    2. Integrate with tools that business users use everyday (office, outlook etc) on one hand and also integrate with existing line of business applications in a company.

    http://www.mangospring.com
    vishwamalhotra
  • ATOS and BlueKiwi

    Atos who recently bought Bluekiwi - a much stronger tool than Yammer - is out of this document about social software startups.
    A great article anyway.
    akwyz
    • Good catch

      I'll add that one in the next version of the #socbiz acquisition chart. Thanks!
      dionhinchcliffe
  • actbloc aims to remain independent communications suite; www.actbloc.com

    At actbloc we are doing just that what is needed to make sure the customer remains at our center of gravity. We aim to stay independent, sustainably spending 20% of our revenue on system improvements
    actbloc
  • Finally and Article with analysis and substance and not just...

    ...blatant astroturfing and "fanboy-ism".

    Thanks for your insight.
    oraman
  • A lot of independant...

    Yammer, BlueKiwi has been acquired. But still lot of independants : SocialText, KnowledgePlazza, Jamespot, Yoolink etc... Like universe : many more stars & planets exists!
    Garniera
  • I loved this Article But There's even more

    I just came into possession of a new Motorola DCX3400-M from Eastlink, keep watching social media now integrated Home Entertainment media. Only question is Will Microsoft buy Sony or will Sony buy Microsoft and what about Marantz, McIntosh and the other Giants of Home entertainment. One thing I can say, I'm sticking with the Penguin for as long as I can. http://www.tux.org/
    alanradau
  • A room with a view

    Hello Dion,
    Thanks for providing such a powerful "world view" of a very important trend. I also see a couple of weak spots in the overall mix. First, the social vendors, especially when mixed vigorously with the enterprise players, are creating software that still doesn't capture how people really want to work and interact together. The solutions are institutionalizing the same old guard world view. In my opinion, we need to better understand social dynamics, and the notion of a much more highly personal solution. We've fallen into a trap, the bait has been all things social, and we have once again taken the easy way out. Why don't we have folks like Susan Cain, Harold Jarche, Allison Aldridge Saur, Jennifer Mueller, and many others like them, engaging with the designers of these social tools?

    The second hurdle I see looming on the horizon is how such grafted solutions will capture, create, and reuse the tsunami of information that is being tossed about. We went through this cycle with the knowledge management vendors, and have been achieving benefits mainly through the laborious efforts that need to be made after the software sale. If I was in the driver's seat, I would have folks like David Kay working closely with my team to help accomplish these goals.
    freighter
  • The social media should not loose its identity after its acquisition

    The Social media company looses it's identity when it is taken over by another giant company. It looses its independence, hope the scenario changes in coming years.

    Sara
    - http://www.offshorephpprogrammers.com/
    SaraParker23
  • Great Illustration

    Thanks for this Dion, I kept on listing the acquisitions to make sure I don't forget any when I talk about market consolidation.

    I haven't seen Podio being bought by Cisco. It seems to me the deal has been confirmed but I may be missing something. http://www.reuters.com/article/2012/04/11/net-us-citrixsystems-idUSBRE83A0SB20120411

    Still I have this quote from 37Signals in mind : great company is where small companies go to die. Hope it will prove wrong with Enterprise Social Software.
    cecil dijoux
  • sfaffasf

    http://lnk.co/I1B2D

    http://lnk.co/I1B2D
    niussw