Symantec CEO, John Thompson’s prediction for the software industry

Chairman and CEO of Symantec, John Thompson was interviewed on CNBC’s Squawk Box this morning. He is known to be an outspoken person, and he usually provides very interesting quotes. This morning he said:

“Software industry has been in a phase of consolidation for the past 3 to 4 years. The pace of consolidation has picked up for the last 12 to 18 months.” Thompson continued to say: “Software industry will inevitably consolidate itself in to few, very powerful companies with strong positions from which they can defend and grow their portfolios.”

When I heard Thompson make his prediction, I could not help but to think back to a similar quote I had once read from a British Telecom CEO in the early 1990’s. He had rightfully predicted that one day there would be 5 large telecommunication companies left in the world. In the industrialized world, we are rapidly racing down to 5 very large telecommunication companies. If history repeats itself, what does this mean for John Thompson’s prediction for software industry?

You don’t have to be prophet to see that software industry is in the midst of a major consolidation phase. Recent acquisitions from HP (Mercury Interactive, Opsware), IBM (FileNet) and Citrix (XenSource) are few recent examples of this phenomenon. However, can anyone imagine a world where there would be only 3 to 5 very large software companies left in the world? What would software industry look like at that point? Which companies would be in that small group? SAP, Oracle, HP, IBM, CA? Note that I did not include BMC and EMC in the mix, since I predict that they would be acquired by the large vendors over the next few years.

I can a see a time when there will be 3 to 5 large vendors offering a wide range of IT software in the near future. However this will not mean that customers will have no other choices. As we have today, there will be hundreds of thousands of open source projects in existence. These projects will be started all around the world, and they will offer cheaper, better and more efficient software solutions for users.

Some of these open source projects will find traction and they will become commercial open source companies like RedHat, MySQL, Zenoss, others. As stand alone entities, they may never become as large as HP or IBM, but their eagerness to adopt open standards will allow them to work together, and build competitive open source software stacks that will rival those from the mega vendors.

There is a very big difference between telecommunication and software industries. One requires a very large investment in infrastructure, lobbyist, sales and marketing. The other requires a laptop, internet connection and your dreams.