I have spent a fair amount of time in the last few months talking to enterprise tech companies about verticalization and globalization. I recently talked to Mike Sicilia at Oracle and will be hearing more about their industry strategy later in the month. I will similarly be learning more about SAP's industry futures in a couple of weeks. I have already talked to several Salesforce, Microsoft, Infor, Unit4 executives about their vertical strategies.
While they each put it differently, it is becoming clear that just selling horizontal financial, hcm or crm functionality or "the advantages of cloud" is no longer sufficient. That payback in the form of retiring previous customizations is not enough to justify modernizing. That operational functionality for various industries will increasingly be their differentiator and will also deliver their customers much higher ROI and easier signoffs, and with that they can also modernize their horizontal apps.
But you cannot deliver operational functionality overnight. At NRF, the big retail show in New York this year none of the big vendors were showcasing cashierless stores or same-day delivery or 3PL support which could provide alternatives to Fulfillment by Amazon and its highly automated distribution centers. Or talking role of multi-story warehouses in last mile delivery (that Prologis and others are pioneering) or about reverse logistics which are a hot topic for retailers. I could talk about similar needs in healthcare, insurance, utilities and just about any industry.
Or take recent conversations with customer executives. The coronavirus has disrupted many a global supply chain. That could be a payback area as they look to modernize their enterprise apps. It won't be easy - some have to evaluate new countries for new suppliers, plants and logistics providers. Forget supply chains, most vendors could not support even back office functionality for many of these countries.
You cannot fake operational or geographic functionality. You cannot spray paint operational or geographic functionality. You can ring-fence that functionality but ten other competitors can do similarly. This is the time for R&D or acquisition capital for that specific functionality.
At the turn of the century, vendors used to sell customers on the idea of suites and promise "wall to wall" functionality. I wrote a decade-end review where I showed how the addressable market for most enterprise vendors reflected tiny corners of a room, forget wall to wall. Their ambitions had become much more modest.
Enter Wall Street correction. Given fears of recession customers may delay projects. Vendors will be under pressure to mirror that around their R&D. Wall Street will clamor for stock buybacks and trimmed expenses to reflect lowered valuations.
As Yogi Berra said "when you come to a fork in the road, take it". I will be watching and advising many vendors in the next few months about their forks.
The temptation will be to become even more modest in their ambitions. In the last decade that approach has left wide swaths of the global economy open to startups, SIs and companies like Amazon to offer that functionality. That will not magically stop.
These are tough, tough decisions.
