Over the past semester we have identified successful mobilization for new lines of business in tech incorporate backwards compatibility, complements that may be generated by third party developers or by the core business itself, and solutions to customer pain points with significant barriers to entry.  At the same time, core product offerings can provide stand-alone value to customers through simply streamlining the interface between software users and the data they use. While many large companies have adopted software to improve productivity of individual enterprise activities, it is the recent push towards integrating business technologies onto one platform in enterprise marketing software suites (EMSS) that unlocks the opportunities inherent in holistic marketing solutions. [1]

The beginning of the twenty-first century witnessed a revolutionary incorporation of the internet with everyday communications and transactions.  This in turn generated an unprecedented volume of information, or “big data”, encompassing how consumers make decisions and how businesses operate more efficiently.   Big data analytics now facilitate myriad entrepreneurial ventures that leverage niche markets and long-tail consumer demand into viable business models.  Consequently, traditional companies in established markets have had to redesign and streamline how they serve their customers to match changes in consumer demand and increased global competition.  Enterprise software has emerged as an answer for these established companies to utilize big data analytics to guide their business strategies.  EMSS  aim to integrate a diverse range of activities including management of ad campaigns, digital assets, web content, marketing and lead resources, as well as predictive modeling. [2]  

The complexity associated with integrating diverse marketing software solutions has left EMSS development to big software players such as Salesforce.com and Adobe. In fact, the magnitude of the opportunity to create value in this space is demonstrated by the “…$3.5 billion shopping bill as it positions Salesforce as a one-stop-shop for all its customers from the sales department to, now even more importantly, the CMO’s office.”[3]   Expected benefits from EMSS consolidation of current disparate marketing and tracking software are improved visibility and collaboration between all marketing channels resulting in clear resource efficiencies and reduced total costs of strategy implementation.  Additionally, strategy development should be of higher quality and larger impact due to improved ability to create holistic solutions aligning company offerings with customer expectations. As of yet, it seems that no one EMSS incorporates both best-in-class software and seamless integration [4].  It will be interesting  to watch how the current digital marketing integration leaders discussed above shape the convergence of real-time data analytics and holistic marketing strategies to transform online and mobile commerce as they further penetrate our global economy.

1. Teradata http://applications.teradata.com/Big-Data-Hero-eBook/Landing/.ashx (October 30, 2014)

2.  Teradata http://applications.teradata.com/Big-Data-Hero-eBook/Landing/.ashx (October 30, 2014)

3. Salagar, Serge, “Salesforce’s Reinvention as a Marketing Behemoth”, http://techcrunch.com/2014/10/29/salesforces-reinvention-as-a-marketing-behemoth/  (October 29, 2014)

4. Munbach and Warner,  “Forrester Wave: Enterprise Marketing Software Suites, Q4 2014” http://www.adobe.com/solutions/digital-marketing.html   (October 21, 2014)

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The Death of the Tech Giant: how the rise of open, flexible, heterogeneous architectures have reshaped the technology stack and distorted winner-take-all dynamics in IT

Traditionally, tech has been characterized by discontinuous innovation – that is, innovation which is not built on top existing standards or infrastructure – giving rise to entirely new markets each supported by unique value chains that standardize and then coalesce around one dominant player. Semiconductors, PCs, relational databases, local area networks (LANs) are all examples of such innovations that spawned, what many refer to as, the modern day tech giant – in the case of the innovations cited above those corresponding giants would be Intel, Microsoft, Oracle and Cisco, respectively. These companies, whose products became the standard around which entire new supply chains were formed, fundamentally built and shaped the technology stack and as a result were able to establish protective moats around their businesses. Accordingly, these companies were afforded tremendous competitive advantages as they were able to erect seemingly insurmountable barriers to entry and enforce punitively high switching costs on the entire technology value chain.

However today, these companies are facing unique sets of challenges which, in turn, are curtailing growth and compressing margins. Indeed, each of the four companies cited above is trading at or near historic lows (on a price/earnings basis). There are myriad secular reasons that help explain why, arguably, the four most dominant tech companies in the last 2-3 decades are struggling, however, I want to put forth a broader, macro-rooted explanation: simply that, as we continue to move closer to an IT model that is characterized by flexible, open, highly heterogeneous architectures, the tech paradigm shifts away from a winner-take-all dynamic to one such that no single player exerts a disproportionate amount of force on a particular market.

