In Enterprise Software and Services, Down Times Can Be Good Times for IT Managers

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There's a bit of a buzz this week on the enterprise software blogosphere about the implications of a down economy on the software industry. This sort of thinking gives IT managers a chance to update an important management skill, financial planning.

In looking out a few months, ZDNet's Josh Greenbaum is writing from the perspective of the SAP user conference now in progress. Others are comparing software-as-a-service (SaaS) pure-plays with the traditional enterprise software players. (SAP encouraged this by letting founder Hasso Plattner get in the cage a few weeks back with Salesforce.com's Marc Benioff.) In my own IT investment research, you will see hints of concern based on Microsoft's latest quarterly numbers.

But down times can be good times for IT managers who are prepared.

That is not because "software is dead" (Benioff's mantra). Software suppliers were selling it as a service long before someone came up with the idea of getting you to pay for most of the functionality upfront with a right-to-use license. The industry will have no problem reverting "back to the future."

And that is not because "enterprise software is recession proof" (SAP's spin on a weak first quarter). It is not recession proof because it is too large. But remember that the downturn is pretty much a North American issue so far and even here in North America, the recession metrics have not yet been met.

So this is the time to get ready for a downturn.

  • It kills me to say this as an old software marketing manager, but delay some acquisitions where you can. For example, the U.S. government might enact some (more) investment tax credits but there is no guarantee it will make them retroactive.
  • Play hard to get even where you must acquire in the next few quarters. Software suppliers will really want to make a deal, and that's a worldwide fact of life. (This is actually the reason SAP gives for the slowdown it experienced in North America in the first quarter.)
  • Choose SaaS where the functionality meets your needs and where the functionality is pretty much a commodity (not because software is dead). The cost won't be any less expensive over the long term but figure in the inevitable inflationary factor. (And it won't mean you won't have to license most of your software the more common way for the foreseeable future.)
  • Don't limit your preparedness to just systems and software suppliers. Renegotiate consulting and other services arrangements where possible. However, service provider business outlooks are often countercyclical, so you might not have as much leverage as you will have with software and systems suppliers if a recession materializes.

In general, make yourself look good to top management by thinking of your IT acquisitions as investments rather than just technologies.