Billions of dollars are being created under your nose. No, it’s not in the local, social, or daily deals market. It’s the upheaval in the $267 billion enterprise technology market. For years, enterprise software companies were focused on impressing purchasing managers at the expense of creating an enjoyable end-user experience. The result was software that felt like your grandfather designed it. Now, everything is changing.
There is a convergence today between the rise of the cloud, the consumerization of IT, and the adoption of SaaS models that’s caused new billion dollar companies to emerge. Just this week we saw Oracle acquire Taleo for $1.9 billion and in December, two other enterprise technology companies leveraging these trends had massive exits: Jive IPO’d to the tune of $700 million and SuccessFactors was acquired by SAP for $3.4 billion.
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And these trends are far from over. There is still room for market creation and low-end disruption by leveraging these 3 trends.
1. The New Distribution: The Maturation of the Cloud
Writing about cloud computing trends is only marginally more fun than having to read about them. But understanding the impact of distributed computing on the enterprise is key. Enterprise customers have long resisted cloud-based software due to worries about reliability and information security. Yet, the cloud provides lower costs, instant updates and scalability.
After years of resistance, the dam has broken, and enterprises have now decided that they need the cloud and are adopting it en masse. One study found that 77% of enterprises are now using some form of the cloud. Entrepreneurs are taking notice and building significant, disruptive companies in response. One example is Newton’s cloud-based job applicant tracking software that saw 1,000% revenue growth in 2010, and 600% growth in 2011.
2. The New Ethos: Consumerization
New enterprise companies are focusing on building software that is actually enjoyable to use. Traditional enterprise software companies don’t care about the end-user experience because they operate under the assumption that only the person who buys the software matters, not the end user.
Chris Dixon recaps this phenomenon: “The ‘user’ isn’t the same person as the ‘buyer’… In enterprise software the user is generally a non-IT person but the buyer is usually, at least in part, the IT department.” As a result, traditional enterprise software is not usable, with design that borders on reckless.
As employees become more comfortable with consumer web products, they begin to demand that the software they use at work has the same level of usability. New enterprise software actually looks nice and is pleasant to use. Box.net has built a $550+ million business partly on understanding this ethos. The trend toward consumerization allows new startups to emerge that purely compete with entrenched enterprise products on design and usability.
3. The New Business Model: Enterprise Gets SaaS-y
SaaS, or Software as a Service, means selling software as a subscription. Your access to the software lasts for as long as you wish to continue subscribing.
SaaS gives enterprise customers more predictable software costs because they don’t have to worry about when the next version comes out and how much to budget for the upgrade. In addition, SaaS makes it easier to cancel and switch to new technologies. On the other hand, startups who use it as a pricing model get predictable, recurring revenue that makes it easier to scale a business by reducing the unknowns.
SaaS is starting to see acceptance in the enterprise, with one survey showing that 16% of all applications used today are SaaS. Unlocking that other 84% presents a dramatic opportunity to enterprise technology entrepreneurs.
The New Enterprise Technology
Companies such as Unified and Rypple are now cropping up that use all three trends to disrupt and create new markets. Just a few weeks ago, Rypple, the social performance management startup that leveraged these trends, was acquired by Salesforce. From HR technology, to recruiting, to advertising, companies that focus on usability, SaaS pricing, and cloud distribution can build massive markets.
In 2012, enterprise technology is still the frontier of web technology, but the path is clear. There are massive verticals where disruption is possible, and new markets that are still waiting to be created. While you may miss out on being the next social-mobile-local cool kid on the block, being a enterprise tech entrepreneur allows you to solve significant problems at scale—and build billion dollar businesses in the process.
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