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Sunday, April 24, 2005

Software Market - Siesmic Shifts Ahead

M.R.Rangaswamy in an extremely well researched and thought out piece writes, "Many software vendors will not be able to hang on during the coming tumultuous five years. The survivors will operate in an entirely new landscape – with new models for business, hiring, development, services, marketing and so on. The enterprise software business of the future will be more dynamic, innovative, efficient and business-driving than ever before. A look at the enterprise software landscape reveals the market is shifting along four fault lines".

1) Proliferation - Consolidation : MR points to the paradox - while software startups abound and finding increasing for them, big company mergers are becoming more frequent. Enterprise customers are spending more on the large software vendors, leaving a smaller budget for software from young independent companies. Startups exit strategy will most likely be one where they sell themselves to a larger vendor and focus on quickly being part of the target acquirer's eco-system: using their development platforms and products, targeting their customers, and so on.

2) Proprietary - Open : Open source is impacting the enterprise software industry in many ways. Vendors are leveraging the robustness of the open source stack in their product development. He cautions on not violating licenses.

3) In-house - Outsource : The offshoring wave shall become more powerful and India has emerged as the largest beneficiary of this trend. But the offshore market is also in transition. He also sees movement of work to different geographies – even back to rural parts of the U.S., where costs are lower and time zones similar. The range of outsourcing increases from the likes of support, to product development and are exploring areas like accounting and BPO. The vast resources and relatively low cost of many offshore endeavors will reinvigorate the industry and make it more innovative and adventurous then ever before as the propensity to take more risks are seen at both the sides.

4) Product - Customer : Business is witnessing the transition to more prudent spending and more conservative technology strategies seemed to happen overnight. Many software companies are complying with customers felt need of service or subscription offering. Software companies need to work harder to ensure their buyers are pleased. MR concludes by saying, the market shifts bring new opportunities for vendors, customers and investors alike.

My Take: MR has done a very balanced assessment of the transition and growth of the software market and is brilliant in his assessment of the fault lines- I have had almost similar views on the changes in the software market - I recently wrote on the topics Enterprise Software Market - New Powerhouses & Major Shakeup Ahead? and a brief perspective of Software market consolidation echoing similar sentiments. However MR is bullish about the opensource movement(I am little conservative in declaring that the opensource movement will gain more prominance -to me opensource is a niche play affair). But MR goes far beyond endorsing the rise of opensource - he is calling for a LBO for building an opensource based technology stack - this is indeed an excellent idea I should say - one of the concerns for business in any consolidation is the fear of the monopoly/duopoly - opensource stack may provide that comfort of an alternate and improve in the overall development of the technology market.There are also views that have been expressed that this industry requires outside intervention to break the nexus between investors, executives and partners to artificially keep alive half dead companies(I have known nasdaq listed software product companies making around 10 millUS per quarter sale for the past three years still floating around -imagine how much companies like this can spend on product development on an ongoing basis)- If opensource stack could be that outside intervention - most welcome. One important question lay ahead -what happens to all the investments made by the customers made in the licenses of promising software products, services and applications that have been built - reconfiguring most of them associated with change management issues shall create enormous pressure on the customers place and wallet. But with all this, consolidation is inevitable and bound to happen. MR's article with good ideas, backed up with solid data provides a good perspective about the changes that are to come.

Disclosure: I am a resident blogger of Sandhill.com of which MR is the co-founder.
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