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Sunday, September 04, 2011

Enterprise Software Market Due For A Shakeup

Competition is good, for consumers obviously; for companies, not so much. In the world of technology, consumer [software] applications market is very competitive. The web has increased the competition by providing a level playing field to all the players, and cloud computing has made it even flatter. Barriers to entry are low, consumers are willing to try out new things, and the selling process is not too long (primarily because there are not many decision makers and stakeholders involved). In the consumer apps market, [usually] better player wins. Enterprise software market, however, is a totally different ballgame. In the enterprise market, there is a pretty good chance that the better player has not won, and is, in fact, still sitting in the wings waving desperately to be noticed. 

Problems 
When you talk about consumer applications, the first impressions that come to your mind are agile, lightweight, intuitive, etc. But when you talk about enterprise applications the first impressions that come to your mind are heavy, clunky, bloated, etc. This [agile] image for consumer apps has taken shape recently, thanks to the web 2.0 sites/companies - such as Facebook, Twitter and LinkedIn - and mobile platforms - particularly, iOS and Android. This change, however, has not happened (at least not fast enough) in the enterprise market. There are many reasons for this - 
  • Bureaucracy - Typical sales transaction in the enterprise software sector involves many stakeholders for both, operational and financial, reasons. Depending on the size of the transaction and the number of stakeholders involved, the duration of the sales process might vary from days to months and require approval from different business units, functions and levels. 
  • Financial Pressures - Managers are repeatedly required to hit their targets for revenue and margins for their respective divisions. This builds pressure on them, leaving less room for trying out new things and forcing them to go for tried and tested options. 
  • Existing Investment - Most of the times companies already have some kind of investment (money, people or data) in a particular technology, and in order to justify this investment they keep adding on to their portfolio even if it is not the best option to go with. 
  • People - Sometimes political motives and egos of people come in the way of going for improving things. This can prove to be the worst and most difficult problem to deal with. 
The problems listed above [and more] have helped existing players strengthen their hold in the enterprise software market. However, the recent changes in consumer application market have led people to question the status quo of applications they use in their offices. The cool, intuitive and easy to use applications they use in their personal lives have made them realize that there are better alternatives out there. However, in spite of the growing frustration, changes are still not happening fast enough, and the key reason is that the consumers and customers of enterprise software apps are different and usually have different priorities. 

Motivation To Compete 
In spite of the problems listed above, enterprise software market is still of a lot of interest to the players (existing and new) because of the incentives involved. While this market is tougher to break in, the rewards of doing so are huge - 
  • To begin with, enterprise software market is bigger than consumer one. 
  • Enterprise customers are willing to pay - unlike in the consumer market. In fact, if something is for free, enterprise customers might doubt its long term viability. 
  • You get large user bases at once. 
  • Enterprises do not change suppliers quickly, because of their existing investment. 

Breaking Into The Market 
Companies such as RedHat, Salesforce, 37 Signals and Box.net have shown that the enterprise market can be tapped by new players and that smaller companies can compete and grow in a market full of established players with large existing customer bases. Analyzing these [and similar] players can reveal the approaches that they have taken in establishing themselves in this market - 
  • They all started with a focused approach. They identified a single problem/area and focused on a way to provide a solution that is better than the existing players. For RedHat it was servers, for Salesforce CRM and for Box.net content management. Instead of solving larger and multiple problems they just picked one and ran with. Doing so helped them in providing solutions for one key pain point of the customer and spread their name in the market. 
  • They started with the SMEs. Larger customers are wary of small and new suppliers, while SMEs are an easier customer segment to target as they are much more flexible in trying out new things. Working with SMEs has another advantage, it helps you refine your product and prepare for the big boys. Once you have an existing customer base and some references in the market, it becomes easier to sell to the big companies. 
  • They kept their costs low and passed on the savings to the customers. Box.net and Salesforce did that by providing SaaS-based products, instead of providing bespoke solutions, while RedHat did that by supporting an existing opensource software, Linux. Cost is a default [and, in some cases, the key] pain point of the enterprise customers; by keeping their operational costs low these companies were able to price their offerings low as well. 
  • In some cases, the new [agile] enterprise market players also got their products in the hands of the enterprise users or smaller teams directly, albeit sometimes unintentionally. SaaS-based enterprise offerings, such as the ones provided by Salesforce and Box.net, help you price your products based on usage and keep the costs in the bracket for which lower level managers do not need approvals from senior managers. This bottom-up approach is very helpful because it can lead to a player having an established user base in a company even before trying to sell its products there, and gives a certain credibility and support during vendor evaluation. This also helps the enterprises align the interests of consumers and buyers. 
Enterprise software market has a lot of potential. Barriers to entry in it are high but then so are for the consumer market - Facebook, Twitter and Instagram are exceptions, not norms. Enterprise applications may not seem as sexy and glamourous as the consumer applications, but they surely have more potential to become viable businesses. With web 2.0 apps, consumers have tasted blood and this might be the best time for shaking up the enterprise software market and creating a win-win-win situation for startups, enterprise customers and end users.

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