Software Expiration Dates
Several Enterprise Irregulars were recently debating the future of a major software vendor: Salesforce.com and when/if that firm would cease to be market relevant. The discussion raged around SAP’s and Oracle’s broader suites, the comparisons to the fate of Siebel and more. While each person was trying to nail down a more precise turning point than the others via more and more facts and theories, the real issue was left unstated or explored.
What these august analysts should be relating to the greater blogosphere and all those prospective software buyers out there is the following:
- All software products will cross a threshold where they are no longer sold or supported.
- Worse, all software products will reach a point where they are no longer market relevant or worth implementing.
- Companies that have purchased shelf-ware do not own an appreciating asset. Rather, these SPOTS (i.e., software packages on the shelf) are rapidly depreciating and will soon be worthless.
- Almost all software companies (not just their products) expire in time.
Let’s look at some of these points further.
Does anyone remember: Pansophic, SSA, Walker Interactive, Software 2000, Baan, McCormack & Dodge, Management Science America, Data Design Associates, Consco, Cullinet, Adaytum, etc.? These software companies were all vibrant, competitive software firms and all have been absorbed into other entities. While we all might like software firms to be like the Buddy Holly song title “Not Fade Away”, these companies are economically focused entities with shareholders and/or venture backers. When a software company is either fading from market relevance or presented with an offer it can’t refuse, it will be sold.
This market reality drives software companies to need a “Best if Used By” sticker on each of them.
Software packages last even less time than their creators.
Packages are a lot like milk at the local grocery store. It doesn’t last long and you really ought to read that expiration date. You even need to watch that date after you get the product home. Otherwise, you might get a mouthful of some really bad-tasting stuff.
Vendors who only have one main product have the shortest expiration dates (on themselves and their products). These companies may be the first to market with a new idea but their products often get hijacked by bigger firms in related product segments.
This is at the heart of the discussion the Enterprise Irregulars should have been debating. Firms like Oracle, SAP and Infor have massively broad product lines. Their enterprise suites, like the office suite of Microsoft’s, are attractive to software buyers due to the pre-supplied integration. Buyers like suites and only a small percentage of buyers will opt for best of breed solutions whenever a robust (not necessarily perfect!) suite is available. When CRM solutions first emerged, Siebel had a distinct market advantage. However, as suite vendors added CRM modules, even immature ones, this started to impact future Siebel sales. Unless Siebel could acquire or build additional ERP modules, its fate was sealed. It would have to be acquired.
Salesforce.com is in one of those spots now. It used to be the only on-demand CRM solution but now it faces many more competitors, including new ERP competitors. This means that the on-demand CRM market segment is about to be hijacked by ERP vendors. When that happens, stand-alone or best-or-breed solutions will be most vulnerable.
So, the most relevant data point an analyst could provide a software buyer isn’t a quadrant point or wave position, but rather an expiration date. So, let me protect my intellectual property by claiming the copyright to my quadrant killing new model: the Product Relevance/Company Expiration model (See below).
In the case of Salesforce.com, one only needs to see that as it gets more on-demand competitors, particularly from ERP vendors, its expiration date accelerates. To counteract this, Salesforce.com must either:
- Organically increase its product line
- Increase its product line via acquisitions
- Put itself up for sale
Even new on-demand software entrants (e.g., Workday) are creating a product line beyond HR. They are developing financial, revenue and supply chain modules over the next year. The lesson is that niche solutions are only market relevant whenever they lack huge competitors.`
My fellow bloggers/analysts should be advising Salesforce.com of their impending market problems and they should be advising customers and prospective customers as to what they can expect when the expiration date gets moved up. If Salesforce.com doesn’t do something fast to extend their expiration date, customers and prospects should:
- Plan for a cutover from Salesforce.com to your existing ERP solution’s on-demand solution whenever it becomes available
- Use Salesforce.com’s pricing to force competitive pricing parity with ERP vendors
- Anticipate a possible sale of Salesforce.com to another vendor. Do not expect the new owner to maintain the status quo. Prepare to move to another solution if the new owner’s plans no longer match yours.
- Prepare for the possibility that Salesforce.com could go into a decline. What would you do if their service falters, they slow down development of new functionality, etc.?
Let’s help the software buying world with these sorts of discussions and insights. This is the kind of assistance that makes us better than the traditional analyst community and why I like to associate with the Irregulars.