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Summary:

Enterprises have already started to change the way they buy IT but we’re still in the midst of a massive multi-year transformation. And that should worry vendors like EMC, IBM, Oracle, Microsoft and VMware.

In the traditional enterprise IT sales scenario, big companies cough up six or seven figures for new software licenses, server and/or networking gear every year and then spend the next nine months deploying that stuff. Or maybe not deploying it — the amount of “shelfware” at big accounts is probably mind boggling.

But companies go through the motions because a: that’s what they’ve always done and b: they want to stay legal. That model may not be dead yet, but its days are numbered, at least according to some observers. What’s contributing to its decline is the increasing use of public cloud infrastructure like Amazon Web Services which together with Software-as-a-Service offerings pretty much obliterates the need for most on-site server and software upgrades.

Trying-before-buying model gains steam

And, more enterprise customers — not just startups anymore — have glommed onto the try-before-you-buy model that lets them download software, use it as they see fit, and when the time comes to deploy across company or to get support, all they have to do is pick up the phone.

Oracle Exalogic ExadataSunil Dhaliwal, who founded Amplify Partners, a VC firm that backs infrastructure startups, sees a massive transition underway in how companies buy IT. “This threatens the big infrastructure and enterprise IT companies to their core. It’s even bigger than changes in the technology itself,” he told me recently. (GigaOM’s Stacey Higginbotham wrote about Amplify here.)

The real deal, he said, is that enterprise customers are “very tired of getting the short end of the stick in their sales experience.”

Enterprise customers arise

Paul Santinelli, partner at North Bridge Venture Partners, agreed. Many companies just don’t have to install software for many core functions any more. Instead they try out things like Box for document sharing and storage or Okta for identity management. “You download it, try it and then buy it without ever meeting the sales guy,” Santinelli said.

And, there’s a generational shift among IT buyers. Younger people are happy to download and try things and let business units make their own choices.

That’s not the kind of sale companies like EMC, Oracle, IBM and even VMware — all with big well-paid sales organizations — want to hear about.

Granted the transition will take time and the legacy vendors are not stupid — they see it happening but it’s hard for them to react fast. “This is not about them not getting it. EMC gets it. The problem is the classic Clayton Christensen Innovator’s Dilemma stuff — they have to make their quarters and you don’t do that by cutting your direct sales people,” he said. But companies like EMC, which Dhaliwal called the “best-ever factory for turning BC football players into highly-compensated sales guys,” will have to adapt eventually.

Newer generations of IT buyers won’t want to relinquish the freedom of downloading specialized software from young, nimble vendors instead of locking into one or two huge vendors for a wide array of applications.

Exception that makes the rule

One thing that may mitigate against faster change is the current regulatory and compliance climate. Companies in the financial services industry, for example, must show that all their technology is up to date and fully supported. That explains why companies still pony up for Red Hat Enterprise Linux as opposed to CentOS, even though many see no substantive differences between the two.

And vendors play right into that fear of being out of compliance. A VP with a large New York-based bank told me vendors like IBM and Oracle “give you full access to all their software to use or not but then come in with an audit or the threat of an audit to make sure you pay for every bit of it and try to lock you into an enterprise license agreement,” he said, indicating he is not at all pleased with that situation.

But, regulations aside, change will come, Santinelli and Dhaliwal agreed. Enterprise buyers are so fed up with the old model that they’re willing to take risks.

“One reason that OpenStack has gotten so much traction for something that’s not cooked is because it’s an alternative to [VMware] vCloud Director and companies don’t want to see vCloud as the new Microsoft CAL-style license lock-in,” he said.

Microsoft is famous for using its client access licenses, which are often initially cheap or free for new products, to get companies using those products and then jack up the license prices. That’s just the sort of enterprise sales technique that companies resist.

Financial services companies are locked into Oracle  — and its sales people — for now, Santinelli said. The top IT guy “will keep buying Oracle from a rep in a suit but many of the people who work for that guy are already running applications like Hadoop or Couchbase on a server under their desk or in a VM in the public cloud. Those people will likely replace that IT guy in 5 or 7 years. Then they’ll be buying software, compute and storage just like you buy electricity — on a monthly usage-based rate. They won’t need to own the power plant.”

