The Evolution of Enterprise Software: An overview

Enterprise software is evolving under selection pressure from challenging economic conditions and the adaptive possibilities afforded by cloud computing, mobility, big data analytics and social engagement.
Written by Charles McLellan, Senior Editor

The term 'enterprise software' describes the applications that large companies use to conduct line-of-business operations such as accounting, business intelligence (BI), communication and collaboration, customer relationship management (CRM) and human resources (HR). These tools are traditionally deployed in on-premise data centers, often as multi-faceted enterprise resource planning (ERP) suites from software giants like Oracle, SAP, IBM and Microsoft. 'Enterprise software' also encompasses vertical, industry-specific solutions, which are commonly developed as custom in-house apps that IT departments then need to integrate with commodity enterprise applications or suites.

At the risk of over-generalising, traditional enterprise software suffers from the following main disadvantages:

User hostility
Enterprise software typically concentrates on functionality and is rarely known for the friendliness of its user interface. Unlike consumers, business users have little or no choice over the applications they use, which means that productivity and job satisfaction can suffer if enterprise software delivers a poor user experience. Although there are honourable exceptions, most people who work in large organisations will have 'war stories' of struggling with software designed by engineers that takes little account of the workflows carried out by ordinary employees.

The user-hostility of much enterprise software is a major driver behind the consumerization of IT, and the adoption of SaaS and mobile apps in particular — more 'modern' solutions that tend to emphasise user-centred design.

High licensing and support costs
The licensing terms for enterprise software can be convoluted, particularly where large vendors have incorporated multiple acquisitions, each with their own licensing schemes, into their suites. This can lead to significant non-compliance charges for clients with less-than-perfect software asset management tools.

Another issue for enterprise software clients is the cost of vendors' (highly profitable) annual support and maintenance contracts, which can typically amount to around 20 percent of the initial licence fee. This issue has been addressed by third-party support and maintenance providers like Rimini Street, whose success with SAP and Oracle support is evident in the fact that it's currently embroiled in litigation with the latter.

Lack of flexibility and agility
The traditional enterprise software model is inherently inflexible and sluggish. For example, although commodity applications and suites can be customised (up to a point) for particular needs, problems can arise when upgrades roll out, leading to extra support and maintenance costs.

Meanwhile, enterprise application integration, aimed at reducing information 'siloing', is a costly and complex process that does little to encourage companies to implement the latest upgrades, or experiment with new software.

Global enterprise software trends
How big is the enterprise software market? In Gartner's latest worldwide IT spending forecast (March 2013), enterprise software accounts for $296.6 billion in 2013, showing an annual growth rate of 6.4 percent over 2012's $278.8bn. The only sector currently growing faster in Gartner's forecast is Devices, at 7.9% (driven by premium smartphone upgrades). Enterprise software only comprises 7.89 percent of the 2013 IT spending pie; the biggest slice, 44.8 percent, goes to Telecom services:

At $297 billion, enterprise software will account for 7.89 percent of the total worldwide IT spend in 2013, according to Gartner's forecast. (Data: Gartner Market Databook 1Q13 Update)

Gartner's figures are projected to 2017, over which period Enterprise software shows the biggest CAGR (6.6%), resulting in a spend of $383.8bn (out of $4,384bn, or 8.75 percent).

These high-level numbers only tell part of the story, however, as there are considerable changes afoot when it comes to the types of enterprise software that CIOs are considering buying. Gartner's January 2013 CIO Survey puts Analytics & Business Intelligence (BI) at the top of the priority list, followed by Mobile technologies, Cloud computing and Collaboration technologies:

This chart shows the priorities given to different technologies in Gartner's CIO Surveys over time. Rankings (r=1 to 18) in Gartner's data have been converted to scores (score=18-r) so that top-ranked technologies have the highest scores (for example a rank of 1 becomes a score of 17).

Big data, mobility, the cloud and the social enterprise are clearly the priorities now, but the above graph reveals some interesting trends over the last few years. For example, virtualisation (within on-premise data centers) has steadily slipped from a top-3 position up to 2011 to 8th place in 2013. Meanwhile, cloud computing (outsourced SaaS, IaaS, PaaS) has risen from a lowly position in 2009 to occupy a consistent top-3 place ever since. Legacy modernization has also climbed the rankings since 2010, and now occupies 5th place.

These figures and trends confirm that enterprise software is indeed evolving. Let's examine why.

Enterprise software evolution: selection pressure and adaptive radiation
In nature, bursts of evolution occur when there are systematic changes in the environment, which impose a selective advantage on traits that mitigate their negative effects. The development of antibiotic resistance in bacteria is a classic example. Another widely observed evolutionary phenomenon is adaptive radiation, where the appearance of a new trait or the colonisation of new habitat opens up novel ecological niches for exploitation. The canonical example here is Darwin's finches, where 15 species diversified from a single founder population on the Galapagos islands.

