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Software Sales Slip for BI and ETL Vendors

Software Sales Slip for BI and ETL Vendors

Did you see all the press about a software sales slump after Q2 2018 results were pre-announced last month? It’s really not as bad as they made it out to be. Let me explain.

Part of the slump was not really declining sales, but rather sales not meeting Wall Street and the software vendors’ expectations. Several software stocks took nosedives when they pre-announced or announced disappointing sales or earnings.

Ascential Software and Embarcadero Technologies each had one-day declines of over 20% plus additional declines. Other firms that didn’t have such steep one-day declines still had 7-8% one-day drops with further sell-off in the accompanying days.

There has been much talk about the possible reasons for the disappointing sales.

Much of the blame has been pinned on an inability to meet sales expectations, with any of the software vendors saying that anticipated deals in Q2 did not close and were postponed until Q3.

What are the reasons for the shortfall in expectations? Let’s look at three areas: the overall economy, software spending, and issues specific to data warehousing (DW) and business intelligence (BI) software markets.

The overall economy

The overall economy can’t help but have an impact on IT spending and software sales. Although in the past it was felt by some that companies bought software regardless of the how well the economy was doing, that is no longer the case.

Companies have been driving down costs and watching investments more closely over the last two years. The days of generous IT spending are over. With many economic indicators showing a slowing or dip in the economy this summer, it is not surprising that IT purchases, although not canceled, may be subject to lengthier sales cycles as CFOs gauge the business climate. In the absence of a “killer app,” much of IT spending is now cyclical and linked to the overall economy.

Software sales

Software sales across many categories, not just DW or BI, did not meet expectations. Several factors were involved:

  • The U.S. Justice Department’s antitrust trial to block Oracle’s attempt at a hostile takeover of rival PeopleSoft is drawing attention to the impact of mergers and acquisitions on the marketplace. Oracle’s Larry Elision is saying that the software market is consolidating and only the biggest will survive.

Companies are scrutinizing their software vendors, wondering how potential mergers and acquisitions might affect them.

  • The end of the quarter sales discounts is not closing sales like they used to. Customers are more aware of the discounts and are now demanding them as a matter of course regardless of the timing. These discounts used to get purchases closed on the software vendor’s timetable (to increase quarterly sales), not on the customer’s schedule. In addition, with the details brought out by the PeopleSoft-Oracle trial, potential customers are hearing about larger discounts then they had received before and are therefore attempting to gain these larger discounts from the software vendors (thus increasing negotiations and purchasing cycles.)
  • Some areas are still experiencing a hangover from consuming too much software during the Internet boom. Companies are only now working on achieving the return on the investments they thought they were going to get from these software purchases.
  • Many companies are not ready to commit to large-scale IT projects with their staffs diminished during the economic recession.

BI-specific issues In addition to the economy and a slowdown in general software sales, the BI market has its own set of issues:

  • Customers who overbought are suffering from “shelfware hangover.” To maintain customer satisfaction and loyalty, many BI tools vendors are offering replacements at significant discounts – taking a chunk out of their software license revenue.
  • Competitive forces are putting the pressure on BI tools vendors. Some of the database and ERP vendors are offering alternatives to the traditional BI vendors. Although the BI vendors still partner with the database and BI vendors and their tools can still access the databases and ERP systems, the database and ERP vendors are becoming competitors by offering their own capabilities.
  • Last year’s crop of mergers and acquisitions impacts some sales cycles by prompting potential buyers to examine the migration paths and timetables that the acquiring BI vendor has established for its newly-expanded product lines.
  • Perhaps the biggest issue is the hype over using Corporate Performance Management (CPM) solutions rather than just BI tools. The CPM solutions require buying a software stack with BI and ETL tools, analytical applications, pre-built data warehouses, and, professional services. The solutions sell takes longer than the BI tool sell. With its larger purchase price, the CPM sales cycle is drawn out by the need for more approvals and more signatures. It’s further hampered by persistent questions as to whether the general marketplace is even ready for CPM solutions. Is CPM in an early adopter stage or is it ready for prime time? That is the subject of another discussion.

ETL specific issues

Extract, Transform and Load (ETL) and data integration (DI) vendors face a whole other set of challenges in this marketplace:

  • There is more aggressive competition from non-traditional ETL vendors, such as a database, BI, and ERP vendors. The database vendors are offering their ETL offerings as a natural extension of their database tools. The BI and ERP vendors are offering their own ETL functionality as part of their CPM solutions. This increased competition gives customers another reason to delay purchases as they evaluate the growing list of choices.
  • The Fortune 500 marketplace is saturated. Although hand-coding is still used in creating data marts, much of the large data warehouses are populated with industrial-strength ETL tools. It could be argued that the ETL tools can be expanded throughout Fortune 500 and mid-tier companies. As far as Fortune 500 companies are concerned, many data marts and datashadow systems are built either through hand-coding or using Microsoft tools.

The question is whether industrial-strength tools are needed in thesesituations or if it’s enough to rely on hand-coding and Microsoft.In many companies, IT resources are spread so thin they simply can’taccommodate the work of replacing shadow systems. Mid-tier companieshave small, underfunded IT staffs, also probably spread too thin. Penetrating these markets is an uphill battle for industrial-strength ETL tool vendