Wednesday, September 10, 2008

The Top Trends in the Software Industry

It's after Labor Day, so we're in full swing now. Aside from hitting the phones and banging out emails, blog posts and podcasts, the event and trade show fall season is filling up my calendar. Good networking isn't hard to find, that's for sure. I posted earlier about the AMA's Mobile Marketing event. Now I'd like to share my notes from last Friday morning's Potomac Tech Wire's event on The Future of Software held at the Ritz in Tysons.

There were two panels- one, software company executives and the other, venture capitalists. I'll list the panelists for each and bullet the main talking points.

Panel One-

Andre Boivert, Chairman, Zenoss and Infobright

Todd Bramblett, CEO, LeverPoint

Greg Gershman, VP Search and Engineering, Odeo

Barg Upender, President, Intridea


Panel Two-

Carter Griffin, Partner, Updata Partners

Harry Gruner, General Partner, JMI Equity

Don Rainey, General Partner, Grotech Ventures

Janet Yang, principal, Novak Biddle Venture Partners

Paul Sherman was the charming moderator, as usual for PTW sponsored events, for both panels.

The panels had a lot to say about the relative strengths and weaknesses of the SaaS versus the traditional enterprise software package, the open source model versus the proprietary model, the ad-supported versus paid license model, and how each kind fits into the needs of different customers. The software market is fracturing and how that affects how companies buy and how VC's make investments. Today's software market is different than in the past because:
  • Users are sophisticated now. They know about the downside of the traditional software and want better interfaces, slicker graphics, better speed, easier implementation, etc.
  • Users are buying software. They are not being sold. Buyers across the enterprise are educated on quality and functionality.
The old big fat Fortune 500 software sale is dying. Spending is fractured as departments, offices buy their own CRM packages without say so from the corporate IT department

Coding used to be difficult. As software development packages get easier to use (Ruby on Rails as an example) there is a lower barrier to entry for new software companies. The time to value for the customer becomes more of a differentiator. That requires domain expertise. And a focus on execution.

New software has a hard time differentiating itself- it has to focus on vertical, or niche, markets and show a deep understanding of that market. Don't bother trying to differentiate. Focus on intangible assets. For example:
  • the old sales model for software was extremely labor intensive
  • the new open source model keeps the sales cost low
  • users try it for free, then pay for additional levels of sophistication
  • aim to convert 1% of downloads
  • users only contact company when they've reached the point of conviction and are ready to pay
Execution is key- can you ramp up users quickly and do you have the ability to scale

What models are working, given the commoditization of software?
  • buyers are out of the control of the IT departments
  • cloud computing/SaaS allow software companies to sell directly to operational units at a low price point ($25-50k) without IT department involvement
  • the SaaS model is a small (1-2%) of the whole market but is growing fast
  • especially fast penetration of the SMB market
How are open source software and SaaS interacting?
  • open source is allowing sophisticated developers to execute custom projects quickly and cheaper
  • SaaS is bringing turnkey, easy to use and implement applications to organizations that have had the resources in the past- "the local church group using Google Calendar"
  • startups can have huge scale from day one- from a investing perspective cloud computing plus SaaS equals low initial capital expenditures to get alpha and beta versions built
  • the middle area is getting squeezed
Were these guys (and gals) full of crap? Are you a software marketer or salesperson- are you seeing these trends?
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