Thank God services providers don’t like buying each other very much. There are scores of IT services and Business Services providers today competing for every help desk, invoice processing, app dev, clinical data management (etc.) deal.
For smart services buyers, they are spoiled for choice to keep their providers on their toes to get as much attention, talent, technology and inspiration that they can squeeze out of them. And if they only care about low-cost, there are plenty of providers who’ll kill themselves to do their work as cheaply as is humanly possible.
When I watch Oracle and SAP rapidly clean up whatever application is left on the market worth buying, my heart sinks for the future of the enterprise software business. For Oracle and SAP, it’s all about maintaining the status quo and growing their considerable license revenue streams. They know they have to be seen to embrace the Cloud, but all they really care about is protecting their customer bases and preventing upstart vendors sneaking in to disrupt their revenue model. And can you really blame them? It’s economics 101…
Microsoft won the office apps game well over a decade ago and today largely focuses on milking its massive customer base. I mean, have you seen anything radically different with Word, Excel and PowerPoint over said period? No competition means limited innovation, and that is my fear for the enterprise software business, which is rapidly running out of worthy independent applications that can help business managers run their functions better, have access to more relevant data to help them make decisions, and be provided on a more affordable pricing model that allows them to pay for what they need, when they need it.
Companies buy software because they want standard process that can be automated with as little human intervention as possible. For process flows such as recruitment, if Taleo can provide you with the steps you need to automate an end-to-end recruitment process effectively, then the only way to find more value (or dare I say “innovation”) from recruitment is in those areas that cannot be automated – such as assessing the cultural fit of a candidate, or making a judgement call that the candidate has potential which his or her former employers had previously failed to unleash.
Unless Oracle and SAP decide to enter the services game, they are not going to provide enterprises with that kind of innovation – they are merely pedlers of automation. Once they own all the apps on the market, they will own all the automation, and my huge concern is whether there is really any more room for innovation spurred by this automation. Essentially, have these enterprise apps pretty much reached the peaks of their capabilities now they are owned by the 1600-pound ERP gorillas? I mean, seriously, how much further can you improve a companies’ recruiting processes by making some tweaks to the software code? Yes, I hear all the techie purists voice their fury because all software products can have their architectures improved, but at the end of the day, most of these software apps support pretty standard business processes today.
We’ve arrived at a juncture where the next wave of value that enterprises can derive from their business processes isn’t going to be purely from upgrading to whatever software platform is next available on the market. It’s actually going to be having real help in improving the quality of those process elements that cannot be automated, require real context and judgement, and real analytics. These are requirements you can’t download via an email from your SAP rep – they are where you need real consultative support from experts who’ve gotten to understand your business.
The Bottom-line: Packaged software alone is no longer providing innovation for buyers
SAP and Oracle don’t need to try to hard to differentiate from each other these days – there are only two of them and they pretty much own the enterprise packaged software markets between them. The consolidation of the software apps business is firmly placing the onus of innovation and process improvement in the hands of today’s service providers. Those business services outsourcing providers that can coach their clients on an ongoing basis as part of a managed services relationship, will be able to differentiate themselves in the market. We are already starting to observe service providers handpick industries where they really think they have an edge and are eager to demonstrate it at every opportunity. Our new research on Business Platforms already shows that today’s leading service providers have already leveraged over 15o packaged and custom-built applications to underpin their services. The apps provide a process framework that can help improve an enterprise’s current state, but the actual innovation will only come from the introduction of new and creative methods that can’t be embedded in a piece of code.
Posted in : Business Process Outsourcing (BPO), Cloud Computing, IT Outsourcing / IT Services, kpo-analytics
Good angle to think about but I few things from an SAP perspective is that their customer base is only using 35-40% of the existing functionality in my opinion. The reasons are organizations aren’t prepared for innovation, painful upgrades to get it, poor consulting (which i write about here http://www.sdn.sap.com/irj/scn/weblogs?blog=/pub/wlg/28598) and I have often seen SAP BPO arrangements be innovation killers.
My point is there is a long ways to go to use what is already there as well as want to see the pain dry on the SuccessFactors deal before we make the assumption their innovation is dead. This is one area where SAP and Oracle have taken two distinct approaches….SuccessFactors will be its own company (under SAP umbrella) run by Lars so why should we expect the innovation in their products to suddenly come to a halt.
