They speak of a mythical land. A place where innovation, ingenuity and great ideas turn to dust. Where pale-faced marketing hipsters transform ingenuity into press releases to realign the brand. In this hallowed place, titans fall and giants wither. The name of this not-so-mythical land? It takes many names: Symantec, HP, Cisco, Google, IBM and more. These are the places where good technologies go to die.
There was a time, long ago, when companies purchased smaller, innovative companies to help improve themselves and serve their clients better. Together the small company and the big company were stronger.
These days, large companies acquire small innovative companies to milk the life out of them for as long as they can. Furthermore, many of the trusted brands that dominate the security industry, are really no longer technology firms, but technology management companies.
Corporate acquisitions are not always bad news, but they can often be harbingers of doom for a beloved technology. If your business is dependent upon an innovative technologies from an upstart company, news of acquisition from a large global giant is a moment for reflection.
Before you rip out the products and delete the account executive’s contact from Outlook, you need to honestly evaluate what is happening behind the press-releases. Nearly all acquired companies will exhibit a wide range of behaviors and messages that can foretell what the future will be with their new owners.
As such, let’s take a moment to consider these common post-acquisition behaviors and what they can mean to you, the customer.
You can tell a lot about a company from their marketing efforts, especially immediately after an acquisition. When a company acquires another company, it is inevitable that they will put out messaging to frame the acquisition in the best possible light.
After an acquisition, pay close attention to the messaging the vendor publishes. There are two things you want to hear: 1) the acquiring company will preserve the acquired technologies and 2) the unification will make both sides stronger. A mature company with good intentions will make these points very clear in their messaging.
Nevertheless, there are some messages and marketing tactics that are not good news:
- Grandiose plans of integration, without any details.
- Promises of some great “ecosystem” of technologies (see below)
- Everything will be exactly same. It cannot be exactly the same, this is an outright lie.
- Excessive enthusiasm for the unification.
The key behavior to watch for is lying. The most common example of this is when the marketing says “everything will be just the same” while they are rebranding, reorganizing and retiring nearly everything. People and organizations that lie about small things, will lie about big things.
Frankly, overly enthusiastic behavior of any kind is worrisome. Organizations often believe that excessive happiness and “energy” will overcome uncertainty. It does not. Those things merely disguise it. Mature companies will acknowledge this uncertainty and address it directly, without resorting to excessive “sparkle.”
So when the marketing and sales people from the new company are vomiting sunshine every time you speak with them, remember there is a reason for that. And it is not because they are your BFF.
Intelligent, motivated people all tend to share a common set of qualities: good work ethic, self-motivated, obsession with excellence, attention to detail, and so forth. Providing these rock-stars with an environment where their talents can flourish is challenging. A strong, healthy internal culture combined with effective leadership is foundation of retaining quality people.
Large organizations struggle with retaining talent for a variety of reasons. Bureaucracy can be very demotivating. For every hour employees are stuck filling out TPS reports, that is one less hour they are being productive. Large companies also can have infuriating internal politics. Petty turf battles and counter-productive complaining can alienate quality talent who view such behaviors as wasteful.
Acquisitions change the internal culture of a company. When the acquirer moves in, they will impose their own processes, methods and management styles. This will likely conflict with the culture of the acquired company. Competent acquirers devote resources to this issue and spend a lot of effort working through cultural changes with the employees.
However, these changes can drive away talented people who become frustrated with the changes. When top talent leaves, much of what made a company great leaves with it. The only thing that remains is the products, processes and less talented employees. Without the talented people driving those products and processes, decay sets in. This decay will slowly erode the value and innovativeness of the company.
Brain drain is the most serious of all the warning signs. If your security vendor starts losing all the rock stars that made it great, there is a good reason they are leaving. A little bit of attrition or loss is normal. But a mass exodus portents a dismal future.
Part of what makes smaller companies more nimble and innovative is their simpler relationships with suppliers and partners. A smaller company will often value quality and flexibility in their suppliers over cost and efficiency. Larger companies are the opposite. With accountants and shareholders driving most decisions, they will opt for less expensive and more efficient supply chains. This results in decreased quality of software, chips, components or appliances.
I recall one company a few years back that got acquired and soon after they changed suppliers of their appliances. Within weeks the quality of their appliances went from fair to poor to boat anchors. This company was getting 40-50% DOA rate. Moreover, the supply chain got so messed up, appliances were back ordered for over three months. It took almost a year to fix the problem, but in the process, the company alienated a lot of customers.
Look out for long delays on quotes or order fulfillment. This could mean the transition from small to big is not as rosy as the press releases make it seem.
Round Pegs into Square Blackholes
Big companies like to buy big, complex business systems. These systems require teams of people to implement, integrate and manage them. They also cause the organization to anchor themselves to these horrific leviathans which means when a small company is purchased, there is intense pressure to standardize the new company to these monstrosities.
