Buyers don earplugs at upgrade time

COMMENTARY--After a string of disappointing earnings announcements from enterprise applications makers, is it time to fret about another summer of tech discontent?

The answer is "yes," though not because IT spending is again about to fall off a cliff, circa 2002.

That's the good news.

But put your ear to the ground and you'll hear a drumbeat of dissatisfaction with the status quo. Customers are increasingly fed up with the way enterprise software has been shoved down their throats, and they are finally voting with their wallets. All the while, apps suppliers have been slow to accommodate themselves to a push for a new world order. Can you spell collision?

That's the bad news. Here's why.

Folks just refuse to run anymore like hamsters on the upgrade mill.

Folks are simply tired of running like hamsters on the software upgrade mill. Unlike years past, they can select viable alternatives, such as open-source software or rent-an-application providers such as Salesforce.com. The upshot is IT directors have options that won't lock them into expensive upgrade cycles or onerous maintenance contracts. That's a handy club to beat down an obnoxiously aggressive software salesman.

For traditional enterprise software providers, any challenge to the software upgrade cycle is bad news in bells. They prefer to keep things just the way they are. The industry's dirty little secret is that in many cases, their customers do not really need to install an entirely new CRM (customer resource management) or ERP (enterprise resource planning) system. Truth be told, many probably can't even use the one they already have!

That may have been the way things were done, but IT buyers picked up bad habits during the tech spending drought. Back then, they regularly received big discounts on licenses and maintenance deals. Salesmen were desperate and ready do nearly anything to close deals. But with the passing of the tech downturn, software salesmen remain on the defensive.

The reasoning is simple: Only suckers still pay top dollar.

In this new constellation of power, IT customers are squeezing their suppliers for every giveaway in the book--everything from licenses to maintenance contracts. The reasoning is simple: only suckers still pay top dollar. How widespread this is remains unclear. If dissatisfaction with the status quo becomes a groundswell, it would strike at the heart of how things get done in the enterprise software business.

After getting gouged over the years, most customers would welcome the change--though not the folks running the Oracles and Siebels of the software world. With all those six-figure salesmen on the payroll, they obviously view the world through a different prism. Most of these companies were started by sales guys, and their assumptions about the way business ought to work have never been questioned. "You will pay for this because it is good--and if it breaks...well, you will pay yet even more!"

The recent run of earnings statements suggests that times are changing. Not a single enterprise software supplier has knocked the ball out of the park. Some of the excuses offered for the earnings misses are wonderfully creative. PeopleSoft came up with the best one when it blamed an expected shortfall on Oracle's mischief.

Maybe Oracle CEO Larry Ellison did cause real grief, but that's still an easy out for a company fumbling its way along. Aside from its difficulty handling the merger transition with J.D. Edwards, PeopleSoft's problems reflect a far deeper, widespread malaise that facile alibis can't explain.

Some dismiss all this as a one-shot worry, a passing blip that won't reappear on the radar in the second half of the year. But that's optimism taken to Panglossian heights. Even if the worst-case scenario fails to materialize, change is clearly in the air and enterprise software apps makers are not in any shape to deal with a looming customer revolt.

Sooner rather than later, they're going to find out that homey don't play that game no more.

biography
Charles Cooper is the executive editor of commentary at CNET News.com.