It's no industry secret that Oracle will make a strategic acquisition whenever it feels the need. Since 2005, Oracle had made 39 of them. Some were well-known and divisive (the 18-month hostile takeover of PeopleSoft), while most of the others were less rancorous deals that filled out Oracle's war chest of applications: Siebel (CRM), J.D. Edwards (ERP), Retek (retail management applications), Hyperion (business intelligence) and most recently BEA Systems (middleware).

Oracle's M&A strategy has been relatively simple and straightforward over the last four years: "By combining with strategic companies, Oracle strengthens its product offerings, accelerates innovation, meets customer demand more rapidly, and expands partner opportunity," states its Strategic Acquisitions webpage.

Today, Oracle brazenly acknowledges that it creates innovation and innovative products by buying them from others. This thinking, of course, is at odds with the long-held and romanticized view of innovation in Silicon Valley, which is that it should spring from within your four walls (or ideally someone's parents' garage).

Oracle's Larry Ellison: Right on Mergers?

Oracle did not make an executive available for an interview, in spite of repeated requests. But Oracle senior executives have argued publicly that their competitors are just plain wrong. "It's crazy to say you will only grow through innovation," said Oracle CEO Larry Ellison a couple of weeks ago in a New York Times article. "It's bizarre that there's a stigma to buying something rather than building it yourself."

"At this point in our history, acquisition makes a lot more sense," said President Charles Phillips at Oracle's OpenWorld convention last November. "Companies are cheaper than in the Internet bubble. We can bring in innovation outside of Oracle. Anyone remotely thinking about selling their company is going to come to us. We've become the IPO market for the enterprise software industry."

Enterprise Software Industry in Flux

Mergers and acquisitions have been a critical part of the enterprise software market for the past 60 years, states Ray Wang, a principal analyst at Forrester Research, in a recent report on M&As on software acquisitions.

For enterprise software vendors, the rationale behind acquisitions can be broken down into three types, according to Wang's recent report:

1. Obtain a customer base that increases market share and revenue. Oracle's purchases of PeopleSoft, Siebel and BEA Systems are illustrative of acquisitions driven by financial imperatives and intended to increase recurring revenues and profits.

2. Buy into a new product line that fills a market gap. SAP's acquisition of Business Objects, IBM's purchase of Cognos, and Oracle's purchase of Hyperion exemplify acquisitions that help the acquiring vendor to push into new market segments.

3. Technology deals that improve a core capability. Deals in which a vendor acquires another vendor specifically for its technology, such as SAP's Frictionless Commerce acquisition.

There was a time when Oracle thought that the company could build innovative products internally, says Wang. But the PeopleSoft hostile takeover that ended in January 2005 changed all of that. Oracle was moving further into the applications market and needed to ramp up quickly, and it begun buying up small upstarts and big competitors alike to get their applications sets.

"What they needed to buy was more customers, because they were not keeping up with SAP in the applications market, and they were looking at a downturn, and the most lucrative piece of the business is software maintenance," Wang says. "Those two elements were behind the strategy to get into applications."

Oracle's buying binge continued over the years and has yet to slow.

While Ellison may have come out looking to some as a villain in the PeopleSoft acquisition, his company's strategy seems entirely appropriate for today's highly fragmented enterprise software market where middleware has become king.

"Consolidation is occurring at the middleware level, and the opportunities are in the mission-critical business apps, many that are written on old code or old technology," says Forrester's Wang, who's a former PeopleSoft employee. "The battle for industries is paramount and if you