It’s not surprising when you see a new company pop up in one of the hot new spaces, like mobile apps or social networking. However, recently I have seen a number of new companies starting up in what are quite mature software markets such as ERP, WMS, TMS, and Sourcing/Procurement. These markets ostensibly have very little ‘white space’ left in them. Nevertheless, we are seeing newer entrants such as:
- ERP: Kenandy, BizSlate
- Production Planning and Inventory: Rootstock
- TMS: Cloud Logistics
- WMS: LogFire, Snapfulfil
- Sourcing and Procurement: Spend Radar, Coupa
- Workflow and Integration: BabbleWare
Most of these were started in the last year or two; some are a bit older. At first glance, you might ask, “What were they thinking?” Markets tend to have a lifecycle, starting with a few brave pioneers; then, as it becomes apparent there really is money to be made, the excitement builds and the market becomes saturated with new entrants. As the market matures, there is a period of consolidation — lots of acquisitions1 and plenty of outright liquidations.
We are at that point in all of these markets. They are dominated by a very small handful of large powerful players, with a scattering of niche players. These large players have invested millions, often billions of dollars, in development, have immensely rich and deep functionality and industry expertise, extensive, mature ecosystems of channel and technology partners, and juggernaut sales engines. Why would any sane person launch into one of these markets? Are these entrepreneurs nuts to pick this fight, or do they really have some disruptive innovations that meet an unserved need?
The Burden of Richness
Those billions in R&D investments made by the big boys are a double-edged sword. Yes, they have built incredibly rich, domain-specific functionality. But, because there is so much code there, it constrains their ability to move that deep functionality to new architectures, new user interfaces, and new process paradigms.
Their existing sales model is often expensive compared to what a creative and unconstrained startup may come up with. Today’s sales methods are enabled by marketing automation, collaborative software, online meetings, the ability to rapidly put together realistic demonstrations integrating the prospect’s actual data/processes/systems, and self-service free trials. Together, these all have changed the face, pace, and cost of sales (see The End of the Entourage).
The Leapfrog Factor
These new solution providers have the advantage of ‘standing on the shoulders of giants’ — i.e. leveraging developments in technology that didn’t exist in the 80s and 90s when the currently dominant enterprise applications were created. These new developments include more effective and productive tools and platform (Azure, Google App Engine, Force.com, RDS, Java, .NET, IDEs, IaaS, Hadoop, etc.), new database technologies (NOSQL, object-oriented DB, XML), infrastructure (cellular network, the internet, hosting services), integration platforms and technologies, and devices (cell phones,2 tablets, RFID/NFC) to name a few. These have enabled today’s startup to develop a tremendous amount of functionality very quickly, often because these new developments and services take care of many of the underlying technology and operational challenges that the established players had to solve themselves. Furthermore, these startups have learned from many of the mistakes made by their predecessors.
I’ve noticed some common ways these new solution providers tend to differentiate themselves from the more established offerings:
- Configurability — One common thread is the high degree and ease of configurability. Older systems tend to be hard to install and configure, usually requiring a database expert with in-depth knowledge of the application, or an IT person who is comfortable editing scripts and config files. These newer systems usually provide much easier to use, often visual (e.g. drag and drop) techniques that an end user is comfortable using. The configurability may be along several dimensions:
- User Interface — Perhaps the easiest to implement (for the solution provider) of these dimensions is configurability of the user interface. Highly configurable UIs have become almost table stakes in newer applications: the ability to drag and drop elements on the screen, customize menus and navigation, add shortcuts and favorites, customize formats and colors, and do it all in a drag and drop way.
- Workflow and Business Rules — Some applications provide visual workflow editing, along with the ability to edit business rules. In older apps, these tend to require a programmer-type who is comfortable coding the rules. The newer ones may look more like the faceted search filter you probably have seen on shopping sites that the general public uses without any training at all. They allow a non-technical user to enter or modify the business logic to customize it for their business. Obviously, the end user organization will want to control who is authorized to make these types of changes.
- Database Elements — In a traditional application, it can take a herculean effort (or simply not be allowed) to change or extend the data model and data elements available. In the newer apps, this can be a trivial exercise, again via a visual interface accessible to the end user.
