Dear Larry,

We read your recent Business Week interview in which you say "History repeats itself. It happened in railroads and cars. Now it's happening in software. And there, we're the consolidator." In a WSJ interview, you say "Microsoft is clearly a survivor (in the software industry), Oracle is clearly a survivor, as is IBM, as is SAP. I think I'm finished."

If you had not included SAP in the WSJ interview we would have thought you were just talking about the database software market, where you would be somewhat justified, but you are broadly talking about software and we, the presumed "non-survivors", are puzzled. Especially since less than a year ago, you argued persuasively in the DOJ case the software market was fragmented.

First of all, Larry we love you. You are the ultimate entrepreneur who made it big without VCs against IBM in its prime. In an industry filled with nerds you have brought flash and passion. You have created a lot of wealth for your employees, your investors and your partners. But, respectfully ...

... We disagree with your assessment of industry consolidation. Here's why:

a) The 4 vendors you mention together do not provide even 10% of application software for insurance claims processing, bank trading systems, mortgage processing, telecommunication billing, utility billing, patient and health care accounting, media digital asset management, energy exploration and production and several other enterprise applications. Lifeblood systems for our economy.

b) The 4 vendors you mention together do not provide more than 25% of all testing, security, storage, systems management and a whole variety of other infrastructure software.

c) Service Providers like Accenture, Infosys and others write more code each year than the 4 of you do. They build custom apps, extensions to your functionality, test and clean up your buggy code. That is software too. You may not agree but over 70% of Oracle's own revenue comes from similar support and services. The industry is headed towards convergence - ASP, Software as a Service, On-Demand, BPO - models.

d) Few of the major software innovations in the last few years - planning and optimization, eProcurement, CRM, web services and a number of other areas - has come from these 4 vendors. In the past, you have dismissed companies which delivered these innovations as "features". Without innovation our industry dies - you know that as an entrepreneur.

e) Every time the industry has talked about consolidation and winners, the market turns. Remember BUNCH? The Big 5? Dun & Bradstreet Software?

f) Adjusting out IBM's hardware business and Microsoft's games, MSN and other personal software business, the market cap for the 4 vendors makes up about 35% of the various Yahoo Finance categories for business software and services. That does not even account for the many private companies in the categories.

Our investors would love to see it, but not sure how with 35% of the market cap, the 4 of you will consolidate the rest of us in the 65% category. Before the PeopleSoft acquisition your market cap was 6%, then it increased by another 1%. At 7% share, we think it is premature to call yourself a "consolidator."

Larry, we think we are headed to an automobile tiering model with the 4 of you and some of the rest of us will end up as Tier 1 suppliers. We look forward to working with you as Tier 2 and 3 suppliers - and at times even competing with you for Tier 1 business. We need you - you need us - and there is plenty of code still to be written.

Respectfully,

"Dead Men Walking"
(AKA Hundreds of other business software and services providers like Accenture, Adobe, Ariba, Apache, BEA, BMC, CA, Cerner, Cognizant, Cognos, Compuware, Epicor, FiServ, HP, Infosys, Intuit, Lawson, Mercury, Novell, Parametric Technology, Progress, RedHat, salesforce.com, SAS, Siebel, SSA, SunGard, Symantec, Tibco, TCS, and Wipro)

Vinnie Mirchandani is CEO of Deal Architect which helps technology buyers procure software, offshore and other technology contracts. It also works with technology vendors and investors on strategy and merger transactions. Mr. Mirchandani was previously a Gartner analyst and an executive with PwC (now part of IBM). He can be reached at contact@dealarchitect.com