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Wednesday, September 07, 2005

Enterprise Software : Clearing Haze!!

Ajit Nazre, Partner at Kleiner Perkins Caufield & Byers notes the slow down in the enterprise software space & points out that the slow down is primarily in the applications area, while occasional investments happen in the infrastructure space, which includes middleware, operating systems, search, and security. The focus has shifted from applications to the infrastructure side,” he notes. Nazre sees opensource(??) along with customized solutions providing enterprises with better value for money. Others note increased interest in areas like “actionable analytics software”. More and more companies are using search as a platform to derive valuable information from terabytes of unstructured data sitting within the enterprise. On top of the search platform, companies are building innovative applications through which business value can be derived. VCs are excited about such companies.
I agree with the view that changing market forces, noise of consolidation and technological advances are fast changing the traditional means of buying software— already a buyer’s market, the way forward looks very challenging from the price perspective. New models like SaaS requires more patience on everybody’s part—entrepreneurs, sales force and investors to proide returns. Strength of sales force becomes a key differentiator in the success of enterprise software.A typical software company has to spend 30 to 40 percent of its revenues on marketing and sales. Oracle and SAP have emerged as leaders because they have sales force of 5000 plus people. However, companies like Siebel, Ariba and i2 have their own challenges with limited sales force. “Technology does play a role in success. But how the software is delivered is also equally important. Go-to-market strategies of startups would be a key differentiator. The Enterprise software market has considerably changed (for ever) and new investments are happening in fringe areas – but hopes are investments are in newer areas like composites( where difference between big & small enterprise product may be less noted) and who knows in this age of discontinuity, newer streams of growth may be round the corner.
As Barron’s recently notes,“The enterprise, or corporate, software business faces a world in which there is little organic growth, few compelling new applications and a dearth of untapped customers”. Right words at the right time.

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