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Time Capsule: Where Good Products Go to Die: The Elephant’s Graveyard of Conglomerate-Acquired Products

August 24, 2012 Time Capsule No Comments

I wrote weekly editorials for a boutique industry newsletter for several years, anxious for both audience and income. I learned a lot about coming up with ideas for the weekly grind, trying to be simultaneously opinionated and entertaining in a few hundred words, and not sleeping much because I was working all the time. They’re fun to read as a look back at what was important then (and often still important now).

I wrote this piece in October 2007.

Where Good Products Go to Die: The Elephant’s Graveyard of Conglomerate-Acquired Products
By Mr. HIStalk

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Some people were surprised by last week’s announcement that GE Healthcare had acquired Dynamic Imaging, a well-regarded vendor of Web-based radiology and PACS systems. If you’ve ever been a customer of the clunky Centricity PACS product as I have, you might not be quite so shocked.

What happens next (at least if the past is a reasonable predictor of the future) is that Dynamic Imaging as a product and vendor will be quickly assimilated into GE. That’s a nice way of saying that the innovation and non-bureaucratic sales and support that attracted customers in the first place is about to be sucked out of it, much like an Army recruit who’s given a humbling crew cut to strip away his individuality.

The problem is more widespread than this example, even though GE has a disproportionate share of the elephant’s graveyard of formerly well-regarded products. The “first to worst in KLAS” phenomenon has struck before, nearly always at the hand of large conglomerates. The least-positive news you can get as the happy user of a focused, niche software application (short of company bankruptcy, anyway) is that its vendor has been bought out by some multi-national corporate behemoth.

Conspiracy theorists might blame the big company for executing a strategy of buying and burying its more nimble competitors. More often, though, I think it’s the big boys overestimating their capabilities. If they were that good, how did a little company beat them in the first place?

Another argument is that, if you have the money, you can let someone else blaze the trails, then just buy whomever’s left standing. Wall Street apparently loves the cheap nameplating of software instead of the R&D intensive building of it, although searing a once-proud application with the corporate branding iron often has the same effect as splashing holy water on a vampire.

If you’re a prospective customer of a recently acquired product, remember that KLAS is a lagging indicator. The damage won’t be obvious for years. What, then, are the danger signs?

  • The product’s name is quickly changed in a Soviet-like revisionism to provide the illusion of integration.
  • The new owner decides to keep selling overlapping products despite certain market confusion and cannibalization.
  • Full and synergistic integration is quickly proclaimed after a superficial bolting-on to other applications the vendor sells (at least enough to keep salespeople from giggling out loud when they talk about an integrated suite).
  • The people brought over from the old company leave, surprised to find that even a big paycheck isn’t enough to put up with endless corporate nonsense. They’re replaced by well-traveled and interchangeable corporate managers who thrive in such an environment, i.e. people that provider-siders are guaranteed to dislike and distrust intensely.
  • Development timelines are extended, functionality promises are increasingly vague, and technical innovation takes a back burner. The idea of having bought for the future seems hopelessly naïve.
  • Longstanding customers are bewildered when attending the first post-acquisition user conference and realizing that the main objective has changed to “keep them minimally happy so we don’t threaten the maintenance revenue stream until we can sell them something else.”

Companies with a “buy” instead of “build” strategy should succeed, at least on paper. Their financial and organizational strength should theoretically take a promising upstart and turn it into an industry leader. That sometimes happens with well-run technical companies like Microsoft, Cisco, and Google.

Unfortunately, that’s the exception rather than the rule in healthcare IT. The hot little company’s spirit is usually wrung out in the smothering embrace of the massive corporate bosom. Nobody’s left smiling except the founders who took the money and ran.

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