Pure-play enterprise software biz still relevant

More IT vendors snapping up software companies to form part of broader product portfolio but rate of such acquisitions will slow, while bigger market players unlikely to branch out to hardware business.
Written by Kevin Kwang, Contributor

There will always be market niches pure-play enterprise software vendors can fill as such industry players offer innovation to meet specific customer needs. Additionally, existing software vendors are unlikely to venture into hardware business as it is difficult to integrate both business segments, according to an industry analyst.

Matt Healey, program director for software and services at IDC Asia-Pacific, told ZDNet Asia in a phone interview that the overall software market was maturing and reaching a "state of equilibrium" in which new players were beginning to replace those that had been bought over by bigger IT vendors.

That said, the analyst stressed that there will always be pure-play software vendors in the market at any given time, as these companies represent innovation and help meet specific enterprise needs through their products and services.

Asked if there was a need for existing software vendors such as SAP or SAS to branch out into the hardware business, Healey said: "There is no need right now." And this will remain the case for at least the next 5 to 10 years, he added.

He noted that the "skillsets, approach and mindsets" needed to run a hardware business is different from software.

Citing Oracle Systems as an example, he said the erstwhile software giant, which bought hardware vendor Sun Microsystems in 2009, is facing challenges in bringing its concept of hardware support and maintenance to its customer base. "I think Oracle is finding it more challenging than expected," the IDC analyst said.

Healey added that success is defined by the company's revenue and profit. In Oracle's case, the "jury is still out" on the company's decision to branch out into hardware as it is too soon to tell with the limited information available, he noted.

He did point out that software companies need to have tighter integration with their hardware and channel partners in order to stay competitive and build up their businesses.

Beau Skonieczny, research analyst of computing practice at Technology Business Research (TBR), highlighted the same point in an earlier ZDNet Asia report. He said owning the entire software, services and hardware stack is an important piece of the enterprise IT puzzle for vendors. Using Apple as an example, Skonieczny said its lead in the consumer space was supported by its closely-knit products, software and services, which each had clearly defined focus areas and the ability to execute well on that focus in a streamlined manner.

Business model still profitable
When contacted, software vendor SAP reiterated that there currently is no need to branch out into hardware.

Steve Watts, president of SAP Asia-Pacific and Japan, said in his e-mail that its "business model hasn't changed one bit" and it is still focusing on what it does best--"driving organic growth through continued co-innovation with our partners and customers".

He recognized that there is continued consolidation across multiple industries but for SAP, its focus is on making sure companies have the means to integrate heterogeneous data into one operating environment while ensuring that all data will be available in a concise and timely manner to all users.

Watts said: "We live in exciting times. While others are consolidating the past, SAP is accelerating innovation for the future to help our customers run better.

[To SAP], innovation is more than developing software; it is generating breakthrough technologies and best practices that shape emerging IT trends."

This business model has allowed the German vendor to reap success. In Asia-Pacific and Japan, for example, the company is "growing very strongly" in the areas of in-memory computing and its HANA appliance, as well as mobility and cloud computing, Watts said.

"Most conclusively, we're seeing rapidly expanding sales pipelines for our mobility and in-memory solutions, with almost 10 percent of our software revenue in the third-quarter of 2011 coming from our new innovations such as HANA," he stated.

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