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The World Of Software Buying Has Changed; Will the Vendors Change With It?

Written By: Olin Thompson
Published On: March 22 2004

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Premise

How an enterprise buys software has changed, forever. Buyers are skeptical, risk adverse, and tighter with their budgets. What are those changes, why did they happen, and what does it mean for the both the buying enterprise and the selling vendor?

For some buyers, they are very aware of the changes. For most, the change has been subtler. The subjects they investigate have changed. The subjects are more challenging, and buyers want more detail and more proof. For software vendors that don't recognize and address these changes, selling application software will become increasingly difficult.

History Builds Skepticism

Everyone is very aware that the dot-com bubble has burst. Many people felt it in their 401K or other investment areas. For the software industry, it has had obvious impacts on, for example, their stock price or the availability of venture capital. A less obvious impact is with the skepticism of the buyer. The dot-coms and others made many statements about their impact on enterprises and the economy in general (The New Economy) which have proven very false. The dot-com hype has spilled over to all technology vendors and all are now seen as hyping their benefits, and what their product can do, etc. Vendor claims are now met with a healthy skepticism. Vendor claims are now met with a spoken or unspoken reaction of "Prove it!"

The late 90's and early 2000's heard a roar of outlandish vendor claims. Vendors bragged about their products saving billions of dollars. Some of those vendors are now shadows of their former self and these claims are now seen as false claims or worse. The benefits hype of this period is another reason that today's buyers are skeptical of vendor claims. If a vendor could be so very wrong and even unethical about these claims in the recent past, why should buyers believe any vendor today? Many software buyers recognize that the same people that were hyping software with unsupported claims are many of the same people in the industry today who are just working for different companies.

Today, all vendors suffer from a lack of credibility at the beginning of the buying process. Vendors must recognize this lack of credibility and work to overcome it. Without credibility, their claims will not be accepted and their efforts will suffer. Regardless of the true value that their software may bring, without credibility that value sounds like the unsupported, over-hyped claims of the past.

Economy

Yes, the economy is still tight. Even those companies who have seen an up-tick are still conservative in their IT spending. This means tight budgets and fewer buyers in the market.

Tight budgets and the "down sizing" of the late 90's has resulted in buyers lacking the internal resources to implement new software. This causes buyers to more fully investigate the implementation requirements for any purchases they are considering. The lack of internal resources can be compensated for with vendor services, but budgets are often not available for these services.

Fewer buyers in the market means increased pressure on vendors. Many vendors rely on new buyers as their major source of revenue. As one vendor executive stated, "We have too many vendors chasing too few deals." That translates to desperate vendors that result in buyer questions about vendor integrity and honesty. Can the vendors keep the promises they make? Major discounting is a way of life for some vendors but buyers should think about such vendors' product and services being "too cheap" such that the vendor cannot afford to meet their commitments.

The impact of the economy has been felt in the vendor community. Poor financial results, tight capital markets, and the drop in stock prices have led to market consolidation. The question of business viability was long limited to smaller or start-up vendors. Buyers now question the viability of all but the largest vendors and even then, they question the financial independence of those vendors. The questions include, "will you be in business?" and "what happens to me if you are bought out?"

Risk

Buyers are more aware of the risk involved in major purchases and implementation projects. The press and analysts have reported the wide spread lack of return on investment ROI and run away implementation cost in many IT projects. Risk comes in other varieties; the product not performing as promised, intolerable business disruption, and others. In the current employment environment, decision makers and selection teams are also concerned about personal risk: if I go with this project, and something goes wrong, what happens to me?

The tight economy means cost of failure is seen as higher than normal. The lack of financial and human resources means that project failure resulted in the wasting of those limited resources.

Vendors Face a Cross Roads

Many vendors will tell you that they have faced some of the most difficult sales cycles in their careers over the past few years. Many of these same vendors remain hopeful that as the economy picks up, things will get "back to normal". "Normal", however, has changed. The previous overzealous buying environment is behind us, and the new buyer has emerged. Vendors that stick to their knitting and believe that the good times will return have missed the marketplace shift. Leading vendors have recognized this shift and changed their marketing and sales approaches to compensate, or even take advantage of the new buying scenario.

Summary

Buyers should be prepared to ask the questions that are needed for the enterprise to feel comfortable with the selection and project. Be up-front about concerns and doubts, demand more detail and more proof. Only by addressing these issues directly can you get the answers you need.

Vendors should be prepared to address these questions. The most effective vendors will anticipate the questions and build their sales and marketing efforts to directly answer the questions and to give your company the credibility required to be believed in these skeptical times.

Vendors, learn more at www.thecredibilityforum.com or www.technologyevaluation.com/TheCredibilityForum/

About the Authors

Jim Brown has over fifteen years of experience in management consulting and application software focused on the manufacturing industries. Brown is a recognized expert in software solutions for manufacturing and has broad knowledge of applying enterprise applications such as product lifecycle management, supply chain management, and ERP to improve business performance. Brown served in executive roles for software companies specializing in manufacturing solutions before starting his consulting firm, Tech-Clarity, Inc.

Olin Thompson is a principal of Process ERP Partners. He has over twenty-five years experience as an executive in the software industry. Thompson has been called "the Father of Process ERP" and he is a frequent author and an award-winning speaker on topics of gaining value from ERP, SCP, e-commerce, and the impact of technology on industry.

 
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