Let’s be perfectly frank, the enterprise market is not sexy. No matter how many cashmere turtle necks and big boats guys like Larry Ellison drape around themselves, all the glamour is in those hipper-than-thou, what bar you at? disappearing photo, mobile, social, web-snipping companies that come and go like so many pop songs.
But here’s why you should care about the latest enterprise software or services outfit knocking on your company’s door. Every 10 to 15 years the enterprise market goes through an upheaval where the next generation of technology replaces the old. We’re in the early stages of one of those big displacements right now, where huge companies are brought to their knees, and new giants are born.
The technology trends driving it are things we read about daily, the cloud and big data. But the reason it happens with such ferocity in the corporate world, is that unlike the consumer world, the enterprise market is a zero-sum game. There is only so much budget to go around. That means for every sale that some new hotshot company makes, some other company loses a sale.
The last time it happened was from 1990 to 2000, when companies like PeopleSoft, Business Objects, SAP, Oracle, Sybase even Microsoft grabbed share and saw their sales and market value balloon. Today it’s happening again with companies like Appirio, Box, GoodData, Jive, Netsuite, Palo Alto Networks, Okta, Service Now, Splunk and others gunning for companies like EMC, SAP, Oracle, Microsoft, Hewlett Packard and IBM.
The reason these shifts happen so infrequently is that unlike consumers that flit from one shiny thing to the next, the corporate world tends to find something that works and sticks with it for a very long time. Something has to be much better (and cheaper) to undergo the pain of swapping systems out. Moving systems -- including things like HR, customer relations, and business management -- from on-premise to the cloud turned out to be a better solution, and companies bought into what cloud upstarts were selling. Thanks to Salesforce.com, the first part of businesses to make the move to the cloud was customer relationship management. But other elements of business are making the shift, and fast.
Workday CEO and co-founder Aneel Bhusri figures in his domain of HR, the shift to the cloud is about 10 percent done. He references another company he helped build, PeopleSoft, which benefited from the last big shift in the enterprise world in the 1990s. By the time (client server) HR software company PeopleSoft was bought by Oracle in 2005 for $10 billion-plus it had 7,000 customers. SAP today has about 40,000 customers. Workday has only landed about 350 or so customers.
“But ultimately all the client-server (provisioned) companies will move into the cloud,” Bhusri says. His point being that there are about 50,000 companies whose HR business, and every other part of the business, will be up for grabs. “We’re in the early phase, I’d say year three of what will be a 10 to 15-year replacement cycle,” Bhusri says.
What happens in this winner-take-all game, or replacement cycle as Bhusri calls it, is that value shifts from company to company. Look at one of the earliest success stories in the transition to the cloud, Salesforce. It went from a $1 billion-plus market cap company shortly after its IPO in 2004 to a $25 billion company today, and it carved its market value directly from the hide of Siebel.
In the enterprise application market alone, just add up the market value of SAP and parts of Oracle and Microsoft and you have at least $150 billion of market cap that could change hands as companies like Workday, Box, NetSuite, Zen Desk and others gather momentum. If you look at the whole enterprise IT infrastructure, tossing in companies like IBM, other parts of Microsoft’s enterprise business -- systems management software and other sectors into the mix you are talking somewhere in the region of $1 trillion dollars in market value that could change hands.
The lineup of companies that will benefit from this shift have mostly been born -- with some gaps in big data, and the next generation of flash-based storage -- so as they go from private companies to public market contenders, investors will have the opportunity to make (and lose) a huge amount. Of tech companies prepping themselves for an IPO in the the near term, fully 80 percent are enterprise-focused, not consumer.
Sexy it ain’t, but when an opportunity like this comes along once every decade-plus, either as an entrepreneur, an employee or an investor, you better pay attention.
