The technology industry badly needs a shakeout: a consolidation of the myriad providers that sprang up in the 1990s would benefit both the industry and its customers. Yet because of the interlocking interests of executives and board members, this catharsis probably won’t come from within. Interlopers from the edge of the industry or beyond will probably drive the change.

During the 1990s, the boom in high-technology spending spelled prosperity for new and established companies alike. The popularity of enterprise-resource-planning (ERP) and electronic-customer-relationship-management (e-CRM) systems, preparations for the "millennium bug," personal-computer upgrades to take advantage of the Internet and expanding corporate networks, demand for cell phones and personal digital assistants, and the telecommunications companies’ rush to build new networks—all of these factors created about $1 trillion more in demand than trends would have suggested in 1989.

Now this demand is gone, and we know there was less benefit from the technology purchases than the new-economy prophets would have had us believe. The overhang of capacity is significant. In software, for example, the number of companies increased by 15 percent during the 1990s while the market grew by 12 percent. For these companies to meet the projected consensus earnings reported by...