IBM buying FileNet for $1.6B as software industry continues to merge (USATODAY.com)

Computer giant IBM on Thursday announced plans to buy business software-maker FileNet for $1.6 billion, the latest sign of consolidation in the software industry.

Costa Mesa, Calif.-based FileNet makes software that helps companies track and use customer information. The all-cash deal was a slight premium over FileNet's closing stock price on Wednesday. But it would have been greater had FileNet's stock not risen 36% since early June on rumors of the acquisition.

FileNet is just the latest big acquisition for IBM. Last week, Big Blue said it would spend $740 million to acquire MRO Software, which makes programs to help companies track their assets. Last year it bought Ascential Software for $1.1 billion.

IBM's buying streak is part of a bigger shift in the way companies buy software, says tech analyst Andi Mann at researcher Enterprise Management Associates.

Instead of purchasing programs purely based on technical merit, corporate technology buyers are looking for groups of hardware and software that address a specific problem. For example, instead of asking for a database, a tech buyer might request "a better way to track customer buying habits."

To meet this new type of request, many big computer companies are gobbling up rivals and partners, Mann says. Dozens of software deals have been announced this year, including two others worth more than a billion dollars:

• Hewlett-Packard in July announced plans to buy Mercury Interactive for $4.5 billion. Mercury makes programs that help manage a company's hardware and software portfolio.

• Storage-maker EMC in June said it would acquire RSA Security for $2.1 billion. RSA helps companies protect their hardware and software from intrusion.

Other notable deals include Oracle's planned purchase of Portal Software for $220 million and Computer Associates' $375 million deal for Wily Technology.

"We are all moving from purely selling (individual programs) to providing business (software) architecture," says IBM general manager Ambuj Goyal.

The crowded software market has long been ripe for consolidation. Oracle CEO Larry Ellison has predicted it for years, even as the dot-com bust brought dealmaking to a halt. Ellison's company got the current wave off to a bold start last year with a $10.3 billion acquisition of PeopleSoft and a $5.8 billion acquisition of Siebel Systems.

Consolidation can drive up prices by reducing competition. But it can also benefit corporate tech departments by reducing the number of vendors they have to deal with, says software analyst David Cearley at researcher Gartner.

Expect more big acquisitions in coming months, Cearley says. "I think we're going to see a few key vendors building very big (product lines)," he says.

IBM and Oracle remain two of the biggest players, he says. But they'll face more competition from SAP, Microsoft and HP, he says.

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