Feature photo courtesy of Shutterstock user Peshkova

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  1. “Those people will likely replace that IT guy in 5 or 7 years”

    …. Will Sarbanes-Oxley, PCI compliance , guranteed support, penalties – become irrelevant in next 5 to 7 years as well? If not then there is a reason why that guy will still be hanging around :)

    1. Exactly what I was thinking. Sarbanes-Oxley, PCI compliance is critical & it’s not going anywhere. Companies know this & they are willing to pay to stay Sarbanes-Oxley, PCI compliance.

  2. Theo Priestley Saturday, March 16, 2013

    @Balasaheb Not really, that’s the same legacy attitude that will be replaced. CTO/CIO/COOs are all of the same generation, thankfully their ivory towers are crumbling fast.

  3. Barb, I think you are dead right. We have been making this same argument ourselves. What we also see is that it has really transitioned from a sales process, to a buying process, and enterprise customers often dont talk to a sales person until they have already done a large amount of research and are 60% or more through their buying process. We actually hosted an event on this same theme in November. You can see the summary write-up here: http://ascentvp.com/blog/software-saas/winning-the-new-enterprise-sales-game-this-weeks-b2b-it-forum/

    -Matt Fates
    Ascent Venture Partners

  4. Great article. There’s always going to be a place for sales professionals that can provide value to executives at enterprises – often it’s insight about the industry, about their competitors, or even about what’s going on in their own organization. But there is less information asymmetry between vendors and customers. Cloud computing is enabling a new type of subscription-based, pay-as-you-go licensing model. The AWS Marketplace is a great example of how the traditional IT selling cycling is being transformed: https://aws.amazon.com/marketplace

  5. Could not agree more…see my blog on 3 implications for sales and marketing of B2B technology

    http://kenrutsky.com/three-things-you-should-forget-about-b2b-sales-and-marketing/

  6. This blog covers a lot of ground but on the subject of shelf-ware I’ve seend many companies spend $1000s on product like Alteris and then put it on the shelf at the first stumbling block. There is nothing wrong with the software but the implementation is difficult and it takes a long time to train up staff and gain experience. The only way to short cut this is to use an external organisation that has experience with it. We spend years learning it and integrating into our IT support delivery practise.

    This software is not something you can ‘try and buy’. It takes a real and long term commitment.

  7. While there is a great amount of truth in the way the things are shaping up on the buying front , there are only few technologies that can be tried and tested thoroughly before you commit to them . Document sharing , CRM etc may be few of those . For a majority of the other technologies , it still takes a complete deployment cycle to assess the real ROI . What companies can do is focus on “value” offered potentially thru value assessments than just focusing on feature functionality . For example , end user adoption is something that you cannot guarantee until you commit but is critical to generate any ROI . Asking questions or case studies around those soft targets and proof thru a value assessment gives the customer much better insight into what they are buying .

  8. I don’t really agree on your premise of the “Death of an IT Salesman”. Companies like Salesforce.com etc. have a HUGE number of salespeople and is a pillar to their success — Box is also ramping up a large sales team.

    I agree that the way people evaluate software will change dramatically, but the same sales folks will be around to adapt.

    1. SalesChick98005 Mr MTH Monday, March 18, 2013

      I agree 100% with you. EMC is trying to recruit me right now, but I see where we are going. I’d rather be at SalesForce, Box, AWS etc.

  9. Russell Rothstein Monday, March 18, 2013

    Great article Barb. Lots of changes in the IT buying process. But I think you’re missing a big part of the story. It’s not just that IT can now download/try products by themselves – that’s not always the case or practical, and in many cases which of the 10 products in a category should you try out?

    IT buyers are moving to product reviews like at IT Central Station (www.itcentralstation.com) to read what their peers have to say about enterprise IT products, before they decide which ones to short list.

  10. Cliff Redvers Monday, March 18, 2013

    No lock-in! It could be a discussion about the power of the C level versus consensus buying from within the organisation which changes who sales need to engage with. The ideal is a viral affect – especially if the results are spectactular. We enable any organisation to build their apps in the cloud or on-premise with no lock-in! http://www.outsystems.com/

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