Of course, the small company was most likely using something nimble, home-grown or simple that served its purpose well. Moreover, that system was under the dutiful management of a small group of people, who know it intimately. Those people also were accustomed to providing personal support to customers or resellers.
It is a foregone conclusion that the gigaton system the acquiring company owns is utterly incapable of importing the data and business logic of the nimble system. Likewise, they also will have entire rooms filled with button-pushers who do not know (and do not care) about the entire process. These drones know their tiny little piece of the process and nothing else. Furthermore, they are probably not used to providing personalized support or assistance.
As such, be prepared for long periods where support renewals, product updates, and invoices languish while these teams of people try forcing the big system to digest the smaller one. Calling people for help may lead to more frustration and irritation. Moreover, the people you relied upon for help in the past, may have no authority to do anything with the new system.
In one incident I recall from 2009, the large acquiring company forced all the customers into some massive new ERP system. This system was never designed to handle the oddball data from the homegrown ERP that the smaller company had. In the conversion process, the company lost everybody’s support and licensing information. It took months to sort it all out, leading to massive delays issuing support contracts. Any calls we made to sort this out and reassure our customers were met with silence or ignorance. Soon after, the company resorted to blaming their resellers for the delays, rather than accept blame themselves.
Be on the watch for delays in processing orders and be prepared to have entirely new contacts to work with. Likewise, if the newly acquired company is blaming all these order delays on the other people (like the resellers), take the time to have an open conversation with your solutions provider. The finger pointing may very well be a tactic to cover up their conversion pains.
There is a reason technical support centers are labyrinthine nightmares. It is not a big secret. Helping customers costs money. Less support means more profit. The lack of competent support staff can exacerbate this problem.
If the quality of support begins to decline right after an acquisition, do not panic. Restructuring is a normal part of any acquisition and it will cause temporary inefficiencies. Merging a new product into a call center can often take the more skilled technicians away from day to day support to assist with the transition. Competent organizations carefully plan out the restructuring process and ensure “small details” like quality technical support is maintained.
However, if the poor support persists, then there may be a larger problem. Cost cutting and cultural changes may be eroding the overall dedication to quality support. Moreover, the acquiring company may just not value to acquired technology to the same level as the original company. Also, it is possible the old support organization is gone entirely, and the new support people do not have the experience or training to adequately support the product.
What you want to watch for here is a pattern of declining support. One bad call does not make a pattern. However, multiple calls that are ignored or shuffled around to a collection of incapable support staff could be the beginning of a permanent situation.
Unfortunately, neither remedy for this problem is very good: 1) get used to bad support or 2) rip and replace with the competition.
Here is case study problem for you aspiring MBA students: How do you mitigate the weakness of a poor product and make it profitable? A) devote resources to engineering and development, B) provide better support and field consulting or C) combine the product into an “ecosystem” of other bad products.
You already know the answer to this, right?
Of course its C, you take those bad products and put them into a “bundle” or a “suite” or pitch the value of your technology “ecosystem.” Because three bad products put together equals one good one, right?
Wrong. This is a profoundly pathetic tactic companies use to pretty up their ugly brands. However, there is a good reason they do it. It costs almost nothing, it covers up the weaknesses in a product and it nets big profits from the suckers who buy into the ecosystem nonsense.
Innovation and engineering are complex, expensive and time consuming. Underperforming brands and technologies are expensive to repair or reimage. However, put a few marketing twits in a room for a few days, cater some lunches, and in no time you can have an awesome set of logos, takeaways, and value propositions that some arbitrary bundle of crap will deliver.
Plenty of the big names are perennial abusers of the ecosystem nonsense (yes, I am looking at you Symantec, Cisco and HP). You have to completely buy into their religion to get the value from any one of their products. Unless products were designed from the beginning to work together, it is highly unlikely a company is going to ram disparate technologies into a smoothly functioning whole. Anytime you have two different technologies that need to work together, there is significant overhead in terms of processing, messaging, validation, etc.
Furthermore, ecosystems create dependency. The more you are dependent on an ecosystem of products, the less likely you will (or can) change to a different vendor. Every piece of the ecosystem is another stake in the ground that will be harder to pull up in the future.
Either a product is good on its own or it is not. If your vendor suddenly wants to sell you on their ecosystem, it is not a good sign. They clearly do not see the product as strong enough on its own and they are going to push you into a greater dependency with them. You need to decide if this dependency is worth it to you.
If the ecosystem does not work out, there are always upgrades. Sometimes this is not a bad thing. New owners can mean deeper pockets and an investment in more robust systems. It also can mean they need a new way to get money from their customer base.
