An expected increase in acquisitions, consolidation and software integrations by large enterprise-technology companies has some commercial customers wary of having to deal with new and unfamiliar digital tools tacked on to their existing systems—whether they like it or not.
Already, some of the market’s biggest information-technology vendors have promised to expand products and services in the months ahead by integrating capabilities from startup partnerships and acquisitions, including in data management, artificial intelligence and automation, among other areas.
Microsoft Corp. this month said it plans to incorporate AI into all of its enterprise software, while boosting its multibillion-dollar investment in OpenAI, the startup behind chatbot ChatGPT. In December, International Business Machines Corp. said it planned to buy Octo, a public-sector IT startup based in Reston, Va. Adobe Inc., a graphic design and video-editing software company, in September agreed to buy collaboration-software startup Figma for roughly $20 billion, its biggest acquisition to date.
“The biggest concern is, will these new capabilities cause us to modify our tools and, more importantly, internal processes,” said Bill Parks, chief information officer at Infinera Corp. , a telecommunications-equipment maker based in San Jose, Calif.
Mr. Parks said past acquisitions and integrations by Infinera’s longtime technology providers have at times required the company to quickly adapt to new—and sometimes unwanted—capabilities. That is a potentially costly process that can require overhauling existing enterprise tech stacks, or even hiring high-priced experts to manage new IT tools, analysts said.
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Though he declined to name specific IT providers, Mr. Parks said he planned to work with the company’s enterprise-technology vendors as they expand services through startup acquisitions, “to ensure that our concerns are addressed so the relationship can continue to stay strong.”
Brett Sparks, a senior director analyst at IT research and consulting firm Gartner Inc., said a recently acquired startup’s existing customers also get nervous when a large owner takes over.
“Clients fear they may lose familiar talent, incur delays or increased costs, and hit a wall of red tape and bureaucracy,” Mr. Sparks said.
Apart from higher prices, a common fear among startup customers is that their share of revenue contribution will be significantly diminished, he said. Mr. Sparks gave the example of an IT customer that generates 4% of a startup’s total revenue. If that customer then accounts for just 0.004% of the startup acquirer’s revenue, “how concerned will that provider be if my initiative fails?” he said.
Sameer Dholakia, a partner in the growth investment practice at venture-capital firm Bessemer Venture Partners, said a big risk of M&A integrations is the buyer’s inability to iron out differences in technology, such as programming languages or underlying cloud support.
Mr. Dholakia—a former chief executive of email startup SendGrid who oversaw its roughly $3 billion acquisition in 2019 by cloud communications firm Twilio Inc. —said acquirers that ignore these kinds of differences typically end up offering a “Frankenstein-like” bundle of tech tools, rather than a single, unified solution.
Indeed, some chief information officers continue to question Salesforce Inc.’s $27.7 billion acquisition of messaging app Slack, roughly two years ago, though they still use Salesforce’s core customer relationship management tools. This week, activist investor Elliott Management Corp. made a multibillion-dollar investment in Salesforce, according to people familiar with the matter, possibly signaling operational improvements, divestments or other changes, market observers said.
“M&A can often make sense on a product strategy whiteboard, but may not work in practice,” Mr. Dholakia said.
Either way, deals are expected to accelerate this year. After coming to a near standstill at the end of 2022, M&A transactions are likely to pick up as startups begin to field more offers from potential buyers, partly due to lower valuations and unfavorable conditions for public market debuts, analysts said.
Justin Hotard, executive vice president and general manager for Hewlett Packard Enterprise Co. ’s high-performance computing and artificial intelligence group, said its strategic acquisitions are aimed at expanding capabilities for its enterprise customers.
Still, he acknowledges that CIOs and other corporate tech leaders have legitimate concerns about the challenges of integrating new technologies into an existing portfolio of enterprise tools.
HPE this month said it acquired Pachyderm, a San Francisco-based software startup, and would integrate the new software tools into its enterprise-tech platform. Terms of the deal weren’t disclosed.
“Startups do one thing well by creating a product to target a particular need and even unlock a market opportunity,” Mr. Hotard said. As a large technology company, he said, “we deliver solutions that solve several complex problems at once, which is why we need to ensure integrating just a single product from a startup fits in with many others.”
Mr. Hotard said one way to ensure a successful integration is to be clear about how an incoming startup will fit into an acquirer’s overall business model—among buyers, startups and their customers.
“Our existing customer base will want to know they won’t be forced to replace an existing technology they already buy,” Mr. Hotard said. “Incoming customers from the acquisition will want to ensure continued functionality from the original technology.”
Write to Angus Loten at Angus.Loten@wsj.com
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