Here's a news flash: There's big money in software. Shocking, I know. But it might come as a surprise that, according to a forthcoming report by the Yankee Group, nine of the top 10 software companies in the world are enterprise software companies, or, as they put it, the companies that sell big-ticket items to big businesses. There's money in word-processing or checkbook software, but there's a lot more in the software that lets Huge Co. requisition its steel from Monstrous Co. more efficiently. So, it's important to know what that segment of the software industry will do in the wake of the recent Wall Street shakeout.
The report includes this overall view of what will happen in the enterprise software segment: We believe that certain segments of enterprise software will not only not be hurt by a recession but will actually be fueled by them. Recessions reorder customers' priorities and profoundly change their mindset. In an inflationary (boom) market, whoever can get on top of the biggest hill with the biggest bullhorn always wins. In a recessionary market, customers focus on the practical and the pragmatic a process which brings a new breed of software company to the fore, relegating the hot company of yesterquarter to the dustbin of history.
As Yankee Group so eloquently puts it, there are two different groups of parishioners in the Church of B2B investors, and business users. Many investors, clearly, have gotten up from their pews and left, but, ultimately, companies can't and won't turn back the clock to an era in which they use quill pens and ledgers to run their businesses. Software as a mainstay of enterprises is here to stay. The danger lies in thinking that these two groups investors and end-users of enterprise software are the same.
The report cautions against confusing the two groups of parishioners' motives. While a company with a larger market cap might be a more attractive investment that doesn't necessarily mean the company's enterprise software is any good. Market fluctuations aren't an indication of a company's viability, in other words.
While conceding that there are differing opinions as to whether or not a recession exists, the report outlines what customers in a money-strapped environment look for. In such an environment, customers exhibit: intolerance to bait-and-switch marketing; heightened sensitivity to timing; increased concern regarding company viability; and reduced susceptibility to supplier marketing efforts
As a result of these conditions, Yankee Group believes that these segments are poised to succeed, even in tight times: supply chain visibility and collaboration systems; Collaborative Commerce applications; Business Intelligence/Data Centric Systems; and systems aimed at increasing corporate yield.