What does the SoftwareONE-Comparex merger mean for the licensing landscape?

Marian McHugh asks whether there is still room for smaller companies in the LSP space, or if it will be dominated by the few remaining giants

The software licensing sector last month saw the birth of a new titan in its space, as SoftwareONE agreed a deal to buy its fellow licensing solutions provider (LSP) Comparex. SoftwareONE claims that the merger will see it manage an estimated €10bn (£8.9bn) in software sales, further tightening its hold on the market space.

The acquisition follows a consolidation trend in the licensing sector, which last year saw UK LSP Bytes buy its York-based £130m competitor Phoenix Software. The CEOs of Crayon also recently embarked on a quest to make a similar acquisitions.

Zak Virdi, UK MD of SoftwareONE, told CRN that the rationale behind the purchase was based on the changing consumption behaviour of its customers, as well as plugging the skills gap and opening up new markets.

"Our clients are moving away from a transactional model and this is really driving the extended opportunities we'll see with having Comparex's capabilities in SoftwareONE," he said.

"This deal is very much about looking at capabilities that can extend the value we provide to our customers.

"Both organisations have a software-orientated approach and - as we've seen the market develop with more software-defined services and technical requirements - this opens up huge new markets to us which we previously may not have had access to, whether that is around unified comms or network infrastructure."

However, as large LSPs eat each other up, is there room for smaller LSPs to break through?

Industry moves

Microsoft introduced a slew of changes to its cloud solution provider (CSP) programme earlier this year, raising the threshold to become a direct partner.

Direct partners are now required to provide at least one managed service, IP service, or customer solution application, and then purchase support software from Microsoft to the tune of $15,000.

Crayon CEO Rune Syverson told CRN that these moves will hasten the ongoing wave of consolidation among the vendor's largest partners.

"This is a product of what is happening with cloud," he said. "it is a huge consolidator and a huge opportunity and I think it will also change the whole ecosystem.

"It's only natural that the big guys get bigger and the small ones vanish, because they are not capable of investing in digitising their transactional business. You have to be able to automate the provisioning, the billing and do more for less using technology. The smaller guys do not have the means nor the opportunity to invest in platforms for provisioning."

Torgrim Takle, Crayon's group holding CEO, added that the SoftwareONE and Comparex merger underlines the consolidation trend, and echoed Syverson's sentiment that it is pushing out smaller firms in the sector.

"We have already seen in the last three years that the number of partners of all the global software vendors - such as Microsoft, IBM and so forth - is shrinking very fast, meaning that it's more business for the bigger players," he said.

"Many small players will not be able to make the investments that are needed."

However, the merger of SoftwareONE and Comparex - both giants in the space - may mark the end of the consolidation trend, according to some in the channel.

Neil Murphy, UK managing director at Bytes, doesn't foresee any more consolidation in the LSP space, as he says the UK market has the "right number" of companies in the space. However, he pointed out that this is not necessarily indicative of the wider licensing market.

"A byproduct of all this consolidation is that there are fewer players for large international companies to choose from, because there are a limited number of companies that can provide international software licensing expertise," he said. "SoftwareONE are one of the best, along with Insight, but beyond that, who do you go to?"

Friendly competition

Smaller LSPs not only need to be concerned about their larger rivals joining forces, but also the encroachment of CSP into the licensing space. Microsoft's changes to its CSP programme may affect the number of resellers that can call themselves direct partners of the vendor, but according to Murphy, it may not affect the number of CSPs playing in the licensing space.

"The market has opened up somewhat to more businesses that want to play in the Microsoft world, so there are many more competitors now in our field than there used to be, because LSPs are also competing with CSPs," he explained.

"It's not a market that is dominated by a handful of players, it is open to competitors of all shapes and sizes."

Virdi and Neil Lomax, executive board member of worldwide sales at SoftwareONE, emphasised that the acquisition of Comparex had nothing to do with Microsoft's licensing changes, and was all to do with where the market is heading.

"Over the last few years we've noticed that customers are now buying software not just to support a business model, but to drive or create a new business model and that is exactly where the industry is going," said Lomax.

"That is why software and the category of software is becoming a fundamental tenet of how any company operates and competes in the market; it is even more relevant to our customers about how they buy, utilise and adopt technology."

Lomax argued that he doesn't see the current market trend as consolidation, rather that companies are seeing the opportunities available to them.

"I wouldn't say it's consolidation; I think there's expansion going on right now. There are always people coming together to go after the market to create better solutions for customers as well as technology partners they represent," he said.

"But based on how the industry is moving, there is so much opportunity and so many new types of technologies coming out that we are seeing expansion.

"This market is worth trillions of dollars and in the context of that we are still - even as a joint organisation - relatively small, so there is still so much to go after."

Regardless, Bytes' Murphy is content with the merger as it signifies one fewer competitor in the LSP field.

"Nothing reduces the number of competitors like going out and buying one," he said.

"There is certainly consolidation going on in the marketplace so I'm quite happy to have one fewer competitor as well, so I think it's a win-win for SoftwareONE and the rest of the LSPs."