Kathy Gibson at Gartner Symposium, Cape Town – It’s not just enterprises that are being disrupted by digitalisation, the software megavendors are facing challenges of their own to remain relevant in the new environment.
Between now and 2020, software as a service (SaaS) revenue will grow almost five-times the rate of on-premise perpetual licences, says Gartner analyst David Norton.
But it’s not enough for the software megavendors to just add cloud to their portfolios — they really have to add more value than that, he says.
In the last four or five years, SAP has made 16 acquisitions for a total investment of $14-billion; IBM has made 50 acquisitions for about $10-billion; Oracle has spent $25-billion on 42 acquisitions, and Microsoft has bought 54 companies for $38-billion.
“Their challenge now is integrating these acquisitions,” says Norton. “And they run the danger of killing the very thing they wanted.”
Acquisitions can’t revolve just around buying the intellectual property of startups, he adds. The culture is important as well. And big software companies haven’t historically been good at maintaining this.
“The challenge for the big suppliers is to offer us an integrated suite; and at the same time manage those companies at arms’ length to keep the innovation going.”
Software companies can learn from finance, he adds. The way banks are buying fintechs, but keeping them at arms’ length is a good object lesson in how to manage acquisitions.
“This is also something you need to be careful about when buying products from these guys,” Norton adds. “They may tell you they can do something, but can they? Is it a solution from a small acquisition that isn’t integrated? Or are they going to integrate it at your expense?”
The battlefield for software megavendors has been laid out, Norton adds
The first era of computing was hardware-centric; in the second era, it was operating systems-centric; the third era saw a focus on the data; and the fourth era was application-centric. “This is the language we still hear,” he says. “It is very much in the psyche of IT and business.”
The emerging era is where platforms and ecosystems will be important. “The other changes have been incremental; and largely about technology,” Norton points out. “When we got to the application era, that was pretty much the first time we talked about the business.
“But the move to application-centric to platform and ecosystem-centric is completely different. It is where we seeing the emergence of true digital business.”
This is a big change for user companies and for vendors alike.
Arguably the biggest change — and benefit — that the new era brings is the fact that innovation becomes a core ecosystem expectation. “You have to have an open innovation model — and if you don’t have an open platform you can’t do this.”
With this model, the power has moved back to the enterprise and away from the vendor, Norton says.
“If you don’t have open APIs, or the ability to talk to partners outside the internal systems — well, you have a closed ecosystem,” says Norton.
“You should be thinking about your API strategy,” he urges. “This is what will allow you to develop your ecosystem.”
The megavendors – Microsoft, IBM, SAP and Oracle – are focusing on various platforms, laying out their own strategies for the future.
“What can enterprises do to leverage the vendor wars?” asks Norton. The first thing is to understand what the vendor wants from them.
The vendors want a full platform, a strategic product set, annual recurring revenue, and increased year-on-year spending.
Customers want measurable returns, the ability to forecast expenditure and — most importantly – no lock-in.
“It is a balancing act, though. If you want complete freedom, it will be expensive. If you go with just one vendor, you will stifle innovation.”
It’s important for customers to understand their vendor’s strategic positioning, Norton says. This includes where they stand on megatrend strategies, overall product strategy positioning and adjacent market strategies.
He suggests customers be clear about vendor roadmaps, competitive product analysis, product market share, product forecast and product SWOT (strengths, weaknesses, opportunities and threats).
Ecosystem performance depends on relationships. So enterprises need to establish competition, communication, coordination and collaboration.
“Your application portfolio should match your business strategy requirements — and companies have systems of record, systems of differentiation and systems of innovation. Vendors will tend to give you sytems of record and a degree of differentiation: you will have to build on top of those to differentiate and innovate. The real hard work still has to be done by yourselves.”
