Autumn begins in North America on September 23. You wouldn't know it from the daytime temperatures from Phoenix to Poughkeepsie on this last day of summer. Instead, the giveaway is the slew of enterprise-software user conferences being held or planned around the U.S. and the reams of paper and millions of keystrokes being generated on related press releases and blog postings.
So it's time for the annual warning: don't invest anything on the basis of the misleading PR and blogging that says something along the lines that enterprise software is dead, while the public cloud, SaaS and open source are replacing enterprise software. Here is a typical offending blog post from GigaOM touting Amazon (AMZN). I choose it because it picks up on three out of the four misleading memes I mention above and even uses Gartner data that proves otherwise as its lead. But it's only one example among many.
The referenced article defies enterprise software market dynamics. It leads with the Gartner statistic that says the enterprise software will grow to $232 billion in 2010 and then says that enterprise software will be replaced by public cloud computing without referring to the Gartner statistic that says private clouds will be much more prevalent than public clouds. Gartner does not seem to put out a press release on the size of the public cloud market (my guess is that that is because the metric is quite small) but Gartner says that SaaS -- which is often mixed up with public cloud computing -- is a $8.5 billion market in terms of enterprise applications. That's 10% of enterprise apps spending worldwide according to Gartner and -- my guess again -- only 5% or less of all worldwide enterprise software spending.
Ten years ago when I used to help Amy Konary measure SaaS as a percentage of total spend at IDC, it was already 3% so we're not talking breakaway growth rates here. (I believed then and still believe that SaaS will again become a dominant enterprise software delivery method, just as it was when I entered the business 40 years ago.)
But more important to investing in enterprise software companies such as IBM, Microsoft (MSFT) and Oracle (ORCL), the cloud, SaaS and open source metrics simply represent pieces of the enterprise software pie. They are not cake and cookies. Here's how it works:
- Enterprise software is the market.
- Cloud computing is a deployment technology for enterprise (and consumer) software
- SaaS is a delivery methodology for both
- Open source is a license term and condition (T&C), mainly for enterprise software (like public cloud computing and SaaS, these Ts&Cs are used in a very small slivver of the enterprise software market as it faces the user)
IBM, Microsoft and Oracle -- along with possibly SAP -- will continue to dominate the market and the technology and have long histories with the delivery methodology and the license Ts&Cs.
-- Dennis Byron
(no financial interest in companies mentioned)