What happens when a company gets too dependent on existing customers? Sales can stall. To make matters worse, companies in every sector, especially technology, suffered during the recent recession. To boost growth rates, investors will often press management to look for acquisitions that can provide speedy access to new product lines. This situation is currently playing out in the high tech universe. Writing for the Wall Street Journal, Ben Worthen highlights the trend by describing how Oracle successfully gobbled up Sun Microsystems and HP is in the processing of acquiring Palm.
Worthen also quotes Dominic Paschel of SuccessFactors, a small company which has been making acquisitions, who says “[t]he more products we have, the more history has shown that customers will buy.”
Some could argue that the company mergers and acquisitions are just about getting bigger. But that’s not always the case. For example, because of recent acquisitions, VMware is now offering email hosting which is an extension of its original data center hosting software service. And when Salesforce.com purchased Jigsaw, it was all about selling “contact data to its sales-automation customers.”
“It’s easier to sell to an existing customer than it is to sell to a new customer,” says Ray Wang, an analyst with Altimeter Group. When companies make acquisitions and expand their product lines, they’ll also need to revise their branding and marketing campaigns to reach both old and new clients.[Source: Worthen, Ben. “SAP, Other Tech firms Vie to Add Product Lines. “ Wall Street Journal. 14 May 2010. Web. 21 May 2010]