Consolidation 'likely' in European open source industry

Competitive pressure will force open source service companies to merge, say some industry observers

The founder of one of the UK's largest independent open source service companies claims that consolidation is likely among European companies that provide services around open source products.

Peter Dawes-Huish, the founder and chief executive of LinuxIT, said on Friday his company has had two "serious" acquisition approaches and a number of exploratory discussions with other potential buyers over the last year. He claimed that medium-sized open source vendors and larger companies that are looking to get into the open source market are likely to seek acquisitions to enable growth.

"The one-man band companies continue to survive because they have lower overheads, but in the middle tier there are an increasing number of companies that have expanded too fast and are finding it difficult to sustain growth — organic growth is moving too slowly," said Dawes-Huish.

"I think we'll also see an increased activity in [larger companies] acquiring due to late entry — on their own, companies will find it difficult to move into a market that has entrenched players such as ourselves."

Roger Fulton, a vice-president at analyst house Gartner, agreed that the open source service market is likely to see more takeovers. "Consolidation is already very active in both the software and the IT services markets in Europe. Open source services are no different from other sectors experiencing the competitive and pricing pressure due the lack of new money in the market," said Fulton.

But Gary Barnett, a research director at analyst firm Ovum, said the open source service market is not sufficiently mature to require consolidation.

"It's way too early in the market to start talking about consolidation. What will you be acquiring — a tiny, loss-making company?" said Barnett. "The net number of open source providers will carry on increasing for around five years before we start seeing consolidation."

Instead, Barnett claimed that any acquisition activity won't be due to consolidation, but is merely due to the ups and downs of an emerging market.

"Typically markets consolidate when supply equals or outstrips demand. In an emerging market supply may briefly outstrip demand and companies will be mopped up, but that is the rough and tumble of operating in an emerging market," said Barnett.