The rapid development of social, mobile, analytics and cloud (SMAC) is fueling a renaissance in business software. These mega shifts should drive accelerated growth in 2013. We see SMAC propelling the adoption of new business processes and technology across the entire business software landscape. In our view, this means more seats, more applications, more data and a refresh of existing systems. After a decade in the doldrums, we see 2013 as a turning point where new technology reinvigorates business software.
We believe the combined effect of SMAC is going to impact each bit of data, system and process in every organization. It would reshape how businesses attract, manage and interact with customers in next-generation CRM systems. For supply chain and operations systems it would deliver gains in efficiency, flexibility and visibility. We think new business intelligence technologies will help organizations turn data into better decisions and ultimately more dollars. Productivity should see a boost as new social business engagement apps help automate the gaps in most business processes. Just as consumer technology now lives as a collaborative continuous service over many connected devices, we too think business software will be reborn with the same DNA.
We see the disruption from these forces creating a huge market opportunity for new technology providers. It will likely also threaten many established market participants. After a decade of cost-reduction-focused IT spending, we believe the mandate for technology transformation is clear and urgent. A slow out-of-the-gate response by many industry leaders has left the window open for upstarts and innovators. It remains to be seen how (and in some cases whether) the laggards will catch up. Regardless, we see significant potential growth in the business software market this year and think nearly every category is up for grabs.
The “Big Customer Era”
We believe tectonic shifts in computing require a new approach to generating revenue and delivering a superior customer experience. We refer to this new front-office application approach as the “Big Customer Era.” In our studies, we see the traditional interaction and transaction methods breaking down as mobility and social alter customer behavior. Customers are empowered with more knowledge and control over how, when and where to interact with a company’s brand, sales, commerce and support channels. We think Big Customer is a huge opportunity that could represent nearly $50 billion in software revenue within the next five years.
We are already seeing a new generation of engaging, socially savvy and intelligent software technology companies emerging to help enterprises meet this challenge. These new solutions are fusing advertising technology, new inbound marketing systems, customer-focused engagement apps, existing sales and support systems, commerce solutions and analytics.
In our view, the societal and technological changes of Big Customer will also drive significant adjustments in how companies are organized and structured. Over the next few years we think that marketing, sales, support and even IT silos will begin to mesh into a more holistic model. We see responsibility shifting toward a unified view of revenue that looks across the entire customer life cycle and assumes a lifetime value model. We think this will shift more technology buying power toward customer-facing operating units like marketing and sales departments, while IT departments will likely have to evolve to support innovation.
Turning Big Data into bigger dollars
While the opportunity to benefit from Big Data is substantial it is by no means easy. In our view, it is imperative that business intelligence solutions are engineered for usability by everybody, not just the data centric scientists representing the one percent of the one percent.
Clearly the end goal of the Big Data process is to make better business decisions that ultimately lead to increased monetization. In order to do so, we believe businesses will have to adopt new process workflows for how they visualize, share, collaborate and act on their data. This means deeper integration of analytics into both engagement and transaction streams.
Underpinning many of the new Big Customer solutions is the unprecedented power of Big Data analytics that can analyze, predict and enable right-time delivery of the perfect customer experience. We see these systems enabling new forms of performance-based advertising by connecting advertising and marketing to the ultimate sale transaction. Just as marketers syndicate content to increase their reach, we think the next natural evolution is syndicating commerce. Doing so shifts companies from looking solely at cost per thousand impressions (CPM), and instead links advertising dollars at the top of the funnel to revenue conversion, or cost per revenue (CPR). We believe this will transform ad units into commerce units.
The constantly connected customer
Ubiquitous Internet connectivity erodes the line between analog and online activities redefining both B2B and B2C relationships. We believe the transformation to an internet protocol (IP)-everywhere world is altering how virtual and real goods are defined and used.
These technologies are driving the emergence of what we call the “constantly connected customer.” We see both consumer and business customers linked by personal mobile devices and surrounded by connected products that capture and share performance and usage data. Product manufacturing and IT are no longer merely part of how products are built; IT is now becoming a core element of the product itself.
We believe one consequence of the influence of constantly connected customers is that the difference between B2C and B2B sales models are blurring. We think that companies will need to embrace a new “Business-to-People” (B2P) model. We view B2P as complementing traditional sales and distribution approaches with active targeting of end users through data-driven design, socially driven marketing, high-frequency engagement and user-level connectivity.
The system of record for the Internet of Things
As the physical world becomes digitally connected to form the Internet of Things, we envision a new category of management software called Infrastructure Resource Planning (IRP). In our view, mobile connectivity, miniaturization, telematics, and RFID/near field connectivity are driving a new concept.
