by Tom Wentworth
Last week, IBM announced disappointing earnings, which caused the biggest decline for IBM shares in eight years. IBM lost $19 billion in market value. IBM’s drop follows Oracle, who also reported disappointing earnings in its last quarter.
Both companies had a similar explanation for why the numbers were down - a shortfall in sales execution in their software businesses. Really?
It’s always easy to blame sales people for poor performance. But are we expected to believe that the same sales team who delivered consistent performance in the past is now to blame for a huge revenue miss? Or are bigger changes afoot?
This excellent article from the Wall Street Journal covers the real reason legacy enterprise software vendors are struggling. Their business model is dying. Even Gartner, who has long been an advocate for enterprise software vendors, points out the real issue: "Their biggest challenge is they live in a world of legacy business models," said Gartner analyst Ed Anderson.
IBM, Oracle, HP, and others are facing the new reality that the balance of power is shifting away from the CIO to lines of business that aren’t tied to the legacy vendor relationships of the past. The enterprise software sector was built on the CIO’s relationship with the vendor over years of steak dinners and bottles of wine. Access to the best technology was in some ways elitist, as only the biggest companies with the largest IT budgets could afford it.
This changed with the emergence of the open source, cloud and new business models that empower lines-of-business to deploy technology outside of the traditional IT purchasing process. Companies like Salesforce, Workday, Box, and Acquia emerged to serve the needs of empowered digital leaders. At Acquia, we’ve recently seen the rise of the “Chief Digital Officer”, an executive role charged with transforming business through digital customer engagement.
Legacy enterprise software vendors don’t like these new empowered technology leaders, as the Wall St. Journal article points out: “one challenge is that sales of newer technology are sometimes puny compared with the revenue declines of the older yet bigger technology businesses.”
IBM may be blaming their sales team in public, but certainly they recognize the broader issues at-hand. It used to be said: “You will never be fired for buying IBM”. I think the opposite is becoming true. If you are a leader trying to embrace technology disruption, buying legacy enterprise software may very well get you fired, as your competitors benefit from the agility and innovation that comes from using open source and the cloud.