For the first time, the year ahead abounds with viable software options for savvy CIOs. Here are ten trends that will shape the software business in 2008.
By M.R. Rangaswami, Sand Hill Group Jan. 07, 2008
Get ready for an game changing year: software vendors face unprecedented opportunity in 2008.
Yes, 2008 will likely bring a recession to
The past decade of enterprise software evolution has produced a new panorama of solutions for buyers. The old days of being hard-wired into inflexible, slow, highly expensive products are over.
The nimble nature of today’s new software products will enable CIOs to choose from a variety of viable, exciting, cost-effective options to continue to drive their business strategies through the unstable waters of 2008. The choices these buyers make will set the stage for the next generation of leading software vendors.
Buyer Choice Proliferates in 2008
Sure, software vendors need to prepare for what could be a challenging economic year. But many emerging models and vendors stand to gain from the hard, innovative work that has been the hallmark of the industry in the past decade.
Looking back at 2007, it is clear that the year accumulated many proof points for next-generation solutions:
- Options have proliferated. Tired of perpetual licenses? Make the move to on-demand. Uncomfortable with on-demand? Try an open source or ad-supported product. Customers are no longer locked into one method of purchase, maintenance or deployment – or to one vendor.
- Foundations have been laid. The years of talking about the potential of Web services and services-oriented architecture are behind us. Many enterprises and mega vendors are deploying real solutions which leverage SOA’s potential.
- Risks have been mitigated. “New” options such as SaaS, offshoring and open source have been experimented with and proven. The adoption risks have been greatly lowered for both customers and vendors.
- Profits have returned. Savvy VC investments, vendor consolidation, LBOs and IPOs have all helped software companies improve their financial footing and become more appealingly stable to enterprise customers.
This new foundation gives buyers more realistic options than ever before. As CIOs face the challenges of 2008, they will be able to confidently adopt – rather than experiment – with these next generation models.
On the other hand, a downturn could push buyers to choose software sold via established models from major software vendors. The operative word here is “choose” – at least most IT buyers now realize they have genuine alternatives in the enterprise software arena today.
Now that the emerging models and vendors have become acceptable in the mainstream, the challenge will be for the “new” vendors to execute: they will need to compete against their peers, other models, and incumbent mega vendors; they will need to scale and maintain service and support levels as customer accounts rise; and, they will need to continue to innovate and stay ahead in their sector. The vendors who execute in all areas will be positioned well for leadership in the next era.
Hot Spots for 2008
Taking a look out at the next 12 months, I see 10 trends which will shape the dynamics of the software business:
1. A Changing of the Guard
Last year was marked by the changing of the guard at several tech giants. Shai Agassi left SAP. Bruce Chizen departed Adobe. Motorola’s Ed Zander announced he would step down. And after a very long goodbye, Bill Gates will leave Microsoft in July.
The moves signal the time for a changing of the guard at established vendors. Witness 44 year-old Shantanu Narayen taking over at Adobe, for example. As the software industry works to attract more of today’s young professionals, the top executives and boards of big software companies get gray-er by the day.
Expect more changes at the top as big companies struggle to compete with emerging vendors with leadership that embraces new ideas and models.
2. Platform Wars will Accelerate
In the old days, we worried about which database to write to. Now vendors must decide which platform to ally with. This paradigm change is only now coming into focus.
2008 will witness the acceleration of these platform wars between Salesforce.com’s AppXchange, WebEx’s Connect, Oracle’s Fusion, SAP’s NetWeaver, IBM’s WebSphere, Microsoft’s .Net. The stakes will be high in this battle between the old guard and the young turks.
3. The Defeat of the Software Suite?
Will the on-demand/SaaS model finally be the silver bullet for best-of-breed vendors? With services-based software and on-demand delivery, it is possible that CIOs can purchase the best functionality and plug it into existing systems without the falling back on the convenience of the software suite – whether ERP or office productivity. The runaway success of leading SaaS vendors in 2007 may indicate that best-of-breed solutions may will the battle over suites this time around.
4. SOA’s Potential will be Unlocked
Web services have long aimed at unlocking legacy systems and data. 2008 looks like it might be the year when this potential becomes a reality. Mashups, collaborative applications and other Web services-powered initiatives will help enterprises achieve cost savings from traditionally costly integration projects.
5. Open Source Poster Children Will Multiply
We’ve said it before but this really will be the year for open source companies to prove the viability of the model. Look for two solid IPOs from MySQL and Ingres to hit the market in 2008. The debuts will reinvigorate investor interest in the category and serve as new poster children for other open source vendors. [Disclosure: I serve as an advisor to Ingres.]
6.
The social network applications have been working on “consumerizing” the enterprise for the last couple years. 2008 will be the year in which we begin to see hard proof of how these technologies can revolutionize the enterprise – or we won’t.
7. More Shopping at Offshore “Boutiques”
Over the past few years, ISVs sent an increasing amount of their product development overseas. This move offshore will continue, but tactics will change . Where the debate of last year was whether
ISVs have become more comfortable sending work overseas and more sophisticated about how to manage their offshore efforts. That translates to an increased willingness to work with mid-size and smaller firms. Rather than choosing the comfort and convenience of giant service provider – the offshore equivalent of a shopping mall - many software vendors may move to “boutique” operations which specialize in one particular area. These boutiques will be able to deliver high quality, expert work at a price point competitive to that of the major firms because of their low overhead.
8. An Expanding Virtual Reality
Way back in 2003, we picked VMware as one of the “Next Big Thing” companies at the Enterprise 2003 conference. (I only wish I’d have taken stock in the company instead of the registration fee!) Diane Green certainly gets my nod for software CEO of 2007.
The race to virtualize the enterprise will continue in 2008. VMware still holds a commanding lead over the major software companies. Microsoft is coming on strong but this year will continue to belong to VMware, Citrix and the other emerging virtualization vendors.
9. The “Cloud” Becomes Clearer
After much anticipation, grid computing has truly arrived. Sun, Amazon, IBM, Google and more tech giants are touting the power to buy IT as a service as the future of computing. Admittedly, the ability of the smallest entrepreneur in
This is yet another development which shakes the epicenter of IT rule away from the Silicon Valley, the
10. Enterprises are Getting Greener
2007 was the year that the executive suite finally realized the importance of corporate responsibility to the environment. One of the easiest spots to deploy green solutions that deliver fast payback is in the IT area.
The attack on the “low hanging” fruit with green tech solutions will continue in 2008. Even more importantly, environmentally-friendly solutions for other parts of the company will begin to take hold as price points come down to competitive levels and the public demands compliance.
As I explained above, the potential for an economic downturn is high in 2008. That said, vendors who have prepared their companies to compete in rocky times may be in position to grow their business this year.
More challenging is predicting the impact of a recession on software venture capital and M&A activity. My prediction is that 2007’s blockbuster software IPOs, few but impressive though they were, will keep VC investment strong. And vendor consolidation and LBO deals remain a compelling exit opportunity for startups.
2008 will be a game-making year for today’s software vendors – full of successes, surprises and, inevitably, a few flameouts. We at SandHill.com wish you an exciting ride.
M.R. Rangaswami is publisher of SandHill.com and co-founder of Sand Hill Group.
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