Enterprise Software in 2009: Opportunities, Risks

Enterprise software is sure to remain a buyer's market during the economic downturn next year, but assuming you've got a budget, be careful to avoid boondoggles while in pursuit of a bargain, say analysts, consultants and IT executives.

Pointers from industry insiders for enterprise software in 2009 include:

Buy if you can, but don't go overboard

"It's almost self-evident that software vendors right now want to close deals," said Frank Scavo, managing partner of Strativa, an IT consulting firm in Irvine, California. "Buyers are probably in the strongest position they've been in years. The balance of power has shifted considerably."

One IT executive said the rocky economy is clearly providing him with a strategic advantage.

"Vendors are doing everything they can to gain our business," said Mykolas Rambus, CIO of Forbes Media. "As far as technology spend, we're certainly making prudent cuts. But at the same time, we're plowing money into areas we think generate ROI." Those areas include e-commerce and data warehousing, he said.

Software companies are willing to deal because it is "a matter of having a dollar in hand versus a dollar in the client's hand," said Eliot Arlo Colon, president of Miro Consulting, a Fords, New Jersey, company that advises Oracle customers on license purchasing.

Colon is predicting that Oracle, seeking to cash in on its "shopping spree" of acquisitions over the past few years, will heavily discount licenses for some products, such as content management and BI (business intelligence), in 2009.

But the company won't offer deeper discounts on products like its database, Colon said. "They just feel they have the stranglehold on the market."

Whatever happens, just because something is cheap doesn't mean you need a lot of it, Scavo said. "You don't want to overbuy software that's just going to turn into shelfware. You'll just end up paying maintenance on it."

Examine software maintenance costs

SAP's decision in July to move all customers to a richer-featured but costlier software maintenance plan -- resulting in an outcry from some customers -- could have a lingering effect, Scavo said. "I think it's caused buyers in general to start paying more attention to maintenance fees."

There's no clear sign that many more companies will follow the lead of companies like Rimini Street, which provide third-party maintenance at lower rates than vendors.

But these companies are already making an impact, said technology purchasing consultant and bloggerVinnie Mirchandani.

"The thing about third-party maintenance that people do not often realize is just its presence/threat forces a lot of discounting from the source vendor," he said via e-mail.

A number of large outsourcers also provide maintenance "on the quiet" for customers, according to Mirchandani.

"Overall, software maintenance pricing will be under even more pressure next year," he added. "Not just SAP, by the way. [It's] not surprising -- few markets, in tech or elsewhere sustain 90-percent-plus gross margins for more than a few years."

The city of Flint, Michigan, signed a third-party maintenance contract with Rimini Street several years ago for its PeopleSoft human resources application, said database administrator Tom O'Brien.

O'Brien so far has "never had a problem" with Rimini Street and the company's support staff is extremely responsive, he said.

Customers who are considering third-party maintenance but skittish about the potential quality of service should ask the firm for a work sample that could be applied to a test system, according to O'Brien. In Flint's case, it was a tax update for PeopleSoft, he said.

Rimini Street says customers who switch will save at least 50 percent off their current maintenance charges.

Other third-party maintenance companies include netCustomer, which supports JD Edwards, PeopleSoft and Siebel.

Venture carefully into SaaS contracts

The growing maturity of SaaS (software as a service) applications may inspire more companies to consider products from the likes of Salesforce and NetSuite, hoping to gain the oft-vaunted cost savings of the delivery model.

Forrester Research analyst Ray Wang predicts that SaaS vendors may trend toward offering month-to-month subscriptions. "Companies want to lower the barrier to entry and avoid the perception of lock-in. This also allows companies to explore strategies before they commit," he said via e-mail.

Customers who do choose a SaaS product should make sure they have an "escape plan," Scavo said.

For one thing, a customer can potentially maintain on-premises software themselves, eschewing vendor-provided maintenance, but this isn't feasible with a SaaS model, he said.

Therefore, SaaS contracts should allow customers to move onto an on-premises version of the software, if one exists, or provide an easy way to extract user data and move it to another system, according to Scavo.

"Prepare to get out before you get in," Scavo said. "I don't think customers think enough about that. It's kind of like a pre-nup. Nobody plans on getting a divorce, but if you're smart you're going to plan how to do this."

Don't cut too much, if possible

Peerless Clothing, a large tailored clothing manufacturer based in Montreal, has decided to hold off on two major projects -- replacing its warehouse management system, and an SAP upgrade -- said Joffrey Bienvenue, IS infrastructure and operations manager.

Not every project has been frozen, "but the big ones for sure," Bienvenue said. "If it implies spending more money, most of the time it's on hold."

While the economy is unquestionably taking a severe toll on IT budgets, businesses have to be careful about what to cut. "I think there's a danger of reacting in the other extreme, which is to cut initiatives that are going to be strategically important for the business," Strativa's Scavo said.

In addition, a company's end users may not be as busy as usual, potentially making it easier to push through IT changes, he said.

Bienvenue echoed this notion in part.

"When the business is requesting a lot of projects and you're spending a lot of time on them, lots of stuff at the infrastructure level gets deferred," he said. "This situation can give the infrastructure team time to wrap up some things that were lingering."

Rambus, of Forbes Media, said there is an opportunity -- and even a responsibility -- for IT executives to make sure technology supports core business needs in 2009.

"If anything, this should be the year that alignment becomes a non-issue. Nothing in IT should happen without it directly impacting the business," he said. "The organizations and the executives to which IT reports are more focused than ever on reducing costs and getting positioned to proceed in the future. Anyone's who's not doing that? They're going to find they're extinct pretty fast."

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