Vinnie Vertical is wary of the term “industry clouds”. I liked the self-checking for stores AI solution Google presented to analysts this past week in prep for NRF, the big retail show in New York. However, too often there is focus on general-purpose cloud infrastructure, workflow or platform technology.
To me, vertical software is about industry-specific functionality. As one of my managers at PwC used to ask, somewhat crudely, “What do it do?”
I see industry offerings from vendors falling into 5 broad buckets – the last 2 reflect functionality which has spawned from major shocks from COVID, Ukraine crisis, climate change urgency and digital transformations in the last few years. They have opened up many new industry scenarios and new applications opportunities
Vertical customers, but mostly horizontal functionality
There are plenty of back office (financial, hr, procurement) and CRM vendors with basic industry specific functionality. Everybody needs a general ledger, a payroll, an SFA solution. There is a continuous market for them as companies refresh older versions, as they grow globally or through M&A. However, many of these vendors pretend that just because they have hundreds of banking or utilities customers, they have vertical functionality for those sectors. They may have some features unique for those sectors, but to me that is spray painted, skin-deep verticals.
Vertical, but dated functionality
In this category you have vendors who can genuinely say they have modules for specific industries. However, they often reflect functionality which was designed decades ago. Two good examples are PSA aimed at the service sector and MRP for manufacturing. For PSA, many solutions still mostly optimize employee resources when we have moved to what I call “clover-leaf talent models”
Also, most PSA vendors have ignored the servitization trend where product companies have been aggressively moving into a different form of services which leverage IoT data, digital twins, techs with mixed reality technology to service complex equipment, and use outcome-based business models and SLAs. As far as MRP, most were designed to optimize material and labor resources, when the modern shop floor additionally has plenty of robotics and sensors.
Vertical books of record, but difficult to consume
There are vendors who have put significant effort to create what I call “operational books of record” – say claims processing in insurance or core banking or clinical systems in healthcare. Many (most), however, did not invest much time thinking about migration from legacy versions. They assume customer will happily utilize systems integrators for the migration. Many a Board of Directors have reacted with “sticker shock”, rejected the project and told executives to patch the legacy application or in some cases even to custom build the replacement. Clearly, vertical functionality is a “necessary” but not sufficient, condition for adoption. The challenge is too many vendors try to sell wall-to-wall suites. They forget the old adage – “how do you eat an elephant? A small bite at a time”
Contemporary, vertical extensions
Here I am seeing vendors who are starting to target specific use cases like curbside pickup and last mile delivery in retail, micro-fulfilment and related bot technology in logistics, telemedicine in healthcare etc. They are high value and much easier for customers to consume. Look at the many uses cases across industries Salesforce has presented in my Analyst Cam series. As they describe in their new book, Business as Unusual (click on badge on left) SAP has been developing e-mobility, gene and cell therapy, intelligent returns and other contemporary industry applications as cloud modules.
Orthogonal applications
Accenture's design agency Fjord, coined the term "liquid expectations" several years ago— "when you experience a service in one industry, it raises the bar for what you expect from other industries." These days those expectations also rapidly travel over national borders. Industry lines are blurring - pharmacies and retailers offer healthcare clinics as an example. As we mentioned earlier, Product companies are selling a blend of digital and labor services – they need CPQ functionality which can bundle product, spare parts, monitoring, maintenance, financing and other elements. SAP’s definition of consumer industries used to be retail, consumer packaged goods, and wholesale distribution. A few years back, they added healthcare and life sciences. Now the scope also includes agribusiness. When you look at applications across processes, regions and industries you find what I call orthogonal applications. No, these are not horizontal applications in category 1 – these are a new breed of applications which cut across multiple dimensions.
In a continually evolving world, Plenty of others will continue ask about multi-tenancy and salivate about ChatGPT. Vinnie Vertical will continue to ask “what do it do in an enterprise setting?”
