IT Strategy

Future of Enterprise Software

March 9, 2008 by Raj Sheelvant

To help maximize ROI for the Enterprise Applications for the CIOs Forester in a report titled Enterprise Software in 2017 tries to look into the crystal ball to predict the future of Enterprise Application (EA). Also, read concise overview of that report in the article by Enterprise Systems titled Enterprise Software Future profiled in Report.

Using a scenario-based planning approach, Forrester introduces three scenarios to predict what the dominant vendors, market dynamics, and prices may be in 2017

1. Increased consolidation, diminished innovation, and high prices.
2. A new, large vendor enters to challenge IBM, Microsoft, Oracle, and SAP; stimulate innovation; and keep price increases at bay.
3. Upheaval of today’s largest vendors, rapid innovation, and steep price declines.

I don’t think, the above mentioned information by the Forester is going to be of any use for the IT executives. It’s similar to asking a Wall Street Investment expert as to where the DOW Industrial Average might be in couple of years. You don’t want the answer “DOW could go up, or stay flat or go down”. That’s exactly what the Forester report predicts in the above 3 scenarios. Is there a great insight here? I would like to know what the probability of scenario 1 is v/s scenario 2 and scenario 3. Maybe if you buy the report for $279 you will get the detailed answer, I guess…

Let’s look at the 3 scenarios and apply Porter’s 5 Forces for Industry Analysis. If Scenario 1 were to come to fruition, Supplier Power will come into play. Larger organizations that are on these EA platforms, due to high switching cost may agree to pay higher price. But will they put up with low innovation or no innovation from EA Vendors? In a hyper competitive globalization environment large firms cannot afford to take their eyes off the competitive landscape. New firms with disruptive technology will come to the fore fast and from unknown places. If the EA Vendors consolidate and reduce innovation, larger organizations that use those Enterprise Applications will be stuck with older slower moving technology. They will not be able to compete to fast changing environment. Thus Buyers Power will trump Supplier Power in this case and large firms will continue to pressure EA Vendors to innovate. There is a symbiotic relationship between large organization and EA vendors. Failure of one will lead to failure of the other. Hence Scenario 1 is out (Well, EA vendors can raise price but cannot afford NOT to innovate).

There is always a possibility for some large new vendor, that may decide to challenge existing EA vendors (Google?). But again huge switching cost will discourage large firms from embracing a new vendor unless the new application radically simplifies implementation and integration of EA software. Remember extremely draconian implementation and integration of Enterprise Application that causes firms to fear changing EA vendors. Hence Barriers to Entry to the new EA Vendor is high. So Scenario 2 is out.

We will continue to see rapid innovation. As mentioned in my blog 2008, Year for Mass Adoption for SaaS, this year might be the breakout year for SaaS – disruptive delivery model that will challenge traditional EA delivery model. In fact, it’s that Holy Grail that has the potential to simplify implementation and integration problems all firms face. Diminishing computing power, storage cost will continue to lower barriers for the competitors and we will continue to see new and disruptive applications. Better collaborative tools will lead to lean and agile Open Source Solution. All of this will continue to challenge Enterprise Application as we know it. I think, Scenario 3 is the only viable option.

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