Could the Recession Be Good for Enterprise Software?
The recession has companies worldwide scrambling to rein in technology costs with desperate vendors responding in turn, offering deep license discounts, providing low-cost financing and proclaiming ever more shrilly that their products in fact save customers money.
Thu, February 19, 2009
IDG News Service — The recession has companies worldwide scrambling to rein in technology costs with desperate vendors responding in turn, offering deep license discounts, providing low-cost financing and proclaiming ever more shrilly that their products in fact save customers money.
But there is more than trench warfare going on, according to a range of observers. When the economy turns around, a number of changes, many that benefit users, will have come to the IT industry.
For example, vendors that sell software that is critical to business but don't provide customers with a competitive advantage -- such as collaboration tools -- need to adopt simpler, cheaper pricing models or face the consequences, according to Redmonk analyst Michael Coté.
"It's not like Johnson & Johnson is going to crush Colgate because they've got better e-mail," he said.
The definition of a premium product has changed as well, he added. Value-added features, especially ones that provide customers with detailed insight into costs, such as a server's power consumption, will be a must: "If it just breaks less or runs faster, people are just going to take their chances with [what they have]."
Meanwhile, companies that do have money to spend on software may parcel it out in much smaller chunks than before.
The era of the big software deal "is on life support right now and whether it pulls through remains to be seen," said Frank Scavo, managing partner of the Irvine, California, IT consulting firm Strativa. "It may be the exception rather than the rule."
Even SAP, king of the major ERP (enterprise resource planning) implementation, is conceding that customers want a more flexible way to buy software. In launching Business Suite 7 recently, SAP emphasized that the product could be bought and installed by the module.
Of course, you could always buy SAP piecemeal, but the vendor never marketed it that way, Scavo said.
Companies like SAP, Oracle and Infor will have more success coaxing customers to make smaller investments in complementary products, he said.
Forrester Research analyst Ray Wang voiced a similar refrain.
Large corporations "have all the ERP they can consume or even digest. The era of the big suite really is all over for those companies," he said.
Customers are instead trying to invest more in SaaS (software as a service) and BPO (business process outsourcing), "looking for a constant stream of innovation" versus a periodic, big-bang upgrade, he said.
Overall, the recession has prompted many more companies to buy into SaaS products, and once the economy turns around, SaaS will be a significant part of the IT landscape, Wang said.
