Net result: Big company CIOs in 2010 will find themselves increasingly beholden to an outdated economic model for purchasing, installing and maintaining software. Fewer, bigger vendors will mean higher prices, fewer choices, higher switching costs and increasing vendor lock-in. There is a model that could bring the dinosaurs to heel: It’s one where vendors would sell applications as specific, highly configurable components that upgrade automatically and integrate with any type of system at no cost and minimal effort. Companies would pay for these applications only when employees use them.

This vision, however, will not arrive by 2010 for purely economic reasons. Wall Street might throttle the stock prices of vendors that try to swear off the big up-front license fees that pump up quarterly revenue in favor of the slow drip of a pay-by-the-drink model. And the big vendors simply have too much invested in the status quo to open up their markets to smaller competitors. (For a different outcome, see "Open Source Slays Goliath," Page 58.)

"For customers, [the enterprise software business model] is like being held hostage," says Julie Giera, vice president and research fellow for Forrester Research.


The Hostages
CIOs hate the current model of buying and selling complex big-business software such as ERP and CRM. That’s because the cost of integration is borne entirely by the buyer. The smaller vendors often offer more capabilities than their bigger, integrated counterparts, but because there is no standard technology to link software from different vendors together, the little guys are a riskier choice. Assembling many vendors together in a best-of-breed strategy can cost more to install and take 25 percent to 37 percent longer to change and test than large, integrated packages from one vendor, according to Forrester.

Thus, CIOs put their careers on the line in a desperate guessing game of trying to determine up front how much an enterprise package will really cost the company?if businesspeople will accept it, and if it will truly have any beneficial impact to the bottom line after months or even years of disruption and change. In a 2002 survey of 600 companies that had purchased CRM software, Gartner found that on average 42 percent of the licensed software was sitting on the shelf unused, accruing additional license fees in support and maintenance charges.

Despite such waste, customers of enterprise software are locked in to their vendors with a padlock rusted shut by years of neglect. Moving from one vendor to another is so costly as to be prohibitive?just 1 percent to 2 percent make the move willingly, according to Meta Group analyst Barry Wilderman.