As the big tech companies merge into industry-dominating giants, tech-specialist PR agencies are reformulating their game plans.Oracle CEO Larry Ellison is many things to many people, and now he can add clairvoyant to the list. In a recent Wall Street Journal article, Ellison predicted sweeping consolidation that will lead to the death of a thousand hi-tech companies, with only a few category leaders dominating innovation and sales. To speed up the process, Oracle made a $5.1 billion hostile takeover bid for rival PeopleSoft in response to PeopleSoft's announcement four days earlier that it would acquire J.D. Edwards. The tech landscape is rife with acquisitions, from last year's high-profile merger of Hewlett-Packard and Compaq, to more recent news about Palm's plans to acquire Handspring, Adobe Systems acquiring Syntrillium Software, Microsoft acquiring PlaceWare, and the latest rumor that Apple is eyeing Roxio. So this all begs the question whether Ellison's prediction is coming true. And if so, just what does this mean for hi-tech firms and practices, who are rebuilding after the dot-com implosion and facing still-constricted budgets? "At one point in time, there were more than 100 automobile companies," explains Victor Chayet, director of corporate communications at J.D. Edwards. "They consolidated down to seven or 10. At one point in time, there were hundreds of shipping companies. That consolidated down. There are probably 25,000 hi-tech companies in the world. Basic macroeconomics tells us that the economy cannot sustain that diversity or sheer number of companies. There is massive overlap in the value they bring, and the infrastructure they demand. We've seen growth in this industry over the past 30 years, and we have peaked. Logic tells us we have hit a summit of some sort, so the next logical step would be consolidation." Acquisitions usually happen because of what's going on in a particular sector, such as enterprise software of PDAs - not because of what's happening in the industry in general, explains Stephen Baker, director of industry analysis at The NPD Group. But giants like IBM often buy companies so they can move into new sectors, or solidify their dominance in another. HP may do the same, says Baker. "The problem is there aren't a lot of companies being created to take the place of these companies being acquired," says Baker. That's one reason why Jessica Switzer, MD of Ruder Finn/Switzer, sold her boutique tech firm to independent PR firm Ruder Finn. "I saw this consolidation coming," she says, "and we haven't seen the end of it." Switzer thinks it will be harder for boutique firms as companies get larger and look for agencies that can provide an international reach. Rhonda Shantz, partner and GM of Porter Novelli in the Bay Area, agrees. "For tech-only agencies working with large companies, it's game over," says Shantz. "The large tech companies are getting larger, and there are fewer of them. They need a full-service agency with global reach, which can provide public affairs, IR, corporate consulting, crisis communications, and then tech. The tech-only agency is not what tech companies need anymore. They need all those services, not just an understanding of technology." Small firms still have a future Not that tech agencies will find themselves without a future, adds Shantz. For many smaller and emerging tech companies, tech PR firms will still provide valuable services. But as companies grow, so will their need for a variety of communications services that go beyond just understanding their technology. But Bob Angus, president and managing partner at A&R Partners, disagrees that consolidation means tougher days lie ahead for tech firms such as his. "Consolidation also stimulates new opportunities as marketing talent disperses and companies consider their agency relationships," he argues. "Start-ups and midsize tech companies often benefit from the freeing up of executive talent at larger companies. Agencies serving the tech sector need to remain flexible enough to take on these smaller clients while finding ways to help their existing base compete with the conglomerates." Big tech companies that grow through acquisitions sometimes find it difficult to choose an agency that doesn't already have a competing account, Angus adds. "An acquisition can create a conflict of interest. These agencies may be faced with hard choices if they must choose between existing customers and potential bigger opportunities." That's when tech agencies' expertise in particular sectors will pay off, asserts Angus. Many companies will realize that they can't find just one agency that can do it all because of conflicts of interest, so the multi-agency model may be the best solution. For firms that hold on to their clients, the PR budgets will likely be smaller, warns Michael Busselen, chairman of Fleishman-Hillard's tech practice. "The reason you merge is for efficiency," says Busselen. But he's also optimistic that consolidation doesn't necessarily mean more dark days for tech PR. "If we have mergers done not out of desperation, but because they make sense, then we could see growth if this consolidation can jump-start the engines of the industry," adds Busselen. "This industry is not hitting on all cylinders yet. And they're looking for the equation that equals growth, and some believe consolidation is part of that equation." Agencies can look at mergers two ways, argues Allen Bush, director of corporate communications at Handspring. "It's an opportunity to have larger, deeper clients if you're on the receiving end of the deal. And an obvious concern for losing key clients if [your client] happens to be acquired by a larger firm with no plans to change representation. PR plays a significant role in acquisitions such as ours, both in educating shareholders as to what the merger means and why they should approve it, and in the future, in getting out the new company message to support the brand as enhanced through the merger. In both, it's critical for PR practices to be elevated above the standard product fare and into the realm of high-level, long-term strategic thinking, and running in tandem with IR." Ephraim Cohen, EVP and GM of Edelman's tech practice, says more acquisitions could lead to more venture-capital funding of start-ups. "VCs won't invest in a start-up unless they see the pay-off, which means going public or getting acquired. If the M&A market becomes more active, more companies will get funding. A more active M&A market leads to a more active Wall Street. And it's not just about acquiring. Many companies realize their value by spinning off parts of their business. HP spun off Agilent. Lucent spun off Avaya and Agere." Jean Armstrong, a principal at Armstrong Kendall, estimates that at the recent Design Automation Conference, 10% of the companies exhibiting were start-ups. Start-ups are the "R&D lifeblood" of the industry, she asserts, and innovative ideas will always emerge with them. "I think Armstrong Kendall and other independent PR agencies have an advantage in this type of market because we can be more nimble than larger agencies," adds Armstrong. We do not have the overhead that larger agencies have, and can easily adjust to smaller clients." Acquisition is a sign of the times But Oracle's takeover bid "is an unmistakable sign of the times," reported The Wall Street Journal last week. "Evidence abounds that Silicon Valley isn't just in another cyclical downturn, but is going through a maturation of slower, long-term growth and few suppliers in many categories. The harsh environment could prompt a wave of mergers, as tech firms that were able to go public amid the buoyant stock market of the late '90s seek lifelines from better-heeled rivals." Edelman's Cohen is just one of many people who hope such predictions don't come to pass. "Tech people trying to predict the future of technology is difficult at best, and the predictions of demise are wrong," he says. "Tech is about innovation and exploration. It's infinite. There may not be room for another CRM start-up. But if a start-up meets a new need, there's room for more companies. While I'm not necessarily optimistic, most predictions of demise have a perfect track record of being wrong."