Tuesday, January 08, 2008

Flight from Quality

TIBCO (TIBX:NSQ) shares soared in December, following impressive financial results. This week they have fallen to a 52-week low, following a Sell advisory from Goldman Sachs (Euro2day via Tim Bass). Goldman Sachs analyst Derek Bingham predicts a flight from quality.

Customers will move away from buying more expensive “best-of-breed” offerings, like Tibco’s products, and more toward buying less expensive “good enough” substitutes that are bundled with broader solutions from the likes of IBM, Oracle Corp. and SAP AG.
This is not about whether TIBCO has the best products, but about the buying behaviour of TIBCO's customers.

The SOA mantra of Loose Coupling works both ways here. On the one hand, greater standardization and interoperability could mean there is less reason to buy everything from a single supplier, and so “best-of-breed” offerings become more viable, even during an economic downturn. On the other hand, some companies may feel that it is less critical to get the highest quality infrastructure from the beginning, since greater flexibility makes it easier to contemplate changing things later.

The traditional economics of the software industry has generally favoured the giants, which is why IBM and Microsoft have seen off so many rivals. Meanwhile, the ecology of SOA favours diversity and heterogeneity. Traditional investors such as Goldman Sachs and its Wall Street clients may not appreciate this yet. The important question for TIBCO and other niche vendors is the extent to which the economics of SOA can overcome the economics of software.

Update and Correction

The TIBCO shareprice recovered on January 16th, and has risen further since, perhaps helped by buy-out speculation following Oracle's acquisition of BEA.

But Tim and I were misled by the original story (apparently from Thomson Financial) linking the shareprice fall to the Goldman Sachs advisory. According to Yahoo (another company that knows something about buyout speculation!), the Goldman Sachs advisory was last April.

I stand by my original point, however, that stock market investors and city analysts don't necessarily appreciate the economics of SOA.

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