Competition Doesn’t Exist In Enterprise Software Market

Competition is good. Yet while it may look like there is competition in the enterprise software market, there isn’t really. Once you choose your company, whether it be SAP, Oracle, Siebel or the myriad smaller vendors out there, you buy into a market of one. These companies have cornered the market on support for their applications. They can get away with charging anywhere from 10-25 percent of the current purchase price of the software for maintenance and support. Doesn’t seem like such a bad deal when you first buy the software and your people are burning up the 800 lines, but after a few years, your developers and customer service representatives get used to the stuff and don’t need much help. But the fees continue. The CIO fights a pitched budget battle each year trying to justify these costs to the CFO—especially if the applications don’t get upgraded.

It’s a market ripe for competition. The application vendors charge a lot and the pools of customers are large and locked in. I can’t prove it, but my guess is that competitive markets for support and maintenance have not emerged because the most likely entrants in the market—the big consulting and accounting firms—all have deep sales relationships with the vendors and have been focused on selling and installing the stuff—much more revenue per consultant that way. They also don’t want to jeopardize those relationships by competing with the application vendors on the biggest cash cow the vendors have–support and maintenance.

But sales of these applications have been moribund for years now, and the market for support and maintenance is going to open up. Already, a small group of Peoplesoft emigres is offering independent third-party support. Others are out there. Look for this trend to grow.