CIOs hate the current model of buying and selling complex big-business software such as ERP and CRM. That's because the cost of integration is borne entirely by the buyer. The smaller vendors often offer more capabilities than their bigger, integrated counterparts, but because there is no standard technology to link software from different vendors together, the little guys are a riskier choice. Assembling many vendors together in a best-of-breed strategy can cost more to install and take 25 per cent to 37 per cent longer to change and test than large, integrated packages from one vendor, according to Forrester.
Thus, CIOs put their careers on the line in a desperate guessing game of trying to determine up front how much an enterprise package will really cost the company - if businesspeople will accept it, and if it will truly have any beneficial impact to the bottom line after months or even years of disruption and change. In a 2002 survey of 600 companies that had purchased CRM software, Gartner found that on average 42 per cent of the licensed software was sitting on the shelf unused, accruing additional licence fees in support and maintenance charges.
Despite such waste, customers of enterprise software are locked in to their vendors with a padlock rusted shut by years of neglect. Moving from one vendor to another is so costly as to be prohibitive - just 1 per cent to 2 per cent make the move willingly, according to Meta Group analyst Barry Wilderman.
While application vendors still refuse to share the burden of integration with their customers, services vendors are learning that by sharing it, they can not only pump up their consulting revenue but their software revenue too. For example, Computer Sciences Corp. (CSC) already has such a pain-sharing program for the insurance industry called Virtual Development. Customers get a copy of the software source code that they can modify but only with the help of CSC consultants. CSC agrees to incorporate all customisations into the next version of the software, relieving a huge workload for customers. No more costly rewrites of customisations each time the vendor upgrades the software. By incorporating all the changes, CSC builds a software package that could become an indispensable industry standard (or an ungodly mess if not managed carefully). Customers are protected from becoming overly dependent on CSC because they can take the source code to someone else to run it for them.
With its huge advantage in services and outsourcing, IBM could complete the hat trick by acquiring enterprise software vendors such as Siebel Systems and Oracle, and bundling guaranteed integration and upgrade services with the software. Whether the US Department of Justice would agree remains to be seen. For CIOs, it would mean one great big throat to choke. If this happens, pure application vendors such as SAP and Microsoft will be at a tremendous disadvantage against companies that combine software and services together under one roof.
»TIPPING POINT: In 2009, IBM acquires Siebel Systems, and the next year it buys Oracle's application business after open-source competition kills off Oracle's database cash cow. Meantime, HP acquires EDS in 2007 in a bid to make itself look as diversified as IBM.
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