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2.0 for the Enterprise

Seismic Shifts in the Software Industry

Posted by Susan Scrupski on August 24, 2006

I listened in today on NetSuite’s hosted Enterprise 2.0 and the Software Industry webinar featuring SandHill.com’s M.R. Rangaswami. I was amazed by some of the statistics in the presentation, but remember, I’m new to some of this stuff by five years. For instance, M.R. said Sandhill had done some research and is reporting that 90% of all software firms are now using offshoring for some element of their development. I also was surprised to hear that 80% of a CIO’s IT budget is already committed to maintenance before the year even begins… the point being a mere 20% is left for innovation. He also said Sandhill had counted over 500 Web 2.0 companies, but was quick to point out that, “None of these companies know how to make money.”

NetSuite, a SaaS app, and whose product looked very impressive, btw, said the webinar would be available on their site.

This issue about the IT budget is one where I’m not sure everyone is on the same Enterprise 2.0 page. A few days ago I was pestering poor, old Gary Fernandes (who is really neither) about this point. Gary used to trot out this slide back in the old days while I was covering EDS. It showed how, on average, the IT budget was a mere 10% of the operating budget of most corporations. As Gary was EDS’ Chairman of A.T. Kearney, and the BPO market was just beginning in those days, he was always interested in how EDS could get its hands on the other 90%. Enterprise 2.0 is Gary’s dream come true. The big opportunity here for tech companies is not with the IT budget gestapo, it’s selling directly to the lines of business that can produce real returns on small investments.

I tried to make this point to Vinnie Mirchandani today, who knows better. I know there will be a lot of push back on this issue. And, I’m a lover, not a fighter, but hey– it is a revolution whether you’re the revolutionary type or not.

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2 Responses to “Seismic Shifts in the Software Industry”

  1. Susan, actually the IT spend is closer to 2-3% of revs in most of the economy – in banking it is closer to 10%.

    But having said that most vendors have a naive view that business executives ignore the CIO staff in the technology decisions. Yes, it may come out of their budget but some one from IT will usually be called to bless the purchase, even on BPO deals

    Are many IT staff stodgy – absolutely, but many CIOs are under pressure to innovate – and in fact look forward to the economics of SaaS, and other innovations. But they have to get comfortable with scalability, security etc. Also, they are hamstrung with lock in pricing from the previous generation of software and services. The enemy is the baked in “utility” costs, which leaves little for newer vendors and technologies…

  2. susanitsa said

    Yeah, Gary mentioned that he recalled had a range of this data by industry; maybe the one I remember was the banking one. It doesn’t matter, this still focuses on a few trees instead of the larger forest. I’m going to come back to this with you when I have something more substantive to make my argument. Thanks for the comment, Vinnie.

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