Brij Singh's Random Musings

Enterprise software business model

Jeff Bussgang posting about Microsoft's VC conference held at Mountain View:

The enterprise software business model is dead.  This is refrain many VCs are mumbling to each other lately.  Price pressure is incredibly intense between open source, Microsoft moving up the stack, vendor consolidation, IT buying wariness, the ASP model, overfunding in interesting sectors and many other factors.  It used to be that you could build a profitable enterprise software company at the $15-20M threshold.  But with today's pricing pressures and high cost of sale, it seems to have jumped to $40M, and it's harder to reach that threshold quickly.  VC appetite for standard enterprise software appears to be dwindling to nothing.

Enterprise software business is tough there is no doubt about this.  High cost of selling,  distractions with Sarbanes compliance, where-is-the-ROI concerns have made this sector very tough. Though the title is rhetorical, real deal is that the conventional budgeting process for enterprise software is dead. Now its much more diffused across offshoring, open source solutions,  outsourcing,  DIY-IT,  and best-of-breed packages.

Recommendation leads to commerce

Chris Anderson expanding on the Long Tail concept:

I think narrow-focus blogs and other microsites with high trust amongst their readers will be an essential compliment to recommendations within commerce sites. The first can create demand from scratch by interjecting recommendations into an otherwise interesting stream of content; the second steers it once a consumer is already in buying mode.  Both are great at encouraging consumers to explore down the Tail with confidence, pulling diamonds from the rough, wheat from chaff and signal from noise.

Subtle recommendation is what will link A-list blogger's content to the commerce.  I am already seeing some bloggers with good traffic doing not-so-subtle favors.  Though I don't see how anybody can avoid this development

Story of FUD

First and last lesson for all sales hunters. Learn the FUDs and lob it hard and wide.

The concept of FUD enjoys a venerable history in the computing field. According to The Jargon File, an online dictionary of hacker slang, Gene Amdahl used the term as an attack on IBM after he left in the early '70s to found his own company: "FUD is the fear, uncertainty and doubt that IBM salespeople instill in the minds of potential customers who might be considering (Amdahl) products."

In a 1995 case pitting Addamax against the Open Software Foundation and Hewlett-Packard, Addamax claimed that the defendants used FUD to paralyze the industry and unreasonably raise customers' fears. One internal HP memo cited in that case was titled "Impact of FUD on Sun" and discussed ways to sabotage the AT&T-Sun Microsystems operating system by describing it as "nonstandard."

FUD also was used by cryptographers in the 1990s to scare politicians about criminals using data-scrambling encryption products to cloak their communications. More recently, the term has cropped up in the Microsoft and Linux war, with free software advocates using it to describe disinformation they say SCO Group and Microsoft have spread about the merits of software other than Windows.

For sales folks, there is no better weapon than dropping a doubt in the customer's mind and slowing the procurement process to their advantage. After all when CIOs are getting sacked every other day for screwed-up projects, FUD works like a charm.

It's time some non-profit (may be open source type) project comes up and does factcheck.org version for the software companies. Gartners of the world wont do it, since they are party to this game.

Here is my wishlist for the software world factcheck.org

Publish past, current and future claims as made by the software vendors
Publish successful, barely-made-it and screwup projects as implemented by the software vendors
Technology 101 - cold analysis of secret sauce and fluff
How the same software was sold to customers with pricing varying from free to 2million, price variations in the enterprise software world is scandalous
Companies finances and the possibility of a corporate blow-up

What more we can add to this list ?

Software That Lasts 200 Years

Dan Bricklin has a thoughtful essay on how one should go about building a software which is everlasting much like civil engineering discipline. This requires new style of development (and also the mindset).

Funding for initial development should come from the users

The projects need to be viewed as for more than one customer

The requirements for the project must be set by the users, not the developers. The long-term aspects of the life of the results must be very explicit.

There is the whole issue of data storage and interchange standards that is critical to the long-term success and ability to do migration. Impediments such as intellectual property restrictions and "digital rights management" chokepoints must be avoided

Another critical issue is platform (hardware and software) independence. All development of long-term software needs to be created with the possibility of new hardware, operating systems, and other "computer infrastructure" in mind

The actual development may be done by business entities which are built around implementing such projects, and not around long-term upgrade revenue

The attributes of open source software need to be exploited

The development may be done in-house if that is appropriate, but in many cases there are legal advantages as well as structural for using independent entities

Unlike much of the discussion about open source, serendipitous volunteer labor must not be a major required element

BSM confusion

Denis Gaughan from AMR on the confusion created and spread by vendors on promise and scope of the Business Service Management (BSM)

With all the marketing hype surrounding Business Service Management (BSM), you’d think that everyone has a clear understanding of services. But right now, the vendors are too far ahead of the market. By and large, the vendors that market BSM assume that their users’ definition of a service is the same business-centric view that the vendor is pitching. Far too often, we see organizations that implement BSM technology, but they are just essentially re-creating the same granular infrastructure-centric services, simply slapping a pretty dashboard on the same old event console.

His conclusion -

It all starts with your organization’s definition of an IT service. Relying solely on the IT organization to define services will likely lead to services that end users don’t understand or need. Sit down with your business peers to understand what IT services mean to them, and then build services back to IT rather than from IT out to the business.

Though its a required change but I don't see this happening any time soon. IT is increasingly getting centralized where its much easier (process-wise) to throw a definition of "IT service" to the business side. For this definition to come from business or to come with their collaboration we need to bring business much closer to IT both process-wise and technology wise. It's not there yet.

