Enterprise Software Not Created in IPhone's Image

Dennis Byron

I guess you can't call yourself an enterprise software analyst and ignore the Sturm und Drang surrounding Vinnie Mirchandani's recent post, Steve Jobs, we need you? (or something like that).


Vinnie's post does not cite the proximate cause of his rant but the outburst that followed among his admirers -- of which I am one -- and detractors covers so much ground that I had not known where to begin.


So let me just start where he did. The success of the iPhone is the reason for Vinnie's pleadings to Apple's co-founder. But the enterprise software market is not the cell phone market. As I posted when Eric Newcomer wrote about standardizing enterprise software a few weeks ago, the enterprise software market is more like the shoe industry here in Massachusetts before the assembly line.


Or if you prefer, it's still like automobile manufacturing before the automatic starter. Everyone in the enterprise is an IT mechanic and needs to "crank up" their PC each morning. In fact, enterprise software is like the automotive market back when there were still more horses used for transport than cars. It is an extremely componentized market based on a separate integration function and descendant from a long line of non-electronic office equipment, just as the early automotive market offered hundreds of choices, many provided by former -- and even active -- blacksmiths, harness makers and stable owners. Just as the automotive industry was dependent on a separate petroleum refining and distribution market, enterprise software is dependent on IT consulting at all levels.


The thing that will change these dynamics is not a consumer appliance market model -- unless you want one device to accounting, another to do purchasing, and so forth -- but the long-promised software factory discussed when Eric wrote about SOA standards.


As an aside, the fact that one of Vinnie's clients apparently uses dozens of different old packaged software brands and is paying through the nose for subscription maintenance contracts he or she never uses is not an indictment of the enterprise software market, just the client. If the client has little need for maintenance and expects few upgrades, a time-and-materials relationship is the way to go.


(Most of this has probably been said elsewhere but I didn't have time to read all the comments and cross-referenced blog posts related to Vinnie's post. By the way, congratulations to Vinnie on stirring up such a hornet's nest; that's what blogging is all about.)

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Jun 24, 2008 12:25 PM vinnie mirchandani vinnie mirchandani  says:
Thanks for mention but I think you are taking the Steve Jobs mention too literally.I invoked Steve Jobs because of two reasons - velocity and relative paybacka) because of what he has delivered in a short while in both iPhone versions, what his apps ecosystem has furiously developed in a few months and his plans to rapidly roll out to 90 countries. In contrast in enterprise software, everything is in multiple years, and the usual belly aching - oh, enterprise software is so complex to justify the snail speed and the huge TCO. And no real breakthrough stuff. SaaS is essentially re-architecting old ERP, CRM functionality not focusing on underserviced business functions (warehouses, plant floors) verticals or geogrpahies. Enterprise 2.0 vendors can barely cover HQ functions yet feel compelled to brag about the new "enterprise"b) I see over and over, pay back from what Sun calls the Internet of Things - sensors, mobile devices, appliances, RFID tags - generating for many many companies far better payback than plain old enterprise softwareBut for the record I am not a Apple Fan boy. I have been harsh on the iPhone TCO - but that is more to do with AT&T's economics. Having said that even that pales compares to TCO in enterprise software.About your point about client just canceling maintenance and moving to "time and materials" - Frankly, that is one heck of a glib statement, and by that definition every Oracle, SAP, IBM customer is a moron - ie just about everyone. Most companies reluctantly continue to write maintenance checks to get the occasional bug fix (or in Microsoft case many fixes), and in some cases for future functionality. But when you measure the cost per patch or support call logged, it makes the DoD toilet seat of $ 640 look cheap. As software ages, support costs go down nicely, and in recent years with offshoring and automation the cost has gone down even better. But sw vendors are addicted to theat 90+% margin. Are investors cheering - sure, are customers jeering - sure. I don't know whose interests you represent. I am squarely on the customer side and have to point out it is one of the most empty calories in IT spend today Reply
Jun 25, 2008 2:11 PM Dennis Byron Dennis Byron  says:
Vinnie -Although my day job is research into information technology companies and users for investment purposes, I am not cheering for the provider over the consumer with my comment about T&M as a viable option for some end of life enterprise software packages. I must have misunderstood your orginal comment about your client, where you said: "...I was looking at a client's list of aging software contracts. Most of the vendors want "uplift" fees for the older releases, not lowered ones reflecting software which hardly gets any enhancement and for which the client support calls have been minimal."I understood you to mean that the cost for that particular client was high (even "uplifted"), the client was not receiving any updates from the software supplier (I assume because the software is so old?), and the client had little need for support anyways (minimal calls). In that case (especially the minimal-calls aspect), T&M makes sense. But I did not mean that it makes sense for someone with enterprise software not in an end of life cycle. From a research perspective, I have never heard a user say that maintenance was simply price gouging (although I would guess some feel that way). Most understand that, as outlined in all my investment research, the monthly maintenance subscription is just part of the "pay now and pay later" revenue model that has dominated software since unbundling (and dominated office equipment since before IT). In fact many of the users I talk to (I am not advising them, just interviewing them for research purposes) tell me they try to get better ROI on their enterprise software by paying for their maintenance in advance. Others use SaaS as another way of paying for maintenance or try to parlay the terms and conditions of open source service providers to lower or spread out their maintenance expense. All are legitimate tactics depending on company circustances. Reply
Jun 25, 2008 3:39 PM vinnie mirchandani vinnie mirchandani  says:
May be my client sample is skewed but almost all my clients think sw maintenance is not just over-priced, it has reached gouging levels. What suppliers deliver after 5+ years on a particular piece of software is minimal (either in new functionality, bug fixes, or help desk), and most CIOs have learned from their own global sourcing and AD and seeing SaaS, open source and new start up economics how cost of developing and maintaining software has gone down dramatically. SW vendors are taking advantage of those trends but not passing them along. So please take a hard look at software maintenance economics. My statement of 90% margins applies to most of the industry not just one or two egregious suppliers. Back to my original post - as an industry observer, I was comparing the velocity of this do-little, but milk customer model to what the iPhone ecosystem is doing in a short time frame. And as I said before, I am not defending AT&T's role in it...which is a different form of lock-in economics. Reply

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