Boring Software 2.0
Let’s not kid ourselves—there’s some serious malaise around investing in enterprise software these days. Yes, there’s been a boomlet of software-as-a-service deals thanks to the success of Salesforce.com, but beyond that there’s a lot of investing in techy point products that address a niche of, say, Internet security and little else.
I’ve asked a few software VCs about this recently and they all insist there are still some interesting enterprise plays, but when they describe them, they sound like future acquisition targets, not the next Oracle, Symantec or even Salesforce.com.
They used to have a word for this in the lifesciences: medical devices. While biotech provided the risky, homeruns, devices almost always got acquired. They provided nice doubles and singles to fill out a portfolio. The advent of drug coated stents and other advances have changed this a bit, but still, I’m wondering: Is enterprise software the tech sector’s new medical device?
I was at a dinner two nights ago with some executives from Mercury Interactive and one of the reporters asked if a software startup could make it to $1 billion in revenues purely by growing organically. The consensus was a quick no. CIOs already are clamoring for fewer software vendors, not more. They reported CIOs saying that even if a tech incumbent gets a new product mostly right and it’s later to market, they’ll wait and buy it from them instead.
Now, obviously, a medium-sized software company is going to take this stance. But in talking to several businesses about their software buying habits for recent stories, it does seem to be a pervasive attitude. If startups do get in there, it’s not going to be for multi-million dollar deals. Particularly during a time when even large tech companies are having a hard time getting their fair share of the IT budget.
It’s no wonder so many VCs who used to focus on enterprise software are now spending at least half their time on Internet and consumer deals. It’ll be interesting to see the breakdown of business and consumer software deals when the NVCA and VentureOne release their numbers next week. It’s a tough market, but historically a good one for VCs. Smart investors will at least keep a toe in the waters, boring or not. But smarter ones won’t rely on it for their homeruns anytime soon.
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Tracked on April 21, 2005 08:19 AM
Tracked on May 12, 2005 08:42 AM
I realize that Enterprise software is as interesting these days as watching paint dry but this is not a new phenomenon. Software goes in 8-10 year cycles in which after a period of intense investment (1998 - 2001), enterprises need a period of digestion to allows things to settle down. Existing vendors and incumbents usually gain during this period. However like spring follows winter, a new architecture will emerge (Webservices, etc.) that will open a whole new world of startups and suddenly a new breed of startups will emerge. In 1992-1993 we were undergoing a typical period of malaise and in the next 6 years Siebel, Veritas, BEA and Mercury Interactive all emerged.
Posted by: Venky Ganesan at April 20, 2005 07:24 PM
See my comment on http://www.strategicboard.com/weblog/pivot/entry.php?id=147
P.S. I tried a trackback with no success
Posted by: Dudu Mimran at April 21, 2005 08:21 AM