Some time in the next 10 days I’m going to look back at my now year-old 2009 enterprise-software-market predictions and ‘fess up as to how well or poorly I did. But, first, I’ve decided to make that end-of-year review task a breeze at this time next year. Here's a list of predictions for 2010 that I am certain will be true a year from now when I look back.
Number 1, all those people that didn’t buy enterprise-software licenses in 2009 will not be placing subscription maintenance renewals in 2010. Because maintenance revenue makes up about 67% of the enterprise software market revenue stream, this factoid will have a devastating compound-interest-like effect on the software market all through the next decade
Two, Copenhagen has come and gone so that means all the 2009 marketing buzz about green this and green that in information technology (IT) has come and gone as well. Early in 2009 I wrote a blog post about the silliness of SAP's sustainability message. The editors at IT Business Edge did not want to run it so I kept promising myself I would convert it into an IT investment research piece that pointed out the huge revenue stream SAP was racking up with its green products. Throw that article away.
Three, 95% of software downloaded off the Internet under open source terms and conditions (Ts&Cs) in 2010 will never be converted into a paying service revenue generator. As much as 90% of that software will never be used in a production sense. But that’s actually a great improvement. Not too long ago, the numbers were more like 99%. Initially, most development software became a commodity and therefore a candidate for open source Ts&Cs. Then low-level deployment software such as web servers and enterprise service buses (message oriented middleware) followed suit. Now the market is working down into the operating system with Linux soon (three-five years) overtaking Unix in service revenue and up into the application middleware category (e.g., heritage JBoss).
Fourth, and this is too much like a real prediction, open source Ts&Cs will never have much of a visible effect on higher order applications such as collaboration or ERP software. That’s not because there won’t be millions of lines of open source licensed code used for those purposes but because it will be hidden behind the software as a service (SaaS) delivery method. (The latter is really a next-decade prediction, not a next-year prediction.)
Fifth, as explained on IT Business Edge in July, all the leading enterprise software suppliers are deciding what they want to be when they grow up. Their final bets will be placed in 2010 and it means users will have to make some decisions as well.
The previous two sentences are the prediction; what follows is just a guess about where they will place their chips (in alphabetical order rather than in order of leadership in the software market):
- Google (GOOG)—IT enabled consumer services becoming progressively more important as search patents expire in 2011; heavy user of open source software for other functions
- IBM—IT enabled business management services, eventually using all open source software
- Microsoft (MSFT)—Content-driven business and consumer services, uniquely melding the two (and even using open source software if it does the job better than some of its own technologies)
- Oracle (ORCL)—Technology provider, like Cisco (CSCO) and Intel (INTL), even supplying technology to IBM, Microsoft and SAP
- SAP—IT-driven business process management (BPM) delivered SaaS for enterprises of all sizes; needs to acquire Intuit (INTU) or Sage (LSE: SAGE) or risks being acquired itself
Note that the five guys at the top of the heap in enterprise software at the end of the first decade of the 21st century soon won't even compete with each other. Assuming this transition is mostly complete by about 2015 which one is the best investment today? It depends on whether you like investing in commodities or services, and whether you think investing in consumer or business services is safer.
-- Dennis Byron