Outcome-based software buying creates new CY14 opportunities for OEM partners
Matt Healey, Principal Analyst
JUL 21, 2014 01:01 AM
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TBR Assessment

Enterprise applications customers are increasingly looking for simple-to-deploy solutions that solve defined business problems. Further, they demand the solutions be up and running in shorter and shorter periods of time. Gone are the days when a vendor could expect a long, drawn-out sales process followed by a lengthy systems integration process. Inspired by the instant gratification of their daily lives as consumers, enterprise customers increasingly want the "add to cart" ease to be extended into enterprise software purchases.

These demands are changing the way vendors develop their solutions. No major software vendor can provide all of the functionality that enterprises require. Applications providers need infrastructure software to ensure their software runs effectively. Further, each vertical has specific requirements that are best addressed through smaller ISVs, which is changing the way these infrastructure and smaller ISVs are going to market. Increasingly they will need to embrace the OEM channel to drive software adoption. Larger software vendors also need to embrace this approach to provide customers with the simple, integrated solutions they desire.

Integrated solutions

In many cases the need for simplicity is giving rise to the development of integrated software solutions that are designed to address a specific business problem. In the past it was sufficient for ISVs to develop an industry or niche application that ran on a specific vendor's platform or database. In this model the customer or a systems integrator would then be responsible for "assembling" the various components of the solution. This process generally added a considerable amount of cost to the end customer. Additionally it delayed the deployment of industry-specific solutions. Finally, the added time and money required limited the potential market for these solutions as customers often were not able to make an adequate business case for the solution because of higher integration and maintenance costs aligned to purchased solutions.

However, as technology has advanced, ISVs are now developing and providing an integrated solution to their customers. Rather than delivering a solution that end customers must integrate in house, ISVs have begun to provide integrated solutions that include not only the proprietary application, but also database and middleware components from other vendors. TBR believes this trend will continue as the point of purchase continues to evolve from IT-only to IT and line-of-business (LOB) buyers working in tandem. In general the LOB buyer is less interested in building the components and then having either the IT department or a systems integrator assemble them into a finished solution; they are much more interested in buying a solution that can be quickly deployed and easily maintained.

Growing importance of the software OEM channel

TBR believes that as buyers migrate from technology-based to outcome-based buying, the importance of the OEM channel for large software vendors will gain importance. Infrastructure software will increasingly be purchased by applications software vendors and then integrated to create industry solutions.

The impact of this trend will not be limited to the infrastructure software vendors; it will also extend to smaller niche applications software vendors. While large applications software vendors provide a significant portion of the applications required by most customers, every vertical industry has its own unique challenges, regulations and requirements. Satisfying these requirements necessitates an entire ecosystem of developers. For these developers, embedding their solutions into those offered by larger applications providers can offer the smaller developer a powerful sales channel, and give the larger applications provider a more complete suite of offerings to appeal to a wider audience.

There are challenges associated with the OEM channel even as it provides vendors with additional opportunities to market and enables the construction of more complete solutions that can appeal to a wider audience. Before embracing the OEM channel, vendors need to understand how they intend to support the software once it is deployed. This will require agreements between the OEM provider and the applications vendor on how to share support revenue, what the roles and responsibilities of each party are, and how those parties intend to collaborate to solve customer problems when they arise. If these agreements are not made and understood, TBR believes there will be problems and both vendors will suffer declines in customer satisfaction.

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