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Club Vendor Convergence - Good or Bad?

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March 01, 2005
Club | Technology
Mark Lipsitt - mark@globalnorthstar.com

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© 2005 Hospitality Upgrade. No reproduction without written permission.

In an article I wrote in July 2000, I made the case for a significant reduction in the number of club software vendors. The basic premise of this proposed shakeout was that there were far too many vendors for a niche the size of private clubs and that this, in part, caused the poor service and software quality that many clubs seemed to be experiencing. A shakeout, caused by either merger or dissolution, would benefit the niche by allowing fewer vendors to each attain a greater share of the market, which in turn would allow each to reach the critical mass and revenue necessary to provide greater service, quality and innovation.

As I expected, this convergence has begun to play out, albeit a little later in the game than I expected. Additionally and unfortunately, the convergence is taking the shape of one large investor buying up a number of otherwise strong companies. This is certainly a form of capitalism and part of our free market system, but it is not what I hoped would occur, nor is it necessarily best for the club consumer.

Let’s take a look at what I originally proposed vs. what is now occurring and try to compare and contrast them a bit. When I originally proposed a shakeout, it was based upon the concept of business Darwinism, or survival of the fittest. And, of course, survival of the fittest should be based upon rational market forces: Those who provide the best products coupled with the best service should win. Over time then, vendors who do not innovate, do not provide high levels of service and cannot provide service level guarantees, would either fail outright or be absorbed by another competitor. Thus, these rational market forces would eventually cull out the lesser companies and allow the better companies to become larger and stronger. Because there would still be a number of companies in the niche, there would be no monopoly leaving both price and quality to remain competitive. The overall impact would be that these fewer, stronger companies would have the resources to innovate, develop, and provide better support, while still remaining competitive from a price standpoint.

What has happened instead is that an investment company has now purchased three of the larger and financially stronger companies in the niche, creating a giant that now can claim about 70 percent of the viable club systems opportunities in the United States.

Is this bad, good or indifferent? Certainly bright minds will disagree, but it seems clear that this isn’t truly a shakeout based upon club buying behavior and therefore some concerns need to be raised. Let me pose a few questions to be answered by the consumer (clubs) in order to draw some conclusions here:

Even if we accept that having fewer vendors in this small niche is probably a good thing, is it best for the niche to have one vendor holding over 70 percent of the customer clubs?

Can we expect three companies, none of which were considered stellar in regard to service, to merge into one with unparalleled service?

What level of service can clubs expect from a single company that now has over six different technological platforms to support within its customer base?

What interest would an investment company have in purchasing these three companies and others that may be on the horizon? Is it to provide a better software product, higher quality and greater service? Or is it about annual fees?

Can we expect prices to go up or down if more competitors are purchased or pushed out by this same company?

It is not clear that there are right or wrong answers here, nor that this is inherently a bad situation, but it certainly raises these and other provocative questions that only the club consumer can answer. It also raises questions about the remaining competitors in the marketplace:

How will the remaining club software vendors react? Will they fold up their tents and go home or will they see this as the opportunity that it is (what better opportunity than to have a behemoth competitor trying to meld together three companies and six technologies)?

Will the remaining vendors look to sell out also, figuring that they might as well get their money out of it now?

The ultimate question in all of this -- investment companies and other vendors aside -- is how the buying clubs will react? Clubs have a tendency to lean toward the safety of numbers and to do what others have done before them. If that pattern continues, we will very likely end up with one very large software vendor, no competition, high prices and no compulsion to provide quality in either products or service. So, for all the questions that have been asked above, it comes down to what the market has always come down to How is the buyer going to vote with his dollars?

This next year should be interesting to watch, and I hope for the sake of the marketplace that clubs really consider the outcome before they vote.

Mark Lipsitt is CEO of Northstar Technologies, a company providing next-generation software solutions to the club and hospitality markets, and formerly of the Lipsitt Group which provided consulting to the club industry. He can be reached at mark@globalnorthstar.com.

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