Special Feature
Part of a ZDNet Special Feature: Enterprise Startups: Risk vs. Reward

​How startups became safe for the enterprise

A combination of factors have made smaller vendors more appealing to corporate IT buyers. The big question is whether the fun will last.

"No one ever got fired for buying INSERT YOUR MASSIVE ENTERPRISE TECHNOLOGY VENDOR HERE."

That axiom---or some derivative of it---has bounced around with enterprise technology buyers forever. The thinking goes like this: Massive vendors---IBM, Hewlett-Packard, Cisco, EMC, SAP, Oracle, Microsoft---were the safe bets. These vendors could become partners and you could lock arms with them for decades of reliable, stable, secure infrastructure.

With a mix of cover your butt tech buying and sayings like one throat to choke, CIOs happily followed that bigger is better axiom with enterprise technology.

Today that theory is being tested. CEOs, CFOs and line of business execs are questioning whether big vendors are really safer bets. Is slower really safer? That dialogue---in some cases flat out calling BS on big vendors and what they can deliver---has created an environment where startups have a shot with enterprise technology buyers. Companies like Splunk, Tableau, Box, Twilio and a host of others have come from nowhere and are becoming enterprise staples along with earlier enterprise disruptors such as Salesforce, Marketo and Workday to name a few.

These vendors aren't exactly startups, but started small and expanded rapidly. There's a new enterprise stack forming with application programming interfaces, mobile and the cloud lowering barriers to entry.

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Simply put, a startup can land and expand into becoming one of your key go-to enterprise vendors. Oh sure, you still have to be careful with emerging vendors---company viability, product reliability, ability to service and support you and delivering on a roadmap are critical to any deal---but a CIO can look pretty good by bringing in a next generation company.

Twenty years ago it would have been unheard of for an enterprise to bet on a startup. Today, startups can get an audience. Enterprise tech has never been more interesting. Here are a few points to ponder in the new world order and whether it'll really last.

How'd we get here?

I'd argue that the fascination---and actually deal making---with enterprise technology startups has emerged based on the following factors.

The cloud and Amazon Web Services. Cloud computing has enabled startups to ramp quickly, try new services out and sell on multiple models namely subscriptions. It has never been easier for an enterprise to try out new applications and approaches. In some cases, a CIO can try out and application on an hourly rate. AWS has also largely eliminated one of the key questions about an enterprise startup. Does a startup have the infrastructure to be reliable? The infrastructure and security questions are taken away by the cloud. Some of your infrastructure runs on AWS. So does your startup vendor. The cloud has enabled an enterprise IT version of one of those talent reality shows. You can hold auditions repeatedly.

The Andreessen Horowitz effect. Enterprise startups have had trouble in the past because there lacked a seal of funding approval. Marc Andreessen and Ben Horowitz changed that equation. That duo focused a significant chunk of their venture efforts on the enterprise. And given those two turned Loudcloud into Opsware---a company way ahead of its time---and ultimately sold it to HP there's some real credibility there. What Andreessen Horowitz did to the enterprise startup market was to provide a seal of approval. Many enterprise vendors simply peruse the Andreessen Horowitz portfolio as a starter screen for companies that may have mojo.

APIs. Years ago the best of breed approach took a beating. The suite won because at least in theory applications and enterprise stacks were already integrated. The API economy changed that reality. Cloud applications from multiple vendors can be stitched together in a way where tech buyers can have the integration, absorb the innovation and have a series of smaller vendors that are focused.

Big vendors lost their way. There's no easy way to say this: Large enterprise vendors moved away from innovation and focused on being selling machines. The idea of the suite also took a hit due to acquisitions and offerings that were sort of integrated but not really. Enterprise software vendors bulked up via acquisitions and leveraged massive sales channels. Innovation slowed. The whole theory behind lock-in really took a hit as enterprise buyers were squeezed by everything from audits, maintenance increases and products that couldn't keep up with the next-gen offerings from smaller companies. Also see: Enterprise tech vendors: Sizing up the next gen field

Line of business execs took a chunk of the tech budget. As big vendors lost their way, the IT department became the "no" department. Line of business execs just started provisioning their own services via the cloud. Salesforce got traction through chief marketing officers and sales folks not CIOs. The CIO entered the picture only after it was clear that instances of Salesforce were all over the place and some grown up had to make sense of them all.

Sea change or mere point in time?

Enterprise startups have certainly become safer for the enterprise, but there are certain business realities that can end the party. These business realities have surfaced repeatedly in the tech sector.

Bottom line: I'm not convinced that the bullishness on enterprise startups can last. Here's why:

  1. Hot startups get acquired. Once up on a time, business intelligence applications filled a real need. In fact, most business intelligence apps were installed to generate returns on not-so-smooth enterprise resource planning implementations. Then BI development basically stalled as companies were acquired. There's already evidence that large vendors such as Oracle, SAP, IBM and a bunch of others will buy their way into new markets and categories. Cloud companies don't have the lock-in that enterprise software vendors had, but the acquisition play can still work. A startup you trust today may just bring you back to a large vendor you were trying to shake in the first place.
  2. Scale still matters. Large enterprise tech vendors got that way for a reason: Scale matters. Large companies can have more support, heavy discounts and roadmaps that extend for years. If you're a massive enterprise it may just make sense to buy from one equally massive tech vendor.
  3. Large enterprise vendors---like their large customers---are getting faster, can focus and can be innovative even as they protect existing revenue streams. The same developments---cloud, DevOps, agility and movements like design thinking---are also surfacing in large enterprise vendors. The result is that large tech vendors can also innovate faster and get new features to customers in a consumable way. It's unlikely that large enterprise vendors will be as fast as startups, but speed is just one factor. In any case, should large tech vendors deliver real innovative tools even at a slower rate, the argument for a startup could diminish.

Those three factors are just part of the buying decision equation. I'd call it a jump ball whether enterprise startups are really changing the landscape or just benefiting by multiple tech shifts happening at once. We don't know if the suite will always win in the enterprise at this point, but you'd be a fool to ignore the history that has played out repeatedly.

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