We can see both of these forces at work in the recent history of enterprise software.

A major recent systematic change in the environment for traditional on-premise enterprise software has been the post-banking-crisis economic recession. This reduces its revenue-earning potential by causing the delay or cancellation of complex and costly upgrade projects, and by increasing the attraction of more affordable third-party maintenance services (such as Rimini Street). Vendors that fail to adapt to the new economic climate — by cutting their maintenance rates, for example — are likely to find themselves in their very own 'struggle for existence'.

Adaptive radiation in enterprise software is taking place thanks to the rise of cloud computing. The ability to implement platform and infrastructure services in the cloud quickly and cost-effectively has led to a profusion of scalable pay-as-you-go SaaS applications that now address all areas of enterprise software (see the listings in ZDNet's recent SaaS special feature). The SaaS model is not without its drawbacks (there are often worries about security, outages, compliance, performance, data mobility and integration for example), but the advantages (cost savings, scalability, accessibility, easy upgrades and resilience) are increasingly compelling for many organisations.

For the foreseeable future, then, companies will be faced with managing existing on-premise enterprise applications as cost-effectively as possible while exploiting what's on offer in the cloud (be it private, public or hybrid cloud).

The new world of enterprise apps
Consumerisation, widespread connectivity and cloud computing are shaping more flexible working patterns, in both space and time. Employees want to use devices, software and services that they're comfortable with, wherever and whenever the need should arise. Meanwhile, businesses want the ability to select and integrate best-of-breed enterprise applications rather than becoming (or remaining) locked into inflexible and expensive suites.

And, touching all aspects of the enterprise, there's a growing need to capture, organise and exploit a mass of 'Big Data', both structured and unstructured, that can give internal and external business processes an edge over the competition.

This is the current 'climate' for enterprise software. Here's the 'weather forecast':

More cloudy
Enterprises are increasingly adopting cloud technology, but what does this adoption look like at a more granular level? Management consulting firm The Everest Group recently addressed this question in a survey timed to coincide with the April 2013 Cloud Connect conference. The survey's 302 respondents were divided among enterprise/cloud service buyers (33%), third-party cloud solution providers (30%) and advisory professionals (37%), most of whom (79%) were from North America.

Enterprise buyers exhibited a strong preference for private cloud deployments for most workloads — the highest being for ERP/finance & accounting, with 70 percent favouring the in-house option. The biggest biases towards public cloud deployment were for less mission-critical workloads such as collaboration and content management platforms, web apps and websites, and CRM/marketing automation:

The Everest Group Cloud Connect Enterprise Cloud Adoption Survey 2013 shows that buyers currently favour private clouds for most workloads. (Note that the survey respondents were mostly from North America and that this pattern may differ elsewhere.)

The main drivers towards cloud adoption for enterprise buyers in the survey are familiar enough: TCO reduction, flexible infrastructure capacity and reduced provisioning time. So are the most significant barriers: security concerns and integration challenges.

The Everest Group also examined who were the primary decision makers in cloud deployments for different kinds of workloads, finding that corporate IT is most likely to be involved with those that are "closer to the physical infrastructure" or "do not directly touch revenue generation" (such as disaster recovery/storage/archiving, email/collaboration and application development/test environment). Elsewhere in the enterprise, CMOs, workload-specific function teams and IT teams embedded in business units are likely to wield increasing influence over cloud adoption decisions, according to the survey.

More mobile
Mobility is a double-edged sword for the enterprise: mobile devices, connectivity and services all increase employee flexibility and job satisfaction, but they also provide headaches for IT managers in terms of provisioning, support and data security. A recent survey from Wi-Fi network provider iPass and enterprise mobility management specialist MobileIron examined the enterprise mobility landscape and found that trends such as BYOD (Bring Your Own Device) are allowing employees to call the IT shots more than ever before.

Mobile application management is a key issue for IT managers, with the survey showing considerable variation in the methods used to securely provision mobile apps on employees' devices. The most popular solution is the private enterprise app store (28.7%), followed by public app stores (15.2%) and preinstalls on corporate-issue devices (13.5%). However, the variety of devices and operating systems involved means there's currently little standardisation in this area:

Survey result from the 2013 iPass/MobileIron Mobile Enterprise Report: "How are you providing/plan to provide business applications on your employees' smartphones and/or tablets?"

The most popular devices in the survey are Apple's iPhone and iPad, with BlackBerry smartphones holding onto third place (for the moment) just ahead of Android handsets. Interestingly, more IT managers plan to support Windows Phone 8 devices (45%) than BlackBerry 10 (34%).

When it comes to the mobile apps used by the IT professionals in the survey, Wi-Fi connectivity came out top, followed by secure corporate email and office suites. Social media clients made 7th place, with 28.5 percent of respondents using these for work purposes:

Survey result from the 2013 iPass/MobileIron Mobile Enterprise Report: "What types of mobile apps are you using?"

