The big story of 2003-2004

One word: consolidation.

This week, PeopleSoft bought JD Edwards and Palm bought Handspring. These are early indications of an extraordinary consolidation binge in technology and media. Get ready for many more big merger announcements.

This will happen for several reasons. Everyone in high-tech was hoping that the economic downturn would be over by now, but instead we’re still bumping along the bottom of the IT spending trough. That, combined with ruthless commoditization pressures, means no one can grow their way out of the current situation. Everyone must either find a small but lucrative niche, or get big enough to compete with gorillas like Microsoft, IBM, Cisco, Nokia, and Sony.

Add to that this week’s FCC decision to loosen media ownership rules. As was the case after the 1996 Telecommunication Act passed, a massive round of consolidation is inevitable. As my friend Blair Levin of Legg Mason puts it, every media company must now decide whether it’s a buyer or a seller. Staying on the sidelines isn’t an option.

What we’re seeing now isn’t the bubble-era M&A, in which inflated stock fueled deals for their own sake. It’s also not the bottom fishing that has characterized the telecom infrastructure market since it imploded in late 2000. The upcoming consolidation will be a major reshuffling of the deck in many industries.

There will still be innovation and opportunities for startups. But the established companies will be spending a bigger chunk of their time buying each other than looking for new opportunities. Whether this is good or bad depends on your perspective. It’s just going to be a fact of life until the feeding frenzy ends, which is probably when the economy finally recovers.