Pricing pressure

Big mouth Ellison during court proceedings -

There was going to be tremendous price pressure on our applications business

He gets it, lot of application software companies are still working out of million-dollar-a-pop mentality. Those solutions will be ideal candidate for future Salesforced attacks.

Adoption Rate Of Adaptive Enterprise ?

Audrey Rasmussen is a vice president with Enterprise Management Associates
Sharing his results of the reader survey about the adoption of Adaptive Enterprise and On Demand computing solutions -

A commitment to IT from company managers is fundamental to IT
delivering effective service in support of the business. Without
full support from the company's management, IT simply can't come
close to delivering the potential value that it offers to the
business.

For example, one reader found a mess when he first joined his
company. He has begun to get things under control, but there's a
lot more work ahead to make processes more efficient. He's had
several things on his to-do list for at least a year, "but there
haven't been any funds or priorities put on IT. It has been an
uphill battle just getting management to recognize the
importance of these issues, even though I've done ROI
[analysis], etc...Automation? I'm still trying to get reports
generated automatically. Adaptive network? I'd like to be able
to see the network traffic. To get the things done that need to
be done, I need people that can do the job and the money that
the projects require. I haven't had either."

He also mentions that it will be at least 12 to 18 months before
he can even think about the new gadgets. So if you're in the
company's executive management team and you're not getting much
value out of your IT team, first take a look at your financial
and priority commitment to IT. It may not be the fault of IT -
the fault could be in your lack of commitment to IT.

Another reader takes issue with the high-end management
initiatives and tools as being only relevant for the Fortune 50
and not the masses. He also takes issue with management tools
that are not designed with the customer in mind, making them
difficult to use, useless or difficult to deploy.

He goes on to identify three problems with the network
management industry. First, things are too complex; it takes too
much time and knowledge to get it right. He'd like the vendors
to deliver something that works well. Second, software is too
costly and doesn't do enough without customization. Third, he
says he's tired of marketing hype and jargon that shifts focus
away from the functionality of the product. This reader touts
lower-end management tools (in the $10,000 to $20,000 range) as
providing good value and being good enough to get the job done.
Some of the tools that he likes in this category are What's Up
Gold, SolarWinds Orion and CiscoWorks LMS.

Yet another reader lamented the negative effects of regulatory
compliance on IT budgets and staffs. He says, "All industries...
are under attack by Sarbanes-Oxley. Software and hardware
purchases in the foreseeable future will be geared toward
fulfilling government regulations imposed by this over-the-top
legislation and/or some facet of it. It has already started. The
cost to U.S. industries will be in the billions... and that's
before any software is developed and put in place to achieve the
bill's ultimate goals... And guess where the estimated $1.6
million [per] large company to get this all done is going to
come from!"

From the limited sample of responses I received from readers, it
looks like you're up to your eyeballs dealing with "just the
ordinary" and trying to keep your heads above water.
Bread-and-butter management tools (if you get the money to
purchase them) are still the order of the day.

Interestingly, I didn't receive any responses from readers who
are planning to start down the Adaptive or On Demand path.

You have to read between the lines to isolate the vendor hype from the actual customer adoption.

Tibco consolidating via BPM acquisition

Tibco buying Staffware for strengthening its BPM portfolio.

EAI market will see some more M&A before all leading vendors can comfortably distance themselves from commodity message-oriented plumbing.

BPM is a next niche area for enterprise software vendors to focus on.
As Vivek Ranadive (CEO of Tibco) puts it -

We believe business processes are rapidly becoming the most valuable corporate asset. This combination brings two best-in-class technologies together to more completely deliver value to customers investing in BPM solutions

CRM meets BPM

Onyx bought an early stage BPM company

Onyx plans to incorporate the acquired Business Process Management technology into Onyx CRM to allow non-technical users to design and modify end-to-end business processes using graphical workflow and business rule design tools. The technology is designed to significantly reduce the need for IT support - as well as the associated delay and expense - while creating more cost-effective business agility for the enterprise. This powerful new technology can be applied to support long-running, multi-user workflows that in some cases extend beyond the walls of the organization, to partners and suppliers

Very soon every CRM vendors would be adding BPM module to their suite. There has always been a product management struggle inside CRM companies to decide on which direction to take while planning expansion. One direction is to work on automating all CRM business processes(hence this deal) or another is to dive deeper into automating downstream CRM processes such as those involved in the demand chain.

Stubborn sector, consolidating very slowly.

Subscription model is growing

IDC on growing trends toward subscription services -

Some 43 percent of the 100 software vendors IDC polled believe that subscription licenses will represent the majority of sales in six years, with 26 percent of the 100 end users surveyed in agreement

software makers are most concerned with making it easier to predict revenues, an effort made tricky by the long-term nature of perpetual licenses, but that they are also attempting to appease to customers who ask for increased IT budget flexibility.

there is clearly some disconnect with customers in determining the price of licensing software versus the value it delivers

customer complexity is another important client-side issue that's driving the shift to subscription licensing

The research firm said mid size and large software customers manage an average of 40 software contracts or more. It concluded that 70 percent of these end users expect the complexity of managing these contracts to increase. By eliminating some of the software license compliance issues that are related to perpetual deals, subscriptions could potentially free up dollars and employee hours currently spent managing those agreements

Two things standout from this report - why it took so many years to realize that there is a disconnect between price of the licensed software and the value it offers. Unwritten rule of the industry was that if you are selling an enterprise application solving some business problem then you have to start with at least a million dollar tag. Though the pricing has come down in recent times but the science of software pricing hasn't advanced that much. That explains the constant references to Salesforce.

Another interesting part of the research is that ONLY 26% of the end users were in agreement. What this tells you about the whole research?