Showing posts with label business software vendors. Show all posts
Showing posts with label business software vendors. Show all posts

How Much Should Analyst Surveys Shape Your Marketing Strategies?

I recently reviewed the results of the 2010 Gartner Executive Programs (EXP) survey of CIOs who influence $126bn of IT spending in 41 countries and 27 industries.  Besides the headline that IT budgets in 2010 will be at 2005 levels, there are some interesting changes and trends that B2B IT and business software vendors and marketers should consider.

Enterprise applications (ERP, CRM and others) is not a Top 10 business or technology priority in 2010 – this is a startling finding and dramatic change from previous years.  Enterprise applications were the #2 technology priority since 2007.

After being the #1 technology priority since 2006, business intelligence applications have dropped to #5.

Business process improvement continues to be the #1 business priority – this has been the #1 CIO business priority every year on this survey since 2006 (the earliest edition of this survey I could find).

Virtualization, cloud computing and Web 2.0 are the top 3 technology priorities in 2010 – while this may not be a big surprise to most people in the industry, it is the first time any of these technologies have appeared in this Top 10 survey.

So this got me thinking about the relevance of these surveys for influencing product, marketing and sales strategies:

  • Are vendor marketers paying attention?  Given that ‘business process improvement’ is the #1 business priority for CIOs since 2006, one would expect this to have some prominence for relevant vendor marketers.  Looking through the websites, collateral and marketing campaigns for several business software vendors, there’s scant direct attention to the business process improvement value proposition.  While it is mentioned within other propositions and contexts, it doesn’t have the headline attention or prominence for vendors that one would expect for the #1 business priority of potential buyers.
  • Should vendor marketers pay attention?  Considering the scope of this survey and the influence of the respondents on buying decisions, it would seem logical that marketing and selling to these priorities would yield better results.  Although the reality for actual buyers that transpires during the forecast period may not exactly match what they indicated in a particular survey, the priorities and trends in surveys provide good directional information for connecting with buyers relative to their top-of-mind interests.
  • Which survey(s) do you pay attention to?  While this is a good survey from a reputable source, it is just one of dozens or possibly hundreds of good surveys from many reputable sources published each year.  Relevance to your markets and industry are obviously critical.  Aggregating results across multiple relevant surveys may provide a more balanced perspective.
While these types of surveys do provide valuable insights for market trends and what concerns potential buyers, they should be considered as just one of a number of inputs for shaping marketing plans.

How do you use surveys to shape your marketing strategy, campaigns and programs?  Have you seen beneficial results from paying attention to these surveys?  Your comments are always welcome.
Copyright © 2010 The Marketing Mélange and Ingistics LLC.

Why On-Premises Business Software Vendors Should Give Their Products Away

Traditional on-premises business software vendors are facing challenges on multiple fronts:

  • Published financial results for the second calendar quarter of 2009 from 10 of the major vendors reported license revenue declines in the 20-40% range year-over-year.
  • Buyers continue to show increasing interest and preference for Software as a Service (SaaS) business software.  SaaS business software vendors reported an average of over 20% increase in new subscription revenue for the same year-over-year period.
  • On-premises vendors now derive 50% or more of their revenues from annual maintenance fees, but are facing increasing dissension from customers over increasing costs and perceived lack of value for the annual maintenance fees.
Licenses are the lifeblood of on-premises business software vendors – it’s what drives current revenues from services and long-term revenues from maintenance.  These vendors must sell more licenses by acquiring new customers and/or selling more products and/or user seats to existing customers.  While most on-premise vendors have announced plans for delivering SaaS solutions and some have already delivered some SaaS applications, their on-premises licensed products are still the core of their businesses and SaaS may not be the preferred delivery for many customers.

Some vendors are responding to the challenge by offering ‘buy one get another free’ type of deals to increase the number of licenses and users for which customers will require implementation services and pay annual maintenance fees.  IMO, this is a flawed marketing tactic as discussed in last week’s bog post.

On-premises business software vendors have to get more licenses to feed their continued existence as viable businesses.  A review of their business models reveals some interesting points:
  1. Based on results for the 12 months through second calendar quarter of 2009, License revenues now account for approximately 20-25% of total revenues.
  2. These vendors spend approximately 20-22% of total revenues on sales and marketing, of which over 90% is usually targeted at license sales.
  3. Taking cost of goods and other expenses into account, license sales are at best a break-even proposition.
  4. On-premises vendors are known to deeply discount product licenses to get a sale.  Discounts of 75% or more off list are more common than most are willing to admit.
  5. These vendors now derive 50% or more of their total revenues from annual maintenance fees with 80% or higher gross margins on this revenue source.
  6. Services account for approximately 25% of revenues with gross margins typically in the 25-30% range.
  7. License sales currently contribute little or nothing to profitability, but are the lifeblood that drives maintenance and services revenues and profitability.
Given all the abovementioned circumstances and other factors, why not give the product licenses away?  The end game is to get more customers and users using more products for which they pay implementation services and annual maintenance fees.  The business of selling licenses is tough and hardly profitable.  Why not change the game and focus on creating value for customers rather than selling them licenses.

A proactive move by on-premises business software vendors to give their product licenses away can produce several positive results:
  • Bolster current services revenues and longer term maintenance revenues.
  • Compete more effectively with SaaS vendors.  Negate a big selling point of SaaS vendors because there would be no initial license cost for on-premises products.
  • Change the relationship with customers from selling them stuff to creating value for their businesses.
  • Get rid of the licensing fee and discounting practices that customers view as a farce.
  • Realign a leaner sales organization focused on creating lifetime customer value.
  • Change the way customers view the annual maintenance fee to be more like an annual license fee that includes support, enhancements and maintenance.
I would go as far to argue that if these vendors don’t do this proactively now, they will have to do it reactively later anyway to survive.  They can do it on their terms now and make this a win-win situation for them and their customers.

Depending on your role from a vendor or customer perspective, what do you think about this situation and the recommendation?  Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC.