This may be a bit controversial and/or counterintuitive…but hear me out.
For years, people have talked about splitting up large enterprise companies for antitrust reasons. On the surface, breaking up large companies for antitrust reasons may seem like a good thing. However, several challenges quickly surface.
The first issue is, why? What is the motivation to do so? And is that the real motivation? Why is the company being broken up and why this company versus another company? The second issue is: Where to break? Using broad strokes to simply say a company should break up is risky and can create more harm than good. It could also completely sink a company if not done right. And if you sink a company, what have you accomplished? If you get past those two, there is a long list of additional questions to answer.
To be clear, generally, antitrust can be a good thing. How it gets leveraged and the ramifications need to be carefully considered before being invoked.
Looking beyond antitrust
Beyond antitrust might there be other reasons why splitting up a company could be a good thing? Meaning, a good thing for the company, its customers and its investors? Yes. But that is looking at the holistic outcome, not just one attribute.
Let’s take a few examples of where enterprise IT firms might consider splitting…and the ramifications good and bad.
Amazon: Amazon is one of the companies long discussed as a split candidate. Split Amazon Web Services (AWS) from their Amazon.com e-commerce business. While this looks good on the surface as a clean split, I suspect there is more of a symbiotic relationship than most understand. Sure, it could be good for customers that work in the e-commerce space and want to use AWS. But the symbiotic relationship may create financial challenges between the two orgs…which would not benefit the company, investors nor customers.
Microsoft: Another commonly discussed breakup candidate. Now, this one is tricky as Microsoft serves both consumers and enterprise customers with their products. There really isn’t a clean way to split the company. Maybe spin out gaming? But productivity apps span consumer and enterprise. While Azure cloud services service enterprises. And that does not account for the connective tissue between gaming and Azure. At a minimum, a breakup of any sort would be messy and complicated for the company, consumers and investors. In this case, complicated equals increased risk.
Infrastructure breakup candidates
Maybe there are other candidates to consider. Beyond software, traditional infrastructure companies like Hewlett Packard Enterprise, Dell Technologies and IBM could actually do well with a split that would benefit the company, customers and investors.
The typical customer for all three of these companies is more technologically based. They are also typically infrastructure focused. Yet, each of these companies need to attract new customers, with new objectives, to support growth. As customers increase their use of cloud service providers (CSPs), it creates additional downward pressure on infrastructure growth. Innovation in infrastructure will continue, but not at the rate of software innovation. In addition, there is typically low churn in infrastructure customers because of the switching costs required to do so. Investors in these companies are looking for steady growth and have a limited appetite for disruption. All of these factors conflict with the need for new customers with new objectives.
Spinning off software into a separate company, similar to how IBM split IBM Global Services into Kyndryl, could be a benefit for all stakeholders. Stock in the spinoff could be held primarily by the parent company but would attract new and different investors that are looking for growth beyond the steady-eddie typical infrastructure growth returns.
From a company perspective, a software focused spinoff could legitimately work with competing infrastructure platforms. In addition, the teams could organize differently to accommodate a different target customer. These changes span from strategy and development to marketing and sales. It is essentially a different structure and focus entirely.
A software focused company would encompass an entirely new go-to-market strategy and sales motion that targets a wholly new type of customer different from their typical customer today.
My take: Where to go from here?
This is all hypothetical of course. Or is it? The point is, if there is breaking up to do, it needs to look beyond the top-line basics of antitrust. There are fundamental questions to be asked and discussed. In addition, the world…and the customer…is changing. Understanding the dynamics of these stakeholders, their relationship and how they are changing over time is critical.
Today, much of the discussion ignores these fundamental considerations. And most of the discussion is with those that do not have the domain expertise to understand the dynamics.
One thing we can do is to increase the education of those governing bodies that are leading these discussions. Without it, the risk of disruption…and not good disruption…is high.
What is your take?