On a side note I remember Dennis Howlett late last year referring to SAP as a 800 pound gorilla and amazing what a diet of SuccessFactors and HANA can do for weight gain 🙂
@Jarret: my “1600 lb gorilla” reference is taking into account BOTH SAP and Oracle.
Thanks for the clarity Phil as I probably should have caught that. It has been quite the whirlwind week in HR technology.
Phil – you are spot on. The consolidation will slow down the rate of innovation. The small innovators are more agile and work with 3X speed if not more to create their own niche and differentiation. Buying is easy, integration is a bigger challenge.
Apart from SAP and Oracle, i would will add IBM to the the list. IBM has been in the same league as far as cleaning up of smaller companies is concerned. They have been adding everything war chest but have almost everything around it.
Apart from slowing the innovation, I see the cost of these products going up. Do you agree ?
@Manoj – interesting point about IBM. To their credit, they are firmly positioned as BOTH a services and software firm, and have a services-type CEO at the helm (with considerable BPO experience).
While I agree it’s concerning when all the cool apps vendors are getting consolidated like this, but with IBM they have the potential to deliver the app, integrate it effectively and also manage the processes. However, the jury’s out regarding how effective this will be – it’s still early days,
PF
Hi Phil,
Is there a way to say how much innovation has been brought about in any of the services that are being catered to by these apps. Those vendors / users on the service side of SAP or Oracle also know the limitations and do there planning accordingly and place a large pool of heavily contextualized experts on the service side. I have seen the same issues crop up in some of the largest vendor of horizontals. And the pancea to the ills of the packaged software is not by writing a piece of code in most of these apps but rather by doing improvement projects. The findings in these projects is usually to tweak the working on these enterprise apps and build a wrapper on them either at the local level. Would be interested if any of these enterprise app side really know what the issues on the service side are & the only solution is to gobble up another small player doing the same thing as their original app?
Thanks,
Manish
I agree on SAP, Oracle, and IBM cleaning the smaller fishes and have gradually become an unmovable mammoth staying away from innovation.
Looking at the acquisitions made by these companies in the last few years, I see that all three of them have had different ideas behind acquisitions. Both SAP and IBM have acquired companies that have a strategic fit to their current offerings or portfolio expansion e.g Business Objects, Sybase, SPSS, Green Hat, Emptoris etc. However, Oracle has acquired companies to kill the competition and their the products; JD Edwards is one perfect example for that. It will be interesting to see how Oracle will sell Taleo along with PeopleSoft in the marketplace.
The dominance of enterprise software providers is surely increasing day by day and the obnoxiously high maintenance fee is becoming more and more taxing for the users.
[…] Horses for Sources: Why Oracle’s acquisition of Taleo shifts the innovation onus onto the service providers: Companies buy software because they want standard process that can be automated with as little human intervention as possible. For process flows such as recruitment, if Taleo can provide you with the steps you need to automate an end-to-end recruitment process effectively, then the only way to find more value (or dare I say “innovation”) from recruitment is in those areas that cannot be automated – such as assessing the cultural fit of a candidate, or making a judgement call that the candidate has potential which his or her former employers had previously failed to unleash. […]
Just couple of days back read on Forbes on how LinkedIn is disrupting the recruitment market and Taleo’s acquisition by Oracle was a blessing for latter.
Marketing gurus have frequently suggested that monopolistic behavior can not last for long, if Oracle and SAP have cornered the conventional enterprise application market, we would always see the emergence of corporations like SalesForce and Workday to challenge the status quo.
In my opinion for corporations to maintain competitive advantage they have to use a range of applications and a generic portfolio of enterprise applications might not give them significant advantage in the long run. GE has been working on this strategy doing this for a long time, they were the pioneers of outsourcing practice, in a similar manner they started using Aravo’s Supplier Information Management when large corporations are still hesitant to take business critical data outside the enterprise.
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I agree with SV on Oracle buying the companies to kill the competition, but let’s not forget where their profit is coming from. SV mentions the maintenance fees, which is spot on. They milk those maintenance fees at a 90% profit margin while slowly cutting off the oxygen to the product line itself.