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Tuesday, November 01, 2005

Enterprise Software - Consolidation, Innovation To Co-Exist

Erik Keller writes in a sandhill op-ed piece,"everyone got spoiled in the last decade as much of the growth of enterprise software was driven not as much by innovation as it was by a technical refreshing of corporate America as it moved to embrace PCs and replace proprietary mainframes with Unix-based servers & address Y2K issues.In many ways, the largest innovation in enterprise software was conditioning the market to buy your stuff even if it didn't work. The next phase of technology inflection curve will come not from unbridled end-user spending growth but from a balance of cost-cutting and revenue-generating products that facilitate better operational margins for buyers. This would call for innovation from the technology community in two forms: product and business model". He points out that the industry is singular in its inability to ensure that our 98 percent-plus of our customers will be able to use our products easily, on-time and on-budget. Until the industry can rid itself of this problem of huge upfront money and twenty percent plus maintenance tariffs, buyers will not be open to some of the most innovative solutions out in the market today - I wrote along similar lines Clearly the structure, style and measures of performance of software industry - particularly enterprise software industry is set to change dramatically.
On a related note Vinnie writes , we are seeing the new web emerge where broadband meets mobile and Wi-Fi. He adds,"From Indian BPO offerings to open source from Scandinavia to "software as a service" from Silicon Valley, the froth of innovation and creativity seems like Florence during the Renaissance. Enterprise CIO’s are concerned that 60% to 80% budgets go towards maintenance & upgrade and consolidation could bring in high vendor lock-in costs". Most large software companies spend only 15% of their revenue on R&D, most of this goes toward bug fixes and replatforming—not real innovation. Just as software innovation of the last decade in the areas like eProcurement, CRM came from smaller vendors, the trend continues - RSS, predictive analytics, and more sophisticated security where the biggies aren't the innovators. He is right again - 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 super special players( there are many of them - some have existed for decades - though a majority of them for just under a decade) or provide justice with specialized smaller companies like rules engines, collaboration systems, content management systems, document management systems, procurement solutions, business intelligence - even CRM, SCM solutions from so called platform players fail to excel – after all companies like Oracle & SAP tried and could not so far make good success in content management, portal,collabaration systems, middleware solutions, PLM solutions etc. Similarly till about recently even SAP(leaving aside oracle) was not seen to be providing the best solution in CRM or SCM.There is near unanimity that procurement solutions are better addressed by standalone players –It is paradoxical of the space – innovation and genuine requirements would demand a place for smaller players – albeit playing the role of being a small but important players in the enterprise ecosystem. Do not miss Vinnie’s practical (I must add well thought out) advice to limit software related spending.
Ray of hope comes from David Thomas of the Software and Information Industry Association wherein he brings home the point business models in the software industry show signs of a tremendous change. Vendors are adapting new pricing and licensing policies to meet customers' value expectations. The percentage of vendors offering subscription models as their primary pricing method is up to 40% this year, an increase of 7% over last year. In a couple of years the number is expected to reach 60%. While vendors are addressing market realities to keep their industry vibrant and with consolidation fever ahead - one could clearly hear the voice :wherther customers would benefit a lot because of this, add the need to make more innovation happen and absorb faster - till the haze cleares, it is clearly alarming!!!

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