Andy on Enterprise Software

Not quite dead yet

February 16, 2006

Infoworld has a piece intriguingly titled “The Death of the Software salesman“. Those of us who have been on the receiving end of high pressure negotiating tactics from software companies may simply want to ask “when please?”. However rather than being a glorious article about lynch mobs of customers, this article is more mundanely concerned with open source, and how this model may be an alternative to traditional software licensing. It observes that 40% of software company budgets go on sales and marketing, and indeed this estimate is a little on the low side. Enterprise software companies will typically spend 45-55% of their budgets on sales and marketing, with the lion’s share of this going to sales, depending on the stage of the company (obviously this may be lower in very early stage companies which are still mostly in R&D).

It is all a bit ironic. The incremental cost of printing one more CD with a software product on it is less than a dollar, which is why venture capital firms like software companies. However to actually convince anyone to shell out (say) half a million dollars on this CD requires a great deal of expensive sales and marketing effort. It is rather naive of the panelists at the Open Source Business Conference to believe that this is going to change any time soon outside of a few niches. Sure, Linux has done very well, but some of this success is because IBM has put a lot of muscle into it (to avoid Microsoft eating further into the server operating system market). However if you move up a layer or two in the stack, open source is still in the special interest category. MySQL gradually improves, but it is still a long way off being a heavy duty DBMS; Oracle, DB2 and Microsoft are far from quaking in their boots. Higher still, there are very early initiatives in business intelligence like Pentaho and good luck to them, but not even the wildest-eyed open source advocate could accuse them of having made even a dent in the enterprise BI market yet.

Hence, while the idea of running a mostly R&D company and letting the customers come to you may sound appealing to some engineering types, the sad reality is that this is not going to happen. Customers buy through a series of stages. One model of this is called AIDA “awareness” -> “interest” -> desire-> action. Unless people are made aware of your product then they cannot buy it, and so you have to spend money on marketing. Once they have become aware and show interest in the value it offers them, they need to be nudged along, tantalised and have their many objections overcome (”does it really work”,”how many customers are using it”, “will it work with my existing technology” etc). If you make it to this stage then the reality for any enterprise software is that you have what is called the “complex sale” i.e there are multiple people who influence the decision, each of whom have to be convinced or at least be persuaded to not object. Miller Heiman and others make a living by selling training in sales methodologies that go through this. It is very rare for a six or seven figure software purchase to involve just one person, and that’s where sales come in. The salesman needs to get the proposition in front of the prospect, find if there is a project that fits, identify the key influencers in the account, see whether they really have a budget or just like talking to salesmen, navigate the client organization and unravel its purchasing process, perhaps deliver a trial or proof of concept, and all this before you get anywhere near negotiating a deal.

I just can’t see all this happening without a lot of marketing and sales effort, except in very specific situations or niches that can suit open source, and those are too rare at present to put enough money on the table to pay for all those creative software engineers. I fear that, like Mart Twain’s demise that was mistakenly reported during his lifetime, the death of the software salesman is being much exaggerated.