Tuesday’s Tip: Seven Signs Your Software Vendor Can’t Innovate Fast Enough

Published on June 8, 2009 by R "Ray" Wang

Collective support and maintenance, constant innovation, best practices, and improved ROI represent the key arguments that led enterprises to packaged applications such as ERP. Today, this promise appears to be broken as enterprises question the value received for their support and maintenance monies.   In addition, on-premise upgrades require painful testing and down time to innovate via upgrades.  Meanwhile, new SaaS entrants deliver innovation with try before you buy ease and subscription pricing that business users can embrace.  The question remains – how do you know if your vendor innovates quickly enough?

One approach – determine the total percentage of support and maintenance monies reinvested into the product?  Identify what percentage of R&D investment and the amount of innovation vendors have delivered to date.  Conversations with over 47 current and former enterprise software executives reveal seven tell tale signs a vendor has slowed down their innovation agenda.  Enclosed is the checklist.  See if your vendor meets any of these criteria.  If they hit four or more, then your vendor’s entering a period of decline:

  1. Failing for years to deliver on promised functional enhancements. This represents a common problem among older ERP customers. If you poll the top 25 customers of an industry vertical for their list of functional enhancement requests, it would be common to see an 70% or higher overlap of requests that have not yet been delivered by the vendor over the past 5 years. Assume the average enterprise pays $4M a year in maintenance and support, that’s $100M a year over the past 5 years. Half a billion dollars later, it’s hard to believe the vendor could not deliver on a common list of requests. What’s happened? The vendor may have invested in new markets like SMB or new verticals instead of your industry and vertical.
  2. Repackaging existing products to sell back to you. It’s true. This happens when the functionality in a product you own ends up in a “new” module. Suddenly, the sales reps are calling you trying to sell you a product you already own with 20% new capabilities. Isn’t that the incremental enhancement you should have gotten with your maintenance dollars?
  3. Acquiring complementary solutions to push into the install base. Call them “tuck-in”, “edge”, and “micro-vertical”, vendors often make acquisitions when the product well runs dry. With no new product in pipe, vendors must find a way to raise their new license numbers and penetrate existing install bases. This happens a lot with vendors who only compensate their sales reps for new license sales.
  4. Diverting customer attention with the latest fad. Instead of building out core new products, vendors may suddenly take an interest in a hot area like social media, green technologies, or political causes. Not there’s anything wrong with this, but quick fixes may not solve core-underlying issues in product technology or roadmap. The lack of clarity and direction may often seem baffling especially when the basic needs have not yet been made and customers remain outraged.
  5. Substituting professional services and custom development for new license sales. Declines in new license revenue have vendors looking at professional services to make up the difference. One trend – engage customers in custom development work which then gets booked as license revenue. However, this ends up diverting valuable product development resources that should be focused on existing enhancement requests.
  6. Lacking the inclusion of key Enterprise 2.0 design principles in future road maps. Vendors with confusing usability and user experience strategies, lack of a support for new deployment options including true multi-tenant architecture, rigid business process composition tools, poorly designed middleware architectures, etc will pay the price. Expect customers to defect towards more modern solutions that bring the Web 2.0 world into the enterprise. If your vendor hasn’t made the shift, your maintenance truly has been squandered.
  7. Over-relying on partners for core capabilities. While solution centric partners play a key role in delivering the last mile solutions for customers and vendors, a heavy reliance on partners to deliver core capabilities highlights innovation issues at a vendor. Should a vendor increase reliance on partners to deliver solutions in a core business process or a capability that should be in the middleware, users should ask why the vendor can not deliver this capability. While many vendors OEM other solutions, to accelerate innovation, over reliance on partnerships and OEM’s raises red flags.

The bottom line – users need to demand greater accountability for support and maintenance paid.
Users must reclaim back the discussion on how their support and maintenance dollars will be reinvested or expect those monies to be repurposed to investor profits and share holder value. Take the following steps:

  • Start by building formal alliances among industry colleagues to discuss common standards and requirements
  • Identify commoditized processes that should be delivered in the software.
  • Work with user groups to take an active role in setting the product roadmap and customer agenda.
  • Engage vendors in back channels but do not be afraid of sharing with the media industry specific concerns when at an impasse.
  • Don’t be surprised to find most vendors open to such discussions in improving the client-vendor relationship.
  • For those vendors who fail to seriously take user input, organize and campaign in public. You’ll be surprised to find out what a publicly traded software vendor will do to defend share price.

Updated with Lists from Vinnie Mirchandani and Dennis Howlett.  Add your seven and send me your link!

20090608 Deal Architect – Vinnie Mirchandani “More Signs Your Software Vendor Can’t Innovate Fast Enough

20090610 ZDNet Enterprise Irregulars – Dennis Howlett ” Even More signs Your Software Vendor Can’t Innovate Fast Enough”

Your POV.

So let me ask you, what do you expect from your software vendor?  Do you think they will innovate quickly enough?  Will SaaS be the Best of Breed option of the 2010’s?   Please post here or send me a private email to rwang0 at gmail dot com.

Copyright © 2009 R Wang. All rights reserved.

  • Ray, couldn’t agree more with your post. The legacy vendors are living off an installed base that has been pushed close to its breaking point. We’re finding more and more customers who are frustrated with the $s invested for limited returns and are seriously evaluating and migrating to SaaS/cloud applications. To an extent, the legacy vendors are a victim of the architectures on which they built their apps. Since there are n different versions of the app out there running on many variations of middleware and databases, the legacy vendors have to invest more and more with each new release to support/not break all the variations that are already out there.

    Multi-tenancy makes innovation a lot easier since the vendor is supporting just ONE version of the application. In addition, since they get real-time feedback on which features are being used/not used, customer-centric innovation is a lot easier to accomplish.

    Not that cloud will solve all ills, but it’ll go a long way toward addressing some of the frustrations of IT buyers.

  • Good points, Ray. Vendors are using revenue from maintenance fees to do acquisitions, then turning around and selling those acquired products to the customers that paid the maintenance fees. So if the customer’s maintenance dollars were used to acquire new products, shouldn’t those customers receive those products at no charge under the maintenance program.

    It’s even worse, of course, when the acquired products have nothing to do with the products under maintenance. Think of a manufacturing ERP vendor acquiring products for the retail industry. How is that justified?

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