4 Considerations in Enterprise Software Vendor Strategy

Bad economic times and a focus on reducing IT budgets have made this a tough market for enterprise software vendors. According to the new Forrester study, The State Of Enterprise Software: 2009, executives had better not plan on that changing in the near future. However, there is some good news for vendors, because it’s not as though companies have stopped spending on software. There are also some other interesting insights, like few companies saying they’re interested in SaaS or hosted solutions, and many looking for apps and app modules to use together.

Respondents to the study of 2,227 “IT executives and technology decision makers” from across North America and Europe worked in companies ranging in size from 1,000 to 20,000 or more employees. Here are some of the key findings:

• Software spending looks to hold steady, with enterprises on the average putting about 16 percent of IT operating budgets into expensed software costs last year and expecting for that to be 17 percent in 2009. New software spending will go from 33 percent of budget last year to 34 percent this year.
• About 81 percent of enterprises see reducing IT costs as important or very important. At the same time, they want to improve inter-application integration (77 percent). Only 11 percent want to reduce the number of major software vendors they work with. (But I’d frankly wonder if that is because they’ve already done so in the past.)
• About 64 percent of the companies are focusing on updating their legacy apps and/or consolidating/rationalizing apps (61 percent). Fifty-four percent look on using collaborative technologies.
• Although more open to SaaS, companies are still worried about security (31 percent), total cost (27 percent), and integration issues (22 percent). And only 2 percent of companies were interested in SaaS solutions, with 1 percent looking at hosted models.
• A third of firms are interested in packaged applications or app modules; 22 percent are interested in custom solutions built from existing modules.
• Over half (58 percent) of firms are concerned about security when it comes to using open source software. Almost half are concerned about service and support.
• “Web 2.0″ technologies are still experiments or curiosities when it comes to enterprises, because the IT departments aren’t adopting them in any big way.

I think there are some things that software companies can learn from the survey:

1. Realize that a third of enterprise corporate IT budgets — a collectively large number — is going for new software. Waiting to market until things pick up is silly, because that is still a big business opportunity.
2. Expecting the words “open source” to pry open a door is shortsighted. Even with the promise of more robust development and the availability of source code, potential customers have some big concerns. Perhaps it’s time to consider some modifications of that development model. An enterprise software company might consider a closed community open source, involving user companies as well as in-house developers. You have to figure that the biggest open source volunteer developers would be coming from the user base anyway. Or it might be that providing source code with an annual license might deliver much of what companies like of having access to source.
3. I’ve been hearing from a number of smaller corporate software companies that are developing their own app stores. That’s certainly an interesting tool, particularly if you bring in third parties that can help extend what the vendor offers. But then, why not also consider a cooperative venture in which software vendors with modules or add-ons for major software companies create common marketplaces and all advertise them to their own customers? That would effectively expand the marketing reach of each at a relatively low cost.
4. Vendors focusing on SaaS might be best served by focusing on smaller companies, where the trade-off of convenience for control could be more appealing. But here’s an additional thought. Could these companies create a version of their products that could be sold as a self-hosted model? Essentially that sounds like repackaging, but it might be a way for the vendors to expand their potential markets and get more adopting their products, preferably on a licensed basis with any wanted modifications somehow walled off so updating could still continue.

Image via stock.xchng user flaivoloka, site standard license.