|
 Software Or Outsourcing, That Was
The Question
By David Stagg
Over the past few months, I have met with many high-volume statement and
report producers to discuss their current needs and future plans for
electronic access and storage of those documents and whether those plans
include the purchase of software.
What has been very surprising is that with very few exceptions, of these
companies, many have not wanted to pursue a software solution. In our
current economic climate, the majority has felt that a one or two year
outsourcing agreement has presented the best option.
If this was truly the case, where does that leave the software vendors?
If, like a small number of vendors including Optimus, you offer both
outsourcing services and a software solution, then you are well placed to
serve either of the needs of the prospect. On the other hand, if you are a
software only vendor, this will not be welcome news.
As regular readers are aware, I have never been one to shirk research in
an effort to confirm or deny my thoughts, so I picked up the phone and spoke
with many of my colleagues throughout the industry. My goal was not to
increase their worries about revenues or prospect bases, but just to find
out if they also felt that recently there has been very little desire to buy
software.
In talking with old friends and colleagues, I promised that I wouldn't
name any of their companies. The general consensus from my impromptu
research was that prospects were no longer looking to purchase new software,
but were still looking for ways to reduce costs and decrease delivery times
associated with their statements and reports. This has meant that many of
the projects these vendors were bidding on, were either cancelled, postponed
indefinitely, or went to an outsourcing vendor. Interestingly, none of the
projects went to internal IT development.
This should be very troubling for us all because although companies who
offer both services and software are winning most of the business, we all
need the software-only companies to survive. By having more vendors building
varying types of software, we all benefit by being pushed to improve our own
solutions. If you look at the software based revenues of the publicly traded
companies in our industry, the trend is very much downward and it seems to
have been going on for quite some time. Just to survive, a lot of these
vendors are using maintenance revenue from existing installs or their
reserves of cash to manage the software revenue difficulties, in the hope
that the tide will turn back in their favor soon.
According to the Outsourcing Institute, over 80 percent of the Fortune
500 companies have outsourced some or all of their information management
functions. Couple this with my own experiences over recent months and you
need some convincing that the tide will be turned anytime soon.
One option many of the vendors have been looking at is a move into the
outsourcing business. Unfortunately, the initial investment is so high,
running into many millions, that most vendors cannot afford the expense. For
those who have the cash, the problem is ramp up time and then to convince
their prospect that they have the experience to support them in an
outsourcing environment.
If you are a software only vendor in our industry, there really is no
magic button to push nor some exciting new trend, like EBPP was a few years
ago, to save you. What vendors must do to survive is match expenses to
revenues, focus on their core competencies and set honest expectations for
investors and employees.
How many of the vendors we know so well will survive? No one can predict
exactly, but certainly not all of them will. Mergers, acquisitions and
failures will continue to be the norm for some time to come. If there is
some good news for our prospects and clients it's that the ones that survive
and prosper will have proven to be "best of breed" organizations. |
