The Supply Side of the Consumerization of Enterprise Software
Source: http://www.flickr.com/photos/bertboerland/2944895894/
In my recent post about the consumerization of enterprise software I discussed two factors that are likely to accelerate the pace toward such consumerization:
- Any department/business unit that can get a service in entirety from an outside source is likely to do so without worrying about enterprise software and/or data center considerations. This is already happening in Marketing. As other functions start doing so, more and more links in the value chain of enterprise software will be “consumerized.” In other words, these services will be carried out without the involvement of the IT department.
- Once the switch-over costs from legacy code to state-of-the-art code are less than the steady state costs (to maintain and update legacy code), the “consumerization” of enterprise software is going to happen with ferocious urgency.
In this post I would like to add a third factor – the buying pattern. My contention is that the buying pattern for micro-apps will spread to enterprise application. Potential demand for buying in this way is huge. Supply for buying enterprise software as micros-apps is not quite there yet, but it would take only one smart vendor to start transforming the traditional pattern how enterprise software is chunked, offered and sold.
Think about your recent experience downloading an application to your smart mobile phone. You did not go through a six-month evaluation period; you did not do a comprehensive competitive analysis; you did not check how well the seller does customer support in Sumatra. You simply paid something like $7.99 and downloaded the application. You are more than happy if it fulfills your needs in a reasonable manner. If it does not, you simply buy another application with the functionality you desire. Maybe you are a little more cautious now and ask a friend or send an inquiry to your Twitter followers before you pick the new application. Whatever you might choose to do, the fundamental facts are: A) you can afford to lose $7.99; and, B) your time is more precious than the sunk cost of the application. You simply move on.
This buying pattern is not something that you are going to forget when you step into your office in the morning. It makes perfect sense to you and it would be good for your company. You would rather concentrate on your business than on the tricky language of clause number 734 in the contract that your department’s attorney prepared for licensing yet another piece of enterprise software.
The ‘$7.99 experience’ you and zillion other folks like you had over the past week or the past month makes enterprise software vendors extremely vulnerable. The “high-touch; high-margin; high-commitment” [1] business design is not sustainable once the purchase model changes. The expensive machinery of professional services, system engineering and customer support is not affordable at the face of competition that constructs modular chunks of enterprise software and sells them at a price the customer can afford to write off (if they do not perform to satisfaction). Maybe the ceiling in the enterprise to ‘forget about this application and move on’ is no higher than $1,000 (instead of ‘no higher than $7.99’ for the private citizen), but a smart vendor can still make a lot of money on selling at one thousand dollars a pop to the enterprise.
The growing gap between “this lovely application on my iPhone” and the “headache of licensing traditional enterprise software” is an immense incentive for up-and-coming software vendors to use the ‘$7.99 experience’ as the heart of a new business design. This new business design can be simply summarized as “low-touch; low-margin; low commitment” [2]. And, yes, it is very disruptive to the incumbents…
My hunch is that the IT Service Management (ITSM) industry will be the first to crumble. The premise of “service delivery” sounds a little hollow in a cloud computing world characterized by “everything as a service” [3]. Would a buyer be really willing to pay for “service for the service” from a vendor who does not actually provide the underlying service?! It sounds like paying a Fidelity or a Vanguard investment manager to manage a portfolio of their own mutual funds for you…
All it takes for this shift to start – in ITSM or in another part of enterprise software – is one successful vendor.
Footnotes:
[1] I am indebted to Annie Shum for this phrase.
[2] Ibid.
[3] I am indebted to Russ Daniels for this phrase.
The Agile Executive 
I could not agree more with this assessment. Let’s get start on the $7.99 Enterprise Software iPhone / Android unbundle. Thanks to WB for pointing me at this post.
Mic
September 26, 2010 at 4:37 pm
You bring up an extremely important point, Mic – picking and choosing from a variety of tools that are not bundled together. Our mutual friend Annie Shum actually talks about “Configure-to-Order” instead of “Build-to-Order.” Doing so will require a combination of Agile/Kanban methods, SOA, Technical Debt metrics, DIY, devops and possibly other “ingredients.” I will check whether Annie has the cycles to write/interview on the subject for The Agile Executive.
