BESSEMER CLOUD COMPUTING LAW #3: Death of the Suite; Long live Best-of-Breed and even Best-of-Feature
September 26, 2012
For most of the last two decades, major software vendors such as SAP, Oracle, PeopleSoft, Microsoft, JDA, and others have pushed the concept of an “integrated” software suite on the market. With cloud computing, the pendulum is swinging back forcefully in favor of best-of-breed applications.
The high level message from suite vendors to prospective customers was the idea that purchasing all of your primary business software from a single vendor had significant benefits to the end customer in the form of system interoperability, consistent architecture, common look and feel of applications for end users, and deeper vendor commitment. There was some real appeal in this positioning, and in the 1990’s the client-server applications and infrastructure stacks from these vendors were state-of-the-art, so customers embraced these “integrated” solutions en masse.
Unfortunately, however, there were some real downsides associated with selecting a suite strategy, because no single vendor was a leader in every application category, so the customer was often forced to accept second tier applications for many of their business needs. In companies where the finance team drove the evaluation, Oracle was then thrust upon other departments which then suffered through weak HR, operations, and CRM. If Human Resources drove the decision, they would buy PeopleSoft (which apparently wasn’t as often, because Oracle won), and if the company was in Germany or deep in manufacturing, then SAP was often the preferred choice. Of course superior best-of-breed options were often available in many of the functional areas, but the suite vendors did their best to spread fear, uncertainty, and doubt (F.U.D.) into the market around these offerings and integrations between systems were often quite painful.
“With a suite, if the vendor falls behind you are locked into subpar business performance. With best-in-class, if a solution falls behind you can always replace it, and achieve optimal performance. The Cloud allows open and seamless integration so our customers often work with Salesforce.com for CRM, Cornerstone OnDemand for HR, and Eloqua for Marketingand pick Intacct as the very best Finance and Accounting solution available.”
Therefore, for the better part of the last two decades the job of the CTO in major corporations has centered around this complex decision of where and when to use a suite, versus best-of-breed solutions. Should they buy a suite, with easier integration but limited functionality, or best-of-breed, with optimal performance but higher integration costs? This decision was made even more complex by the horror stories from many large corporations attempting to integrate large suite offerings across their companies with staggering costs and implementation times. Software licenses frequently ran into the millions of dollars (or tens of millions!), professional services would ultimately be another ~3x the software license costs, and the more you customized and configured the product to fit your needs, the more expensive it would be and the harder it would be to implement the next version. Many companies publicly disclosed spending upwards of $100M and 5+ years attempting to deploy systems, often cancelling the entire project midway through and throwing it away or trying to unwind the initiative, leaving a trail of fired IT executives along the way.
A large part of the momentum around Cloud Computing today is because IT departments now realize they can avoid many of these implementation headaches and functionality shortcomings, and instead get the best of both worlds by working with best-of-breed vendors. Cloud Computing provides the opportunity to leverage best-of-breed application offerings, with the standardization and pre-integration of many of the applications and API’s. You can pick the world’s best application for every need, every user, and every business case. You can deploy exactly the number of seats you need, where and when you need them.
Since the Internet is the common underlying infrastructure, deployments can now be done in days or weeks, and service ratios are a small fraction of the software subscription costs. This means that with Cloud Computing, the pendulum is swinging back to best-of-breed, and away from integrated suites. Better APIs are now allowing users and developers to literally leverage only the best product services, including the ultimate consumerization of software down to the “best-of-feature” level. This fragmentation means more choices and more pricing transparency for end users and application developers alike.
Of course, a handful of vendors are working hard to also create a generation of SaaS suites as well, and some will likely emerge to have success. But for the foreseeable future, these companies won’t claim to address all (or even most) of the application needs of an enterprise, but will instead carve out multiple vertical slices for an enterprise and then highlight preferred ecosystem partners to fill the gaps. Workday is having considerable success running a focused version of the “PeopleSoft for SaaS” strategy for very large enterprises, NetSuite has carved out market share in the mid market, and even the narrowly-named Salesforce.com is now responding aggressively by building out several new functional clouds. However it is now easier than ever to compete as a best-of-breed business.
What does this mean for cloud entrepreneurs? The entire software landscape is now open. It’s the great land rush. It’s noon on April 22, 1889 in Oklahoma and the gun just went off. Now’s your chance to plant your flag and claim a valuable plot of land in the software landscape, while the incumbents are giving it away.
For a PDF of Bessemer's Top 10 Laws of Cloud Computing and SaaS please click here.