Identifying five recent enterprise software innovations is almost as difficult as naming five famous Belgians!

IT is an industry almost synonymous with innovation, yet it seems to me that few examples of this are to be found these days. The rise of the internet has enabled all kinds of new companies to appear, sometimes, as in the case of Facebook, creating great wealth in remarkably short time.

Yet whereas in the 1980s the consumer could look to benefit from the spin-off effects of innovations in enterprise software, the boot has now shifted firmly onto the other foot. It’s always possible to think of the odd exception pieces of enterprise software that have appeared in recent years is as hard as naming five famous Belgians.

I beleive that enterprise software is still suffering from the fall out from the dot-com boom and crash, which has caused a couple of structural shifts in the industry: one in the funding arena and one in the buying community.

In the 1990’s there was a flurry of new software companies, often promising ground breaking changes that would shake up the older order. Siebel grew to be a billion dollar revenue company by creating the customer relationship management category. Ariba and Commerce One gained dizzying stock market valuations creating electronic marketplaces. With the world transfixed by the rise of Amazon.com, ebay and the like, large corporations felt pressured to move into these and other new branches of software or risk being seen by analysts as corporate fuddy-duddies who “just didnt get it”.

The crash in 2001 sent this behaviour into reverse, with companies looking for someone to blame for their commerce One investment that had become as valuable as a Christmas tree in February. Companies retrenched, pulling back software purchasing authority to much higher levels. A deal that previously needed one signatory now needed half a dozen, and none of those people wanted to be cought out again so they were far more cautious in their purchasing.

This buying enviroment led to a nuclear winter in the enterprise software market. The capital markets, which had been able to support bloated valuations for software companies with just a few million in revenues and no sign of profitability, dried up completely. This in turn ment that venture capital firms had one exit route for their portfolio companies firmly closed, and valuations firmly tumbled even for trade sale situations. By 2002, incoming money for venture capital funds had dropped back to the level of 1994, and hardly any of that was headed into enterprise software.

This sea change in the industrys funding structure is of great importance, since innovative software rarely comes out of giant corporations - indeed, Tom Siebel had to leave Oracle to start Siebel.

For Industry giants, the last few years have seen an orgy of acquisitions, by Oracle, SAP, IBM and Microsoft, of companies that came up with interesting technologies that had eluded the R&D departments of the industry behemoths.

So what does this all mean?

Essentially, buyers violent retrenchment in buying patters in 2001 and 2002 was good news for the software giants, who no longer had pesky smaller companies with better technology, and their profit margins remained very healthy. But for the enterprise itself it has ment a period of stagnation. What is the typical big-ticket company software project these days? A consolidation of ERP systems.

It is hard to see this cycle of stagnation breaking any time soon. With venture capitalists shunning enterprise software startups as if they were lepers, there are far fewer innovative companies bringing new software to the enterprise. Talented developers want to work on cool things, and if you had a choice between a hot new funky project for an internet startup and a five year project to reduce the number of ERP instances in a large corporation, which would you choose?

Enterprise software buyers in 2002 wished for a simpler, reduced set of large safe software companies to buy from. As the opening line of 1902 horror story ‘The monkeys paw’ says

“Be careful what you wish for - you may receive it”.