“I think the idea of enterprise software is dead. Enterprise software is kind of a dirty word–big bulky things that never work, were never delivered on time, and are too expensive,” - Jason Fried

Being an entrepreneur and geek at heart, I am thrilled by this sentiment. It’s inspiring to think that just a few people can: (1) make an impact on the world and (2) earn a lot of dough. The hype is wonderful and the success stories of Myspace.com, Craigslist and Flickr have been circulating through the mainstream press for the last couple of months. The whole thing feels a bit like 1998. Even some of the old cast of characters is back — albeit in a very different form.

That said, I have a real problem with this kind of statement. It is too black and white. It reminds me of all those analysts back in 1999 claiming that Old Economy was about to be replaced by New. Small companies have their place but big companies are going to continue to be effective and profitable. The big players in enterprise software — SAP, Oracle and Microsoft — cannot be so easily dismissed. They’re not going anywhere. Here’s why:

Installed base

Perhaps this is too obvious but it is worth mentioning. The biggest competitor to your newest, greatest product is the product you’re trying to replace. Migrating from one platform to another is a big, big deal. Not only do companies have to tie up their IT departments in migration mode, they have to retrain their employees and alter their business practices to suit the new application(s). Most companies are going to tolerate some clunkiness in their systems because the cost of switching is simply too great.

Relationships

Apart from pure functionality, companies with an installed base have an additional advantage: they’ve developed a relationship with existing customers. Well run companies know that it’s far more profitable to sell to existing customers than to seek out new ones. Consequently, they invest heavily in maintaining and extending customer relationships. Here’s another hurdle a small venture must overcome to compete with the big guns.

Talent

Say what you will about Oracle, Microsoft and SAP, they’ve got a lot of smart people working there. A friend of mine works at Microsoft who is smart as hell and genuinely loves the company. I’ve met some of his colleagues and they’re extremely bright too. This talent may not always be employed efficiently but they can copy your idea mighty quick provided it’s copy-worthy (i.e. potentially very profitable). You really think Larry Ellison and Bill Gates surrounded themselves with idiots and just happened to become billionaires?

Fear

You’re the Chief Technology Officer at a big firm and you’ve got to research and recommend a new platform to the CEO. Even if a small, unknown company has the perfect product for the task, they are unlikely to be chosen. Why? Big firms not only have a bigger sales force, they have a brand. The names IBM, Microsoft and SAP lend credibility to a product. Those brands reduce the stress associated with adopting one of their solutions. Why stick your neck out and bet on an unknown if you don’t have to? If the whole thing comes crashing down, don’t you think it will be easier to justify a purchase from SAP than Bob and Ted’s Software Shop?

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