Is consolidation impacting on SOA innovation? Banking consolidation that is!

There has been a steady stream of SOA related start-ups being acquired over the last two years – most recently LogicBlaze by IONA.

Some commentators are beginning to suggest that SOA is fundamentally unsuitable territory for start-ups. I agree to a degree that SOA start-ups have a harder job today than their enterprise infrastructure software ancestors of 10 years ago – but I think it is less about SOA and more about changes in a key industry that used to support such start-ups: financial services.

To start with the argument raised by some against SOA start-ups such as Randy Heffner of Forrester who was recently quoted in SearchWebServices as saying:

a proliferation of small companies doing innovation it works against the goal of having a coherent platform with broad and rich functionality.

And

Innovation is one major value point that has to be balanced against the need and requirements of building a coherent software infrastructure platform for the next generation of applications,

I am far from convinced of this argument on two counts: if SOA is going to be truly a enterprise wide architecture it must span technology stacks and hence a single coherent software infrastructure platform may be hard to achieve and secondly SOA by its nature should ease the plug-and-play of products from different vendor into it. Of course, as Tony Baer of onStrategies points out in the same article, customers like ‘one throat to choke’ but they also like the solution least likely to result in a throat choking requirement.

Which begs the question why aren’t SOA start-ups succeeding at the rate one might have expected given the popularity of SOA. I suspect one contributory factor may be the continuing consolidation among the global investment banks based in Wall Street and the City of London. This was the traditional birthing ground for so many software infrastructure products and vendors. This consolidation means that there is much less room for SOA start-ups to build before breaking out into other industries. From my own personal experience of being involved with companies selling into the investment banks from the mid-nineties on, I can say that the task has got harder but more importantly the list of possible targets has got much much shorter.

Some examples: eleven years ago JP Morgan Chase Bank One was 6 banks (JP Morgan, Chase Manhatten, Chemical Bank, Banc One of Ohio and First Chicago NBD) of which at least 3 would have been on the target list of any start-up; Deutsche Bank took over Banker’s Trust in the late nineties; Union Bank of Switzerland merged with Swiss Bank Corporation to form UBS in 1998, in 2006 Mellon and Bank of New York agreed to merge and today JP Morgan is rumoured to be considering an offer for Barclays which is in turn attempting to merge with ABN AMRO – taking at least one more target off the list.

Of course, it can be argued that telecoms (another popular starting point for infrastructure software) has recovered in the last couple of years and other verticals could also pick up the slack with government in particular now a bigger buyer of integration products That is certainly true but government is often even harder and slower for a start-up to sell into than banking. Having managed to sell into both when I was running PolarLake, I am a good position to compare the scars!

Ronan

Posted in Financial Services, Imported, Industry trends, SOA.