More data-driven
As noted earlier, analytics and business intelligence is the number-one priority for CIOs in Gartner's latest survey (January 2013). Over the next few years, 'Big Data' analytics and visualisation will become increasingly important in driving enterprise planning, particularly when it comes to gathering and evaluating unstructured data — 'dark' data on enterprise networks, or business-relevant information posted on social networks, for example.

Although Big Data remains more of a buzzword than a productive reality for many organisations, there are enough early adopters to have fueled a number of surveys over the past year or so. A recent study by the Business Application Research Center (BARC), conducted in the second half of 2012 and published in February 2013, canvassed 274 European business and IT decision makers on their usage of big data. The developing nature of the field is evident in the finding that only 14 percent of companies in the survey had a specific big data strategy in place, although a further 23 percent planned to develop one.

The BARC survey found that where big data analysis is employed, it cuts across multiple departments in the enterprise, headed by financial control (24%), marketing (19%), sales (18%) and IT (18%). When asked about the perceived benefits of big data technologies, respondents identified better strategic decision-making (59%), better steering of operational processes (51%), and faster (50%) and more detailed (43%) analyses:

Perceived benefits of big data technologies for business (from 'Big Data Survey Europe', BARC Institute, February 2013).

Turning to the problems that businesses expect to encounter when using big data, the list was headed by inadequate know-how in both the technical (46%) and business-analytical (44%) areas; interestingly, only a quarter of respondents saw data privacy issues as a potential problem. Big data analysis is currently handled predominantly by standard relational databases (79%) and BI tools (68%), with custom developments (50%) in third place, followed by a slew of specialised big data tools:

Big data technologies in use and planned (from 'Big Data Survey Europe', BARC Institute, February 2013).

The BARC survey shows that companies are already analysing a wide range of data types to better inform their decision-making — transactions, logs, sensor data, unstructured information (documents, video, images) and social media data. It also suggests that, as businesses get to grips with the technical challenges involved, they will want to increase the frequency of their big data analyses: 14 percent of companies had data available on a timescale of an hour or less at the time of the survey, while 26 percent had plans to reach this frequency. Only 4 percent of respondents had real-time data availability (5 seconds or less), while 10 percent planned to achieve this.

More social
Along with Big Data, the 'social enterprise' is a contender for the business buzzword of the last few years. The social enterprise refers to the use of tools — both within and outside the company firewall — that integrate a range of collaboration functionality, including: user profiles, groups, content sharing, discussions and conversations, blogs and wikis, social network analysis, browser-based productivity suites, dynamic activity streams, document repository integration, social tagging, bookmarking and search, general analytics, expertise location, specialist group formation (based on common interests), and content/people ratings and recommendations. This developing category combines elements of internally-focused 'enterprise 2.0' and external-facing 'social CRM' software.

As befits any 'buzzy' software category, analyst predictions for growth rates over the next few years are impressive: for example, IDC forecasts that worldwide revenue from enterprise social software applications will grow from $0.8 billion in 2011 to $4.5 billion in 2016 — a compound annual growth rate (CAGR) of 42.4 percent.

IDC and Gartner have produced quadrant-style vendor analyses of enterprise social software, which show a certain amount of similarity:

Vendor analyses for enterprise social software: Gartner Magic Quadrant (left) and IDC Marketscape (right).

Both analyst firms identify Salesforce.com and (Microsoft-owned) Yammer as 'leaders', with prominent positions for (VMware-owned) Socialcast and IBM in both quadrants too. Moxie Software — a 'niche player' in Gartner's Magic Quadrant and a 'contender' in IDC's Marketscape — has recently made a disruptive move by announcing the availability of its fully-featured cloud-based Collaboration Spaces application for free (you only pay for API access to business processes plus enhanced security and support). Expect a good deal more maneuvering in the social enterprise space in the coming months.

The Coelacanth factor
Nature occasionally throws up 'living fossils', such as the coelocanth, whose constant environment, and consequent lack of selection pressure, has left them apparently unchanged for millions of years.

It's clear that, generally, the combination of a challenging economic climate and the adaptive possibilities of the new cloudy/mobile/data-driven/socially engaged environment will drive a lot of evolution in enterprise software. But are there opposing forces working to maintain the status quo?

When considering how to handle business workloads in the future, companies will have to ask themselves a number of questions. Will a SaaS vendor or cloud service provider still be around in five years' time? Will a SaaS vendor continue to develop and deliver the required functionality and usability? Will sensitive company data be safe in the cloud, with widespread mobile access? Can a cloud service provider guarantee regulatory compliance? Can outsourced workloads be easily integrated with those generated by other business processes? Will the business process under consideration benefit from social engagement, either within or outside the company firewall?

If the answer to a significant number of these questions is 'no', then the workload under consideration is likely to remain where it is — at least for the time being.


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