Over the last couple of weeks, as we get ready to welcome the 20s, I have been reviewing blog posts, books I have written and notes from advisory work helping clients pick vendors, negotiate contracts, review vendor performance etc from the last decade
The decade started off so optimistically. In June 2009, I had a series of guest columns from execs I called "cloud pioneers". I celebrated Workday's IPO in 2012 - not just as a bonanza for investors but for the payback to tech buyers. I called Infor a "grown-up stealth startup" in 2013 and looked forward to all kinds of micro-vertical coverage. In 2013, I was excited about "One Microsoft" - as they started to leverage a wide portfolio of technologies to redefine industry applications
Vendors have done well by Wall Street standards but as a whole, I think enterprise application vendors have underachieved using Marc Andreessen's lens when he wrote "Why Software Is Eating the World" in 2011
"Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale."
Marc was correct in part - in many consumer markets that is turning out to be true. In enterprise applications, it has not. The major enterprise software vendors have not cannibalized adjacent hardware, telecom, services markets. In fact they have barely "eaten" previous generation of applications - we are still running, for the most part, applications 20, 30.40 years old. The majority of over a million ERP, CRM, EPM, other enterprise application customers are still on-premise.
And these vendors certainly not transformed many industries - they continue to sell horizontal applications. After 20 years of cloud applications, you see mostly white spaces in 80% of a grid across industries and geographies. There are plenty of accounting, hcm, crm applications, very few vertical applications. Global support? Hardly. Try finding vendors that will support your plants in Malaysia and Brazil and Slovakia as you expand manufacturing to meet changing middle class markets around the world. You can find decent choice in only in a handful of global markets.
I went back and looked at over a 100 case studies in 3 of my books - The New Technology Elite (2012) had looked at how every industry is making its products and services "smarter" with software and sensors; The Digital Enterprise (2014), written for Karl-Heinz Striebich, looked at how some of the biggest brands in the world were rethinking their logistics, channels and plants with new technologies; Silicon Collar (2016) looked at how automation - drones, robotics, machine learning, kiosks, wearables etc were reshaping every business process and job. These case studies described what Marc was talking about - how software was reshaping every aspect of business. Interestingly, very few of the case studies talk about the role of Oracle or Unit4 or SAP applications. These vendors were mostly watching these transformations from a distance.
The vendor's own numbers tell the story even better. Compare them to IDC estimates that buyers have been spending nearly $ 5 trillion a year on software, hardware, telecom etc.
Based on presentations to investors in the last few weeks, Salesforce and Workday, by far the most exciting application vendors of the last decade only lay claim to $168 billion and $88 billion of that spend, respectively. And their actual revenues this year together will be under $ 20 billion, only 8% of their own definition of addressable market. And less than .5% of the total IDC estimated technology spend.
SAP, the biggest enterprise application vendor, and in many more industries and countries than either Salesforce or Workday was not much more ambitious - it claims an addressable market of around $300 billion and will have revenues in the range of $ 30 billion.
I meet executives from these companies all the time - they run really hard, and yet the overall market keeps expanding way beyond their reach. In the last decade, we have seen Google and Facebook run away with digital advertising spend. Amazon has commoditized order taking and fulfillment functionality by offering it as a service to millions of SMEs, Foxconn, Flex and design shops have taken over contract manufacturing as products of every stripe get smarter with embedded technology, GE, ABB, Rockwell and others are getting the lion's share of IoT generated revenues. None of the major enterprise application vendors have seen much revenue from any of these markets. And in industries like financial services, many customers are back to custom building and even becoming vendors in their own right.
In this greatly fragmented market we are seeing many opportunities in "edges" and "junctions" - Zoho is finding new customers in Nigeria, UAE and other markets that bigger vendors have ignored, Plex is moving into MES as plants are increasingly modernized, Rimini is doing fine with third party maintenance as companies stay with legacy, Workfront is finding traction in new buying centers that have increasingly been digitized - Marketing Operations, New Product Development, and various corporate shared services. RPA vendors like Automation Anywhere, tools like Prism Analytics from Workday and MuleSoft from Salesforce are increasingly bridging gaps across the enterprise fragmentation. The big caveat from this fragmentation - application portfolios are screaming to be rationalized.
There are plenty of lessons for vendors from this decade. Hire functional and industry visionaries, not just good technology architects; constantly keep expanding your definition of addressable market; keep refreshing your competitive intelligence database; make your platform vibrant - like the Apple iOS store and the Amazon Fulfillment ecosystem make your platform lucrative for your ISV partners and, in contrast, shrink the labor component in your partner ecosystem.
And for buyers, the biggest need is to revisit legacy applications. Those old applications are recruiting liabilities, compliance and security risks, they cannot support innovations like multi-tenancy and machine learning. But don't just replace old with new. Look for applications which will "eat" your own inefficiencies and truly help you improve your products, and your customer relationships to eat your competitor's lunch.
The roaring 20s are back! The enterprise buffet is served and waiting to be eaten.
