Ray Lane, made an impressive inaugural keynote at the Software 2006 meet earlier today. He started by saying that the enterprise software landscape has changed and these changes are so sweeping and pronounced that things shall never be the same again.
As he sees it, the relationship between the venture industry and the software industry is changing – this can be attributed amongst other things to the structural changes that are taking place in the enterprise software industry Viz.
- Unsustainable Business Models ( 60% SG&A, 25% R&D)
- The US dominance could change (with China & India rolling out ten times more engineers every year)
- The market structure is changing – essentially the relationship between customer and vendor( the approach of one size fit in all is failing to meet needs)
- Limited innovation slowing down the growth rates
- Shrinking profit pool and profit gets distributed unevenly – 85% profit goes to 15 companies and 3 companies get 80% of this.(He has talked about this earlier as well)
- Valuation plummeting
- Clearly the next industry to globalize.
The hope on the industry is high as the projected IT spending rate shows healthy numbers and the VC industry is maintaining the same levels of investment – last year 5billion USD got invested in the enterprise software industry(by VC’s+ private equity players put together). Highlighting that traditional software trying to embracing the services model may find it a tough act, he explained that there are fundamental differences between service centric players like SFDC and the on premise players and the differences get reflected in aspects such as product architecture, product management, release management, pricing model, sales model, licensing model, management, customer care etc. The innovation, as he wrote earlier, could come from non-traditional players as incumbents may not attempt doing radically new things.Imagine oracle trying cannibalize database market or Microsoft trying to cannibalize desktop market.Those would never happen. Startups have lot of opportunities and 95% of the startup funding goes into innovating at the edges and he mentioned that SaaS, Open Source & On Demand would get stronger in the enterprise software segment.
He observed that India & China are gaining market share and the means to survival for the software industry is to completely rethink the model – he mentioned that KPCB funded software companies have been asked to reevaluate their business models. As he sees it the time to correct enterprise software’s historical mistake of focusing on buyers and not users is now set for correction with on demand players like SFDC focusing heavily on users. The web enablement meeting the enterprise market opens up humongous opportunities and the way forward is to deliver things cheaper, easier and faster. Highlighting Bill Joy’s six types of webs , Ray said future software rollouts shall have to meet the needs of the interpersonal enterprise and listed out seven laws that would characterize such software:
A. Serves individual needs
B. Viral/Organic adoption
C. Contextual personalized information
D. No data entry/training required
E. Delivers instantaneous value
F. Utilizes community centric social relationships
G. Minimum IT footprint
And he gave Webex, Skype, Blackberry, SFDC(I was a little surprised to see these getting paraded ) as examples of such software.
His talk fully confirmed that web 2.0 as a real phenomenon ( the rising mantra of the VC’s – Ray himself sits on the board of a few Web 2.0 companies like Podshow) and the eventual integration of Web 2.0 with the enterprise(a point that MR also brought forth nin his welcome address prior to Ray’s session). He concluded his note with a brief talk about his pet investment visiblepath and explained how it is uses inside KPCB to improve contacts and build relationships. A well articulated and presented session listened to by all in rapt attention. To a fault I felt that Ray was light on the existing software companies attempts to change their models and focussed more on emerging/unaddressed opportunities, but overall an impressive note – one that would keep ringing in the minds of all those interested about the enterprise software industry.
Category : Software 2006, Emerging Trends, Enterprise Software