- Single-instance Multi-tenant Architecture – s described in “SaaS vs. Licensed Software,” a single-instance, multi-tenant architecture means that all customers are on the same release, with multiple customers sharing the same instance of the software. This can yield a 10X reduction in development and support costs for the solution provider. But it requires completely re-architecting legacy code that wasn’t originally designed to be multi-tenant.
- Social Networking and Collaboration — These platforms have social networking and collaboration built into them natively; it’s embedded into their fabric and flow. It transforms ERP and procurement systems from being solely transaction-focused to encompassing the human interactions that drive and shape those transactions. No doubt every major enterprise software provider is feverishly developing social networking capabilities. But these end up being bolted-on to an existing platform, rather than designed-in from inception.
- Mobile Device Support — The requirement to run on a smart phone and tablets was already a given when the new crop of applications was being born. Therefore they were designed from the ground up to incorporate these new devices. This is not quite as big of a barrier for the legacy providers, as they may develop brand new mobile applications to complement their existing applications.
- Analytics — The traditional BI approach requires IT specialists to interview end users, anticipate which queries the users will want to run, and then structure the OLAP database to support those analysis. This does not do a good job at supporting ad hoc queries for the end user, especially when they are doing discovery-oriented analysis. Newer approaches allow ad hoc queries along all dimensions. Some go further and allow on-the-fly adding of data elements. The work of integrating, cleansing, and normalizing data can still be monumental, even for the newer systems — though there are some innovations there too.
The Consumerization and Democratization of IT
With the new crop of enterprise applications, a business person can find a SaaS provider, acquire the application, configure it, start using, and even maintain it, with little to no support by IT. That is great for smaller businesses, but can cause problems for larger organizations. This is a broader issue for IT than just this new crop of apps; how to allow creative growth, driven by the businesses, but avoid chaos. The ease-of-adoption of the new crop of applications means more business people can use them and take their destiny into their own hands.
Battle for the Mid-Market and Small Businesses
There is currently an intense battle for the mid-market (and to some extent small businesses) between those enterprise application companies that ‘grew up’ serving the SMB3 market (e.g. MS Dynamics, Sage, SYSPRO, NetSuite, Infor, HarrisData, and others) and those that have primarily served the large enterprise (SAP, Oracle, IBM). SMBs have different needs than large enterprises: cost/price sensitivity, ease-of-implementation, low to no maintenance, low to no training. Yet, contrary to popular belief, many small businesses don’t want the ‘lite’ version of the large enterprise vendor’s software. They need much of the sophisticated functionality used by larger firms. Enter into the fray this new crop of applications, positioned to provide this depth of functionality, while meeting the price point, and ease of adoption requirements.
Don’t Count Out the Big Boys
The established players have a huge head start when it comes to brand recognition and the depth and breadth of their functionality. In spite of the development speed advantages of the newer players, it still will take time to catch up. And don’t think the large established players are standing still. SAP, Epicor, Infor and others are investing billions, not only into new functionality, but also into moving their platforms forward on all these dimensions mentioned above — configurability, mobile, social networking, analytics, and even parts of their portfolio onto single-instance multi-tenant architectures. At the same time, they have been acquiring many newer innovative companies and technologies to blend into their offerings. In spite of their constraints, they have resources, and this will not be a slam dunk for new entrants.
So, Who Are These People?
Back to the question of whether the founders are crazy or geniuses, I believe there are some real opportunities for these newer firms to take market share from established players. And who are the people who founded these firms? Most of them are ‘battle-scarred’ industry veterans, who spent decades developing applications in these target markets. They have seen it all, learned lesson after lesson, and for whatever reason and alignment of stars saw an opportunity to build another company. Each one has a different and fascinating story. But they all share in common a David and Goliath spirit to take on the big established players. The winners will be the enterprise customers. Let the games begin.
1 Some ERP companies like Infor and Aptean (Consona+CDC) have built their business on acquiring languishing or under-valued ERP and related enterprise applications firms. — Return to article text above
2 One example of leveraging an existing technology, though not an enterprise application, is mobeam. They enable coupons on cell phones by embedding their technology into the LED chips within cell phones (see Mobile Coupons – The Missing Piece). — Return to article text above
3 Small and Medium Business — Return to article text above
To view other articles from this issue of the brief, click here.