In our view, the emergence of this IP-connected world is going to change how businesses manage their infrastructure. We see connected networks of widely distributed people and smart devices/machines operating independently with embedded event-driven triggers and real-time data streaming on performance and usage. As this vision becomes reality, we see IRP solutions extending and replacing traditional IT service management and IT operations management solutions. Instead of only managing physical IT assets, we envision IRP as the system of record for all enterprise assets including physical assets (trucks, inventory); manufacturing assets (plants, equipment); mobile equipment (vending units, laptops, smartphones); and ultimately even human assets (field sales, service/maintenance reps).
We believe IRP will do more than merely track these assets or manage maintenance and replacement cycles. IRP would form a new system of record that allows companies to drive strategy, efficiency and operational flexibility by capturing network-wide, real-time alerts and performance data.
We are already beginning to see companies investing into IP-connected infrastructure. General Electric recently announced it was establishing a $1 billion global software center in Silicon Valley to develop industrial Internet solutions. Car manufacturer Ford has released OpenXC, an Android-based software development kit that provides third-party developers access to sensor data from Ford vehicles. As these efforts gather momentum and begin connecting fleets, devices, manufacturing and people, we see a very large and unclaimed revenue opportunity for IRP applications that manage all of these interactions.
Social business software needs to get “applicationized”
Social business holds great promise, but to really change how work gets done, the software needs richer functionality or what we call getting “applicationized.” Applicationized means the products have to do more than just provide simple activity stream status updates. An unfiltered and unfocused activity stream merely moves information overload from email to a new social channel. High-value social business apps need to drive user engagement, incorporate files, tasks, projects, communication and workflow. They need to have relevancy to the various functional areas like marketing, sales, service, HR, operations, and finance. The big win would come when these systems can bring into light the real business practices that aren’t touched by today’s legacy transactional systems.
In our view, the first step of the applicationization process is the convergence of the activity stream and file management. Files are to enterprise collaboration what photos are to social networks. In social networks, activities around photos consume significant user time. Just as consumers take, tag and share photos, business users create, label and collaborate on files. In business, there are numerous ad hoc processes that center on various types of files like spreadsheets, documents and presentations. For knowledge workers, the file often reflects the IP of the organization.
The next phase of this product evolution should be a new lightweight, mobile-centric project and task management system, in our view. We think the bulk of the ad hoc process flows in any organization could be organized and managed through powerful but easy-to-use technology. The logical extensions to this system are new group communication tools for conferencing, chatting and collaboration.
We ultimately see these product features being tailored for specific functional areas. This may manifest through particular application features or be enabled via a platform as a service. Last but not least, we think all modern applications will incorporate social mechanics as part of their core structure. Social mechanics are consumer software techniques like following, sharing and liking.
Who can the CIO trust to tame the consumerization of IT?
CIOs are desperate for allies in their fight to tame the consumerization of IT and we think help may be on the way from familiar faces, as well as some new kids on the block.
For years CIOs have prevented personal consumer devices and software from entering the enterprise due to concerns about their weaker security features. Enterprises needed to maintain control over firewalls, content and access. Admittedly enterprise devices generally lagged consumer alternatives on ease of use, functionality and productivity features. But IT considered these needs less critical than security. In recent years, however, the feature gap between enterprise and consumer has become untenable for productivity-focused employees.
The challenge, in our view, is that so far there has not been a clear leader with a solution that helps CIOs address the complexity of IT strategy in a multi-device, cloud productivity world. Moreover, to date this challenge has largely been about securing BYOD. However, we think the debate involves more than simply security. In our view, this is really about finding a more effective balance between enterprise security and productivity.
We think the best solutions will focus on enabling content, not simply on securing a device or maintaining a firewall. Employees want to use their own devices not only out of convenience, but also (and more importantly) because they are more efficient and better equipped for accessing and creating their own content. Unfortunately, most of the BYOD security solutions that are available today are still clunky and so onerous that usability is sacrificed, and the user experience is significantly compromised. This often results in employees reverting back to what we have called Shadow IT, in which employees go rogue and leverage their own personal technology for business usage.
Jason Maynard is a software analyst at Wells Fargo. He has over 15 years experience operating and investing in the software industry. In 2004, he was the first research analyst to advocate software as a service and launched the On-Demand Index. Maynard co-founded Verix Software, a Java CRM provider, later acquired by Inference in 1999. Jason is a member of InformationWeek’s editorial advisory board and was a seed investor in Siperian (acquired by Informatica). Contact him at [email protected].
Disclosure: All views expressed in this article accurately reflect the author’s personal views about any and all of the subject securities or issuers discussed. No part of the author’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the author in this article.