Wednesday, May 07, 2008

Enterprise software sales holding up, despite soft economy

We know that IT spending is not immune to an economic downturn. Our current research at Computer Economics shows a definite softening of IT executive expectations for spending growth in 2008. "Anemic growth" is how we described the IT spending outlook back in December. Preliminary results from our IT spending survey currently underway seems to be confirming that forecast.

Nevertheless, anecdotal reports seem to indicate that enterprise software sales--or at least buyer activity--seem to be continuing at a fairly strong pace. I know of several new deals in the early stages of evaluation here in Southern California, and vendor personnel in this area are reporting quite a bit of activity and interest. It certainly doesn't sound or feel like the early part of this decade, when things came to a screeching halt.

On the other hand, several vendors are reporting quarterly numbers beneath expectations. Oracle, SAP, Epicor, and others missed or came in at the low end of their forecasts. Even Infor, which is privately held, has reportedly told its investors that new license deals are slowing or being deferred to future periods. None of this is surprising in light of economic uncertainty. What is notable, however, is that the misses are not big, and certainly not what we'd expect in a major downturn.

Confirming this view, Josh Greenbaum reports from SAP's Sapphire conference in Orlando that enterprise software sales are better than they appear.
If you look at SAP’s last quarter, and believe the formal and informal guidance they’re making about the current quarter, and catch the buzz on the conference show floor, then the possibility that SAP, and much of the enterprise software market it represents, are relatively recession-proof starts gaining real credence.
He concludes by crediting the shift in vendor attention to how to deliver real business value to customers:
The bottom line is that years of pushing the value of enterprise software in terms of its contribution to productivity and cost-savings is paying off once again. And years of honing a marketing message that focuses on delivering business value to line of business managers — the men and women who are stealing the prerogative of software spending from the CIO — is paying off in real spending on enterprise software. Especially in recessionary times, this spend to save message works well, even if it takes a little more time to make the sale and a few more layers of management to give the approval. SAP is not alone in this trend, but their example is a particularly strong one. It may be that 2008 will be a year of relative abundance for enterprise software vendors, even as belts are tightening at the very customers who are making this abundance possible.
Josh might be overstating the case a bit. I think credit also goes to IT executives that have been operating under quite a bit of spending restraint over the past five years, in spite of economic good times. With fewer excesses in good times there is less pressure for drastic cuts in bad times.

The uneven nature of the current downturn is also a factor. Financial services, consumer goods, and home building sectors are the industries that are hardest hit and where IT spending is under greatest pressure. U.S. companies that have significant export business are actually benefiting from the weaker dollar. Those firms may be actually increasing their investment in IT to support their international markets.

Whatever the reason, signs that enterprise software sales are holding up is good news, for vendors and customers alike.

1 comment:

Anonymous said...


You're right to also give credit to IT for having honed a better sense of fiscal responsibility over the years. I'm seeing indications that solutions targeted specifically at lowering costs and improving efficiency in IT are also doing well despite the overall tough economic times.