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What is the Real Reason BMC Software Went Private?

Written by Darroll Buytenhuys (Twitter Icondarrollb) on November 20, 2013 at 4:49 pm

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You have probably heard by now that IT management software provider, BMC Software, has “gone private.” The discussion around its privatization has largely revolved around not bending to Wall Street pressure. BMC recently stressed that the reason for going private is so that the company can have “the opportunity to move a little quicker, as we can take more risk – specifically, longer-term investments with a little less focus on quarterly Wall Street estimates.”

The reasons behind privatization are not as clear-cut as avoiding Wall Street…

The BMC Software logo

The logic behind wanting the ability to invest in long-term projects is sound enough, but surely this was only part of the explanation? It was also suggested that there will be a shift to “customer value creating investments.” BMC VP Asia Pacific, Chip Salyards, expanded on this shift from short-term to long-term investments at a customer event in Sydney a few days ago.

Going private is the only way to build SaaS?

Salyards explained that BMC is planning to in invest in offering a SaaS version of its software, which would offer upgrades two to three times a year – as opposed to the current once every nine to 12 months upgrade that its on-premise solution guarantees. In fact, Mr. Salyards implied that becoming a private company was the only way for BMC to begin developing a SaaS model: “With a publicly traded company you are on these 90 day cycles so you can’t change from an on-premise model to a SaaS model. You are a little bit restricted in the investments made and how great you can make them.”

Clearly, there are two issues at play here. Firstly, there is the question of changing the business model from perpetual, upfront licensing to a subscription model. Making this change as a publicly traded company can be extremely painful and perhaps ill-advised. This is more than likely what Mr. Salyards was referring to.

What is more important is the question of whether freeing BMC from the shackles of Wall Street can actually alter the company’s DNA enough so that it can quickly convert to a SaaS-focused organization. One that can compete with younger, faster moving enterprises who have been taking market share from BMC for the past 2-3 years.

Can BMC achieve this change to fully embrace what it takes to compete in today’s SaaS world, including the way in which applications are built and marketed? Can they break away for the long-term, locked-in Enterprise License Agreements that have fueled the company for all these years? It is clear that major change is required if a SaaS strategy is going to be the primary growth accelerator. The jury is still out on whether it can really be done.

Those in BMC’s investment group are not fools. They have a vision that they will soon begin executing. But, one has to question if a major investment in becoming a SaaS company is part of that strategy. Equally so, the BMC executives too are no fools – they have watched the SaaS movement for a long time but still do not own their own SaaS platform on which their products can be offered. I am guessing that they knew what they were doing and simply elected not to challenge their own company makeup. Perhaps there is still room in the market for a legacy vendor?

What are your thoughts? Will we see a new SaaS-centric BMC emerge in years to come? Or, will the company be broken up, unwanted parts sold off and the remaining pieces turned into an even bigger cash-generating machine?

Legal Disclaimer: The content of this blog should not be deemed as a professional advice provided to you, nor should it be relied upon for personal, legal or financial decisions, and you should consult appropriate professionals for specific advice tailored to your situation and needs. Any use of third parties’ names and/or tradenames is being made while keeping any and all of third parties proprietary rights therein and without obtaining any rights therein.

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