PRINT THIS PAGE Strategies for the software revolution: It depends what you are
21/11/2005. Source:Israel Venture Capital Journal. Shuki Ehrlich, Managing Director, Giza Venture Capital.
Knowing the software/IT segment in which one operates and developing the right set of strategies for that segment are key to success maintains Shuki Ehrlich, managing director at Giza Venture Capital, in this IVCJ article. Opinion: The software revolution is making a comeback.
Quietly but surely the software revolution is gaining momentum and is drawing us all in. The generators of this renewed revolution result from information becoming an essential resource of enterprises everywhere.
Huge amounts of information related to the business process, which are flooding the enterprise, are forcing managers to find efficient and rapid means of coping with the problem while increasing productivity. Automation is one solution and will take place all across-the-board, requiring reallocation of all other resources.
A good example of the potential of this revolution can be seen in the operations of Wal-Mart. Wal-Mart is one of the world's largest companies with a huge work force, a simple mission and no confusion about what it does. Wal-Mart is one of the world's pre-eminent tech companies. It pioneered the use of bar-code scanners, finely tuned the supply chain, and tweaked inventory management for local purchasing preferences. By embracing technology, it obtained a special edge.
It will be interesting to watch how the company develops over the next few years. Despite the organization embracing computational platforms, devices and systems, thus increasing productivity and efficiency, business purposes and objectives will not change, but business processes will.
The pressing need for an answer to this issue of information will lead more and more companies to offer products/solutions that will enable better organization and efficient use of information. At the same time, making business processes more efficient will become increasingly important and will demand constant improvement of the efficiency methodology itself. Naturally, those viral characteristics will bring along a quiet but massive revolution.
In this turbulent and vibrant environment, industry participants - vendors, distributors, investors, developers of products/solutions and business processes - will all be creating added value and providing valuable insights, while determining the size and state of the market, emerging players, market leaders, trends and future market directions. Start-ups that can identify the undercurrents in this IT revolution can benefit from the demand for new solutions/products.
Entrepreneurs should address what I believe are the three principal segments of the software space - infrastructure systems/products, end-to-end solutions and enterprise applications. The first segment, infrastructure systems, entails the supply of off-the-shelf products -generic products that are procured as fully developed and ready-for-use and sold to horizontal as well as vertical players.
These products do not require any kind of business specialization regarding distribution, as they are not addressed to specific customers and no significant professional services are involved. Accordingly, the method of distribution is indirect, with vendors using a variety of distribution partners.
End-to-end solutions refer to solutions for large organizations that operate in a specific vertical marketplace (e.g. finance, telecom, pharmaceuticals, manufacturing, etc.). In the past, developers would build end-to-end solutions for a specific client, a good example of this would be bespoke systems that were procured when and where an enterprise had specific requirements and needed a specific-purpose system to meet those requirements. Today, enterprises are looking for ready solutions but still want them to fit their needs.
Solutions are initially developed for a specific customer, but are built generically and then go through a customization process to fit specific client requirements. Such an offering would be best characterized as a solution and definitely not a product. The solution requires licensing, and implementation would not be possible without the use of significant professional services provided by the vendor or his partners.
As for distribution, this is a different game. Solutions of this type call for either a direct sales force or the services of system integrators. The vertical market is a code word for business specialization and operating in it obligates the distribution channel (direct sale force, channels, VARs, integrators) to know the business inside out, as professional knowledge is instrumental in creating the sales edge.
The third segment - enterprise applications - includes horizontal solutions to a number of verticals as an "add on" system. Here, a horizontal platform is used to create applications that work on a vertical level. This segment consists of applications such as analytics, SLA, product life cycle and natural language. Distinguishing qualities demand the implementation of hybrid models combining direct sales and indirect sales strategies.
Now, having presented a snapshot of my vision of the software revolution (here and upcoming) and a different way to segment the software IT market, entrepreneurs should learn and under-stand the segment to which their company belongs and draw conclusions as to the most suitable structure, product development, go-to-market strategy, partners, programs and so on.
Matching the right overall strategy with those elements will determine a company's success or failure.
This article first appeared in the Israel Venture Capital & Private Equity Journal (IVCJ). IVC Research Center publishes the Israel Venture Capital & Private Equity Journal, a quarterly review of trends and developments in the Israeli-related venture capital industry. IVCJ, distributed worldwide, is dedicated to provide wide-range coverage of Israel's venture capital industry. For more information please visit www.ivc-online.com
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