The question comes in how they are handling the upgrade? If the new appliances or platforms will offer significantly better performance or features, then an upgrade makes sense. But if it is just an arbitrary “retirement” of older platforms, with no real updates in performance or capabilities, then it is likely just a supplier switch over and an effort to get more money from the customer base.
The list of abusers of this tactic are also long and unpleasant. They are constantly declaring platforms as “end of life” and then forcing customers to new platforms which basically do the exact same thing as the old platform. Sometimes they update the GUI with some nifty new colors. Or they integrate the new platform with their “ecosystem.”
Be wary when the account executives are really pushing you into an upgrade. It could be a genuine opportunity, or a chance to simply milk you for money.
Decay, Death, Zombies
In the end, the technology starts to decay and wither. Eventually, the company just throws in the towel and milks the last remaining life out of a technology until it becomes so uncompetitive that not even suckers will buy it any more.
In the latter throes of a dying product line, you will see companies remove themselves from any kind of independent competition. If a product has not been in any kind of industry comparison or independent test (like NSS Labs) for two or three years, there is a good chance death is on the horizon. There is a reason they are not participating in those tests. Their product sucks and it will suck forever.
Moreover, the company may simply be preparing kill off the entire product line and turn it into a zombie-line. Zombie lines are great for cost cutting. Once you fire off all the development, marketing and sales people, the product has essentially no overhead. And support renewals can keep coming in for years.
When a product becomes “end of life” consider it dead, gone and useless. It is time to replace it. Do not let zombie products lumber around your environment eating up your more talented brains. Take it out back and kill it with fire. You will be doing it a favor.
The Root Cause
So, what is the reason for all this pain and suffering in the acquisition process? Why do companies allow these bad things to happen to good products?
Having been involved in a few acquisitions either directly or peripherally, I can honestly say they are unpleasant experiences with high drama, great promise and agonizing defeats. Not all acquisitions are disasters. Some provide smaller companies with valuable capital and genuinely strengthen the overall offering of the larger company. When companies look beyond the numbers into the overall market and technology, some acquisitions can really strengthen a brand.
For example, when eBay bought PayPal in 2002, it was a very logical combination. The ultimate result was both companies seemed to benefit and their technologies became stronger overall.
However, a lot of acquisitions these days do not live up to their promises. Based on my analysis, I see this as the result of two fundamental problems:
- Accountants run the acquisition process
- Most of the active acquirers are no longer technology companies
The majority of acquisitions are firmly under the control and guidance of accountants and other “numbers people.” And while there is good reason for this, it is important to remember that accountants come to the process with a simple agenda: to maximize return on the investment. From a purely business perspective, this makes good sense. When you invest in something, you want to get the most out of it. Perfectly logical and reasonable.
However, if you are the customer of an acquired company, you are a means to an end. The company needs you to hang in there and keep buying the technologies. Since IT systems (and particularly security technologies) are now so complex, there is natural impediment to change. These accountants know this. As long as they can keep you just satisfied enough so that you do not rip and replace their technology, they can maximize their profitability. This is what ultimately kills innovation. They do not need the technology to be a leader in the Gartner Magic Quadrant, they just need it good enough that you are unwilling to make the effort to replace it.
Furthermore, a lot of the global giants that consistently consume and kill products share a common quality: they are not technology companies any longer. The big behemoth technology companies, over time, migrate out of technology innovation and into technology management. They manage their brands, like a property management company manages beach houses. These large corporations acquire properties, clean them up, then milk the life out of them. When a brand becomes old and dilapidated, they light it on fire and go back to counting their sacks full of money and placating shareholders.
These two processes go hand in hand. Keep the customers barely satisfied, so they do not rip and replace, and milk the market until the brand is so dilapidated that it can be thrown away or turned into a zombie technology. This is why you should worry when your security vendor gets acquired. The chances are the acquiring company is not going to improve the product, but simply milk the life out of it.
From a purely business perspective, this “grab n’ milk” approach to acquisition is very successful. It has allowed some companies to grow into large, influential industry forces. If you are a stock holder, this process is what delivers the performance you want. If you are an investor, this process works.
As the customer, remember you are a means to an end. You are going to have to balance the dwindling value of the technology with the cost of replacing it. Remember the vendor knows this, and will likely keep you just barely satisfied so they can keep those support renewal checks flowing.
So what is the answer? Pay attention to the details and be prepared. When you see some of these warning signs discussed in this article, then you need to make some tough decisions. Look at the competitors. Analyze the cost of replacement. Analyze the benefits of competing technologies. Analyze your organizational objectives. Do they align with the new company or not?
Moreover, look at the track record of the acquiring company. Have they done this before? Bought a technology, milked it dry and then thrown it away? The best indicator of future performance is past performance. There is a reason some well-known companies have earned the title of “the place where good technologies go to die.” It is a profitable business model which is not likely to go away any time soon.
Anitian – Intelligent Information Security. For more information please visit www.anitian.com