Best,
Israel
israelgat
September 27, 2010 at 7:34 pm
Today’s AppMatcher announcement by Rackspace is yet another proof that software is being developed, sold, deployed and used in very different ways than it used to… click here for details of the announcement…
Israel
israelgat
October 7, 2010 at 12:46 pm
[…] The Supply Side of the Consumerization of Enterprise SoftwareMore from Israel Gat on applying consumer procurement patterns to enterprise procurement: 'The growing gap between “this lovely application on my iPhone” and the “headache of licensing traditional enterprise software” is an immense incentive for up-and-coming software vendors to use the ‘$7.99 experience’ as the heart of a new business design.' […]
Coté's People Over Process » Links for September 24th through September 27th
September 27, 2010 at 1:42 pm
Thanks for a well-written post on the compelling economics of enterprise micro-apps. I think about the future of enterprise social software (ESS) a lot as an industry analyst. It will be interesting to see whether or not the decomposition of ESS applications and suites into micro-apps becomes the predominant trend.
The consolidation of web content management, portal, social/collaboration, and analytics functionality into “Web Experience Management” software packages is a strong trend right now, and it is in direct opposition to the notion of enterprise micro-apps. My gut says that business people will want the rich UX afforded by browser-based apps created, presented, and monitored in WEM bundles while working at their desk, but will prefer micro-apps while working from mobile devices. As you point out, habits gained from experience with consumer software transfer easily to the enterprise.
Larry Hawes
September 28, 2010 at 7:47 pm
Hi Larry:
Thanks for the kind words. We certainly live in exciting times…
I believe data portability is the #1 key to the consumerization of enterprise software the way I summarized it in my post. I am very much hoping it would not prove an obstacle.
Best,
Israel
israelgat
September 28, 2010 at 8:12 pm
i agree that the way we test and buy mobile apps most definitely has a strong impact on our expectations WRT software sell/buy process… yet reading 99 clauses of a software license is but one dimension of the cycle.
did the mobile app store model change the way you choose and buy your car? do you test drive a few cars before buying? I’d dare say yes. do you compare warranties? at least a little. do you insure your car against accidents? of course you do. and, what about all those security features? air bags – sure, auto brakes, warning lights. and you do use the dashboard to gauge what’s going on, even in the parts that you cannot see.
so no, not all decisions are as low risk as a mobile app purchasing.
now imagine that your professional success is linked to the performance and deliverables of the software you bought with your company’s money. what risk level is acceptable to you?
that all SW providers should consider the impact of the change in expectations, experiences and trends. one would hope they all do it anyway. maybe offer a “single app” option that you can add to later… oh no, this already exists – you can buy/license modules of a greater solutions sold buy SW vendors.. . so… BE AGILE, keep up with changes, adopt and innovate accordingly… understand trends and most importantly – understand your customer.
yaelol
October 12, 2010 at 10:06 am
Hi Yael:
I will simply quote from a recently issued Cutter Advisor by my colleague Vince Kellen:
“The consumerization of IT is placing new demands on traditional IT shops. Such companies as Apple, Google, Sony, and Microsoft understand that in the consumer world, users of the technology don’t have to buy what they offer. They have to find ways to reduce barriers to adoption. So our users bring these danged devices in and expect the IT shop to support them. Why? Because they love the ease of use in the consumer gadget.”
Vince, in case you do not know of him, is the CIO of the University of Kentucky.
Best,
Israel
israelgat
October 12, 2010 at 6:43 pm
and so?… the ease of getting new mobile apps on one’s phone creates new expectations, changes old ones – i think all agree on that.
yet, the leap suggested in the post is a bit too big, too dramatic to convince.
we agree on the trend… the general direction.
yaelol
October 12, 2010 at 10:51 pm
We will all see in good time…
Israel
israelgat
October 13, 2010 at 8:01 am