Laws of nature dictate that small fish will be eaten by bigger fish, who will in turn be eaten by even bigger fish. If you are an IT industry watcher, this fact of nature will immediately remind you of the recent eating habits of certain financial software vendors. During the summer of 2003, J.D.

Edwards (JDE), a relatively small fish in the software ocean, was “”eaten”” by its rival PeopleSoft. The financial software ocean seemed a little less crowded but most people didn’t worry too much. In September 2004 we learned that an even bigger fish, namely Oracle, is now about to dislocate its jaw in order to devour PeopleSoft in one big gulp.

The food chain of the software industry is of increasing interest to local government for a number of reasons. Over the past few years, many mid- to large-sized local governments in Canada have switched from their traditional industry-specific financial systems to those offered by such companies as Peoplesoft, JDE and even Oracle. Clearly, if the biggest fish succeeds in inheriting the ocean, the likelihood of all three financial system products continuing to survive under the ownership of one company is extremely slim. These local governments have installed and assimilated this technology at great expense both in terms of cash and effort. An even-up swap of one system for another is no bargain when one considers the fact that systems implementation costs typically far exceed acquisition costs. Even if all the product lines of the Oracle-PeopleSoft-JDE conglomerate were to survive, it’s likely that one or more will suffer from a reduced level of investment in the future.

This behaviour is being duplicated throughout the software industry. Earlier this year, municipal-specific software vendor Harris Computer Systems purchased Cayenta, a rival municipal supplier. Those local governments that have stayed with their traditional systems suppliers would be mistaken in assuming that they have escaped what seems to be shaping up to be a high-tech feeding frenzy.

Local governments select software vendors for a number of reasons. Reliability and vendor stability are important ones. Over the past two years, however, this industry has offered nothing but uncertainty. At present, there are virtually no mainstream financial systems suppliers that one could bet on being a safe haven in the intermediate future. Even the longest surviving of the remaining small municipal-specific vendors could fall prey. Their principals are rapidly reaching retirement age and likely would have to look long and hard at a big cash offer that would amount to little more than lunch money for a larger company.

Regardless of which company you look to, it’s apparent that, at this time, the only thing that is certain is uncertainty. For local governments, however, such certainty is not a state that can be tolerated for long. Unlike a retail store, our customers cannot cross the street to do business on days when our financial system isn’t working. Our customers simply will not accept such excuses as “”the computer is down”” for very long. If the software industry fails us, local governments will be forced to take measures that are unlikely to be considered by most private industry customers. This could include assuming maintenance of critical systems in-house in cases where the source code and tools are available. Returning to the practice of developing critical systems in-house, perhaps in partnership with other jurisdictions, is not beyond the realm of possibility. Whichever alternative they choose, software vendors can rely on one fact. Just as financial software suppliers have the eating habits of fish, local governments have the memories of elephants. They won’t soon forget any breach of trust committed by a software supplier and will be even less likely to venture into territory that has caused them to come to harm in the past.

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