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Software sales slip for BI and ETL vendors
Article published in Bi Briefs
August 2004 Issue
By Rick Sherman
Did you see all the press about a software sales slump after Q2
2004 results were pre-announced last month? It’s really not
as bad as they made it out to be. Let me explain.
Part of the slump was not really declining sales, but rather sales
not meeting Wall Street and the software vendors’ expectations.
Several software stocks took nosedives when they pre-announced or
announced disappointing sales or earnings. Ascential Software and
Embarcadero Technologies each had one-day declines of over 20% plus
additional declines. Other firms that didn’t have such steep
one-day declines still had 7-8% one-day drops with further sell-off
in the accompanying days.
There has been much talk about the possible reasons for the disappointing
sales. Much of the blame has been pinned on an inability to meet
sales expectations, with many of the software vendors saying that
anticipated deals in Q2 did not close and were postponed until Q3.
What are the reasons for the shortfall in expectations? Let’s
look at three areas: overall economy, software spending, and issues
specific to data warehousing (DW) and business intelligence (BI)
software markets.
The overall economy
The overall economy can’t help but have an impact on IT spending
and software sales. Although in the past it was felt by some that
companies bought software regardless of the how well the economy
was doing, that is no longer the case. Companies have been driving
down costs and watching investments more closely over the last two
years. The days of generous IT spending are over. With many economic
indicators showing a slowing or dip in the economy this summer,
it is not surprising that IT purchases, although not cancelled,
may be subject to lengthier sales cycles as CFOs gauge the business
climate. In the absence of a “killer app,” much of IT
spending is now cyclical and linked to the overall economy.
Software sales
Software sales across many categories, not just DW or BI, did not
meet expectations. Several factors were involved:
- The U.S. Justice Department’s antitrust trial
to block Oracle's attempt at a hostile takeover of rival PeopleSoft
is drawing attention to the impact of mergers and acquisitions
on the marketplace. Oracle’s Larry Elision is saying that
the software market is consolidating and only the biggest will
survive. Companies are scrutinizing their software vendors, wondering
how potential mergers and acquisitions might affect them.
- The end of the quarter sales discounts are not closing
sales like they used to. Customers are more aware of
the discounts and are now demanding them as a matter of course
regardless of the timing. These discounts used to get purchases
closed on the software vendor’s timetable (to increase quarterly
sales) not on the customer’s schedule. In addition, with
the details brought out by the PeopleSoft-Oracle trial, potential
customers are hearing about larger discounts then they had received
before and are therefore attempting to gain these larger discounts
from the software vendors (thus increasing negotiations and purchasing
cycles.)
- Some areas are still experiencing a hangover from consuming
too much software during the Internet boom. Companies
are only now working on achieving the return on the investments
they thought they were going to get from these software purchases.
- Many companies are not ready to commit to larger-scale IT projects
with their staffs diminished during the economic
recession.
BI-specific issues
In addition to the economy and a slowdown in general software sales,
the BI market has its own set of issues:
- Customers who overbought are suffering from “shelfware
hangover.” To maintain customer satisfaction and
loyalty, many BI tools vendors are offering replacements at significant
discounts – taking a chunk out of their software license
revenue.
- Competitive forces are putting the pressure
on BI tools vendors. Some of the database and ERP vendors are
offering alternatives to the traditional BI vendors. Although
the BI vendors still partner with the database and BI vendors
and their tools can still access the databases and ERP systems,
the database and ERP vendors are becoming competitors by offering
their own capabilities.
- Last year’s crop of mergers and acquisitions impacts
some sales cycles by prompting potential buyers to examine
the migration paths and timetables that the acquiring BI vendor
has established for its newly-expanded product lines.
- Perhaps the biggest issue is the hype over using Corporate
Performance Management (CPM) solutions rather than just
BI tools. The CPM solutions require buying a software stack with
BI and ETL tools, analytical applications, pre-built data warehouses,
and, professional services. The solutions sell takes longer than
the BI tool sell. With its larger purchase price, the CPM sales
cycle is drawn out by the need for more approvals and more signatures.
It’s further hampered by persistent questions as to whether
the general marketplace is even ready for CPM solutions. Is CPM
in an early adopter stage or is it ready for prime time? That
is the subject of another discussion.
ETL specific issues
Extract, Transform and Load (ETL) and data integration (DI) vendors
face a whole other set of challenges in this marketplace:
- There is more aggressive competition from non-traditional
ETL vendors, such as database, BI, and ERP vendors. The
database vendors are offering their ETL offerings as a natural
extension of their database tools. The BI and ERP vendors are
offering their own ETL functionality as part of their CPM solutions.
This increased competition gives customers another reason to delay
purchases as they evaluate the growing list of choices.
- The Fortune 500 marketplace is saturated. Although
hand-coding is still used in creating data marts, much of the
large data warehouses are populated with industrial-strength ETL
tools. It could be argued that the ETL tools can be expanded throughout
Fortune 500 and mid-tier companies.
As far as Fortune 500 companies are concerned, many data marts
and data shadow systems are built either through hand-coding
or using Microsoft tools. The question is whether industrial-strength
tools are needed in these situations or if it’s enough
to rely on hand-coding and Microsoft. In many companies, IT
resources are spread so thin they simply can’t accommodate
the work of replacing shadow systems.
Mid-tier companies have small, under funded IT staffs, also
probably spread too thin. Penetrating these markets is an uphill
battle for industrial-strength ETL tool vendors.
- Several ETL vendors have expanded their offering to
include data integration. This is great for their customers,
but since it involves more explanations, more software, and larger
purchase prices it is quite natural that the sales cycle has been
extended. It may take the market a little time to absorb the great
benefits to moving to a data-integration solution.
Conclusions
Unless the economy changes significantly in either direction, the
software sales slump is probably more a reflection of lengthier
sales cycles and cautious customers. The complicated marketplace
means prospects have more choices and more to consider before they
make a purchase.
About Athena IT Solutions
Athena IT Solutions provides data warehousing and business
intelligence consulting services to help businesses increase the
return on investment of their corporate data. Athena IT Solutions
founder Rick Sherman has more than 17 years of business intelligence
and data warehousing experience, having worked on more than 50 implementations
as an independent consultant and as a director/practice leader at
a Big Five firm. He founded Athena IT Solutions, a Boston-based
business intelligence and data warehousing consulting firm and is
a published author, industry speaker, instructor and consultant.
He can be reached at rsherman@athena-solutions.com
or (617) 835-0546.
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