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Techpreneurship: Finding the Opportunities
Jeff Amerine
Techpreneurship, with Jeff Amerine
(Jeff Amerine is an IA advisor and officer with the University of Arkansas Technology Licensing Office. Each Thursday, his Techpreneurship blog will appear in INOV8. Drop him a line in comments.)
Cloud computing…Open-source movement…Computer-industry consolidation…
These trends may have the early stage Techpreneur in the information technology space wondering about their own strategy, pricing, partnering…and maybe survival. This week I don’t have any great wisdom to share but rather a few observations that may generate some critical questions.
To begin the discussion, check out this article about Oracle in BusinessWeek: http://www.businessweek.com/magazine/content/09_38/b4147052120632_page_3.htm
The article effectively highlights all of the trends I mentioned above, cloud computing, consolidation, and open source.
The major players like Oracle, IBM, HP, Dell and others have all picked up the pace in growth through acquisition. Why? Mostly because these industries are maturing, the economy is down, and organic growth is not really a great option.
For hardware-centric firms like HP and Dell, their margins erode tremendously as hardware prices are forced down and product lifecycles decrease. Both companies made major acquisitions recently to move into the more lucrative IT services arena; HP bought EDS last year, and Dell just announced this week the acquisition of Perot Systems.
Oracle headed the other way and purchased Sun Microsystems in a move that could be looked at as “vertical integration,” i.e. gaining more control over the bundle of products and services customers will need.
There is no doubt the consolidation trend matters to startups. Why? Well, this will define the Techpreneur’s likely exit strategy – IPOs are ancient history – so this is the way to harvest value from your venture. If you build something that capitalizes on meeting a real need the big guys can’t address, you will eventually be on their target list.
The other key trends toward cloud computing and open source need to be front of mind. The days of big capital purchases for software by customers are numbered. The movement toward “software as a service” now reborn as “cloud computing” are here. Customers of all sizes are moving toward subscription agreements that hit operating expense instead of capital budgets. This approach also saves significant money in hardware and IT support.
Going a bit further for the enterprise DIY crowd, the open-source movement scratches that itch. Across nearly every major category of enterprise software, an open source alternative is now available. Open source “frees” enterprises from reliance on a behemoth provider of proprietary software that may use market power to extract high licensing and support fees.
To be fair, most enteprises will still fully assess the total cost of ownership of an open source solution versus a traditional provider of proprietary software, i.e. are we really up for DIY?…..
So, again as the early-stage Techpreneur, why should you care? Given these trends, which are customer driven, if you plan to compete in this space, your business model needs to address subcription oriented cloud computing, and an approach to open source distribution. Investors and customers alike will expect it.
Let me know what you think.
Well M&A fans, the trend we talked about last week regarding IT industry consolidation continues….Xerox announced a deal today to buy ACS for $6.4B. ACS is another strong mid-size IT services and outsourcing firm. Here’s the coverage from the Wall Street Journal:
http://online.wsj.com/home-page
Let me know what you all think will come next, Accenture, anyone???
Jeff
Michael
Thanks very much for sharing your excellent insights. The balance between customer needs i.e. flexibility and a loathing of long term commitments is definitely at odds with the VC view of reliable revenue forecasts. You raise a really key point about switching costs and the associated grief as well which likely serves as enough of anti-churn incentive as any contract, and nothing ultimately replaces delivering on promises to your customers.
Again I really appreciate your inputs. I shoot this blog out every Thursday. Don’t be a stranger, as the dialogue is really the value.
Hello Jeff
As a small entrepreneur we dedicated ourselves to the subscription model from day one and offer our SaaS application for Supply Chain Management exclusively in this model. It just makes sense for all the reasons you noted.
I wanted to write on a couple of points that directly relate to your post. Techpreneurship is more possible now than ever before – the capital requirements to start a firm are just not there from the development infrastructure perspective. We would not exist if this was not the case. This brings new innovators to the table. As I travel I meet fellow entrepreneurs and it is very exciting to talk with them as we share stories.
Next is the Key Performance Indicator (KPI) of SaaS success know as Committed Monthly Recurring Revenue (CMRR). As this is a great indicator of future revenues and I track this myself but the drive for CMRR is diluting the SaaS promise of portability. Picking up and moving is not easy when you consider Extraction – Transformation and Loading of enterprise business information. The stickiness for customers to SaaS enterprise providers is the issue of moving their information easily. Forcing enterprises to sign multi-month / year deals seems unnecessary. But if a SaaS firms CMMR is not going through the roof how does one do valuation for the company. I read where a CIO of a major fortune 1000 firm said that until SaaS providers eliminate the multi-month / year contracts they look like on-premise solutions to him… no difference. Just something that I feel is going to gather steam with companies in the new paradigm.
Onto the Customer retention… for SaaS providers this is critical portability and on-boarding is going to get better Techpreneurship will have to include skills in customer satisfaction. This is where a company, I feel, will create the stability and valuation metrics.
Thanks again for your post… very interesting