Before examining what’s different today, it’s helpful to understand historically how these tech giants came to dominance. Traditionally, a discontinuous innovation would spur a period of hyper-growth that coincided with mass market adoption of the new technology. During this time, several companies would come to market with competing offerings, yet in an effort scale rapidly, market stakeholders generally would standardize around a product from a single vendor, building compatible systems and getting a whole new set of product and service providers up to speed to build a new value chain. This act of standardization, catapulted a single company into a position of overwhelmingly dominant competitive advantage, as seen with Intel’s x86 chip architecture, Microsoft’s Windows operating system, the Oracle Database and Cisco’s TCP/IP network routers.

So, what’s changed recently? I argue that there isn’t one principle catalyst for this shift, but rather many small evolutions in the way technology is developed, procured and deployed that have distorted winner-take-all dynamics. Here are several important factors.

  • Increased complexity: As the tech stack has evolved, new layers have emerged (hypervisor, management, etc.) and new models have been created for developing and deploying different sets of applications – all which is to say the datacenter has grown increasingly more complex. There is no “one-size-fits-all” approach to IT.
  • Prevalence of open source: Open source software, which is highly flexible and customizable (and free!), has proliferated within the datacenter in recent years, lowering reliance on proprietary commercial offerings.
  • Rise of IT-as-a-Service: More and more IT professionals have espoused a service-based, on-demand approach to deploying and consuming IT resources – cloud computing. This, in turn, has necessitated infrastructure that is modular and highly automated. In this approach, many of the underlying IT building blocks (compute, storage and soon network) become commoditized with management and/or infrastructure software becoming the value-additive differentiator.
  • Increased tech fluency: In general, there are more skilled IT professionals and engineers capable of creating complex systems out of disparate IT building blocks. There is less reliance than ever on fully-baked, out-of-the-box solutions from a single vendor.

This all implies that barriers to entry for competitors and switching costs for customers are falling rapidly and the disproportionate weight once-dominant tech players could exert on suppliers is being eroded by new entrants, open-source solutions and even individual engineers working out of their parents’ garage. In many ways, the tech giants of yesterday are victims of their own dominance, as customers today are wary of closed, complex proprietary architectures and are incredibly sensitive to vendor lock-in. Certainly Intel’s, Microsoft’s, Oracle’s and Cisco’s statuses as markets leaders will not disintegrate overnight, but this is all to say that the previous levels of growth and margin expansion are not sustainable in this new IT paradigm, and, moreover, to win status as a “tech giant” is harder than ever, if not impossible – just look at VMware, the company which, in my mind, was closest to reaching near giant status on the back of its virtualization platform but now is in the midst of a difficult product transition. It makes me wonder if we’ll ever see the likes of Microsoft or Intel dominating IT in future generations, or simply have winner-take-all dynamics shifted entirely into the application layer?

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When we think of tech startups, most of us think of consumer internet companies that iterate fast and rely on a viral component to gain traction. Annual production cycles have become weekly and constant fine-tuning has created products better suited for the consumer.

The same cannot be said of enterprise software. The customer development process for B2B companies is unchanged from years ago. Decision-making remains in the hands of high-level executives who are least likely to use the product. Development cycles are long and only take into account feedback from high-level executives. Adoption is not determined by the effectiveness of the product but by the relationships of the business development team. The result is a lack of innovation in the tools we use for work.

For the past few years, I’ve been convinced that there’s no way to bring better customer development to enterprise software; the incentive structure just isn’t there.  However, a talk by the VP of Platform, Partnerships and Marketing at Yammer gave me hope otherwise. Yammer sells internal corporate social networks.  It has gotten rave reviews from my friends who worked at startups.  I always thought of it as a way to create an intranet for companies too small to devote resources to make one themselves. However, what makes Yammer really special is the change it is bringing about in IT purchasing decisions at larger companies. Yammer’s acquisition strategy is to allow individuals to sign up for free and create social networks for their corporation. Once enough employees have signed up, Yammer then approaches the company to buy full-featured versions for the entire company. Given a lot of employees have already shown improved productivity, and the low price point, corporations usually jump at the chance to sign up. Their more famous clients include the IMF and NASA. 

We have learned about the concept of “pull” in marketing.  Companies will advertise to end consumer so that they pressure the purchase decision maker.  As of yet, this has not been widely done in enterprise software. Some combination of the difficulty proving the value of a new product as well as ingrained relationships has stagnated innovation in this sector. The result has been a decade of software that is designed without much customer development. However, as I see Yammer being adopted at 80% of Fortune 500 firms, I am hopeful that the transformation of enterprise software is near.


By: Kara Yu

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