I wrote a brief article titled,"Enterprise Software: Mutation Before Consolidation for Sandhill.com. Excerpts with edits:
At above ten percent of global capital investments and with a significantly growing percentage of proportion of locked investments as part of enterprise IT spend –the importance of software industry is obvious, but the state of the software industry worries the business and a majority of stakeholders. The software industry is beginning to respond to portfolio rationalisation of enteprises through consolidation - as companies try to increase their range of products to compete better for tight IT budgets. This pressure is prompting midsize firms and the industry's largest players to consider new combinations. In a flat software spending market - healthy life for small and medium enterprises look highly doubtful. In the past - database markets and infrastructure areas like networking, OS or server areas all have seen this. An inevitable consolidation characterized the evolution and maturity of the market. Small players get squeezed out naturally and new players don’t get a toehold easily. Consolidating markets may not necessarily undergo innovative growth phases & innovation is more likely to start in newer, adjacent markets. Viability looks more significant than innovation in the changing landscape.
Valid reasons exist to believe that the existing user base of smaller vendors will continue to survive for sometime to come due to the fear of switching costs including change management. Ongoing maintenance and service support nearly guaranteed commitment to legacy vendor partners providing them a lease of life. This could also change in measured ways moving forward. While all these happen - fact remains that there shall be several smaller companies that would co-exist as part of the larger enterprise ecosystem. I do not see how the large platform players can do away with super special players( there are many of them - some have existed for decades - though a majority of them for just under a decade) or outdo specialized smaller companies . It is paradoxical of the space – innovation and niche requirements would demand a place for smaller players – albeit playing the role of being small but important players in the enterprise ecosystem. Service providers would experience the effect soon (though services may see a lag effect) - largely reflected in skewed capacity additions and unpredictable utilization burdens. Smaller vendors' support base can get washed away as they find it more and more difficult to get acceptable level of support from good service providers. For an end user, choice of service providers may be an important factor as choices give them negotiations leverage for benchmarking service costs & service levels. Small software vendor may be forced to invest in consulting staff or in some cases the service provider on his own may choose to support customers (this can significantly delay switching to larger players). I also foresee possibilities of some smaller players thriving by being part of a service provider ecosystem. The signals are unmistakably clear: There will be a few big players, with good number of little players by their side supplementing them, and together with startups (who shall be seen as carrying the flywheel of innovation); the landscape shall get substantially altered. Pl. read the full article here