Enterprise software, long a complex domain only of interest to specialists, has become the darling of venture-capital investors and startups. This post presents context and concludes with advice for CIOs on navigating the changing enterprise software landscape.
To get a sense of growing interest in enterprise software, look at investment in the category. In the first quarter of 2012, for example, venture capitalists invested $2 billion in IT companies, marking a 14 percent increase in dollars over the same period in 2011. Meanwhile, investment in consumer Internet companies dropped 76 percent during the same period. (All numbers from Dow Jones VentureSource.)
As money pours into startups, top investors have announced the greatness of enterprise software. In a well-known piece in The Wall Street Journal, investor Marc Andreesen, argued for the importance of software in today's economy:
In short, software is eating the world.
My own theory is that we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy.
More and more major businesses and industries are being run on software and delivered as online services--from movies to agriculture to national defense.
In an interview, Andreesen discussed consumerization of the enterprise:
In the last five years, there's been this sort of acknowledgment of the consumerization of the enterprise, which is consumer product development, design methods applied to business software, of which SaaS and cloud and all these things are examples.
The founder of startup Box, Aaron Levie, explained why the enterprise is so attractive:
Today, nearly every internet-connected, employed individual is a potential user and buyer of enterprise tools. And by making these tools accessible to users with just a few clicks, enterprise software providers can reach markets at a scale and speed that were impossible in the client-server paradigm.
Another investor offers a more prosaic view of why enterprise software is interesting--cash:
Straight-up enterprise subscriptions with average sales price of over $400,000. Not something that would be put on a credit card. In fact, it smells like enterprise software to me, and that sort of growth and deal size is sexy as hell.
For all these reasons, a new generation of startups wants to sell into the enterprise.