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Trends in enterprise software space

si Team
Monday, October 1, 2007
si Team

Amish Jani, Principal, Pequot Ventures
We witness a continued interest in the optimization of existing IT infrastructure on the enterprise side. People have quickly moved to platforms like VMware to get better utilization of their physical server infrastructure. Their success, as demonstrated by VMware’s recent IPO, has led to the second order problem of managing the virtual instances. Earlier you had one physical server, one OS, and one application instance to manage. Now, you have four virtual servers with four OSs and four applications that are running on that same single physical machine. Better utilization but much more complexity. Companies like Bladelogic which recently went public, and Opsware which was acquired by HP, and startups like Scalent Systems are helping to manage, provision, and deploy these complex virtual environments and we will continue to see innovation driving around true automation into the enterprise.

The second area seeing significant activity is the analytics space. With the huge growth of data and data sources, and improved access to the data, enterprises are trying to extract better information and learn more from it. We are seeing a lot of innovation in companies developing software-based analytics platforms to help companies mine information both at the infrastructure and application layers to do things like dynamic pricing or real time decision support or enhanced marketing.

Open source also has had a major impact on the enterprise market. When open source started, the debate was whether people would have to pay for software any more and that the license model would go away. What’s really happened is that open source has led to significant reduction in the cost and cycle time to develop new software products. It’s increased innovation in the market. If you are a software developer, you can leverage OS, middleware, network components, database platforms, scripting languages, all from the ecosystem that constantly improves each layer. The cost and time associated to bring the product into the market is shortened. And applications can be offered at a lower cost and still be profitable because the cost of development has gone down fairly significantly. We definitely see the penetration of open source in the enterprise market, and it has increased innovation in the market. MySQL, JBoss, Xensource, and Zimbra are all examples.

The other big theme we see is delivering the notion of improving time to value for a customer. I would encourage any entrepreneur starting a company in the software world to focus on it. The emergence of the software as a service (SaaS) model, whether it is a Salesforce.com, Successfactors, Omniture, or any other platform, when you look at the success of SaaS model, there is a linear correlation between what the customer pays and the value he extracts. Their growth is coming in small and medium sized businesses but the idea of time to value also touches the large enterprises as well. Even in the licensed software model, it’s much harder to get a huge check upfront with a multi year timeframe to get the software up and running. It’s got to be quicker. Any entrepreneur venturing into the enterprise software space should understand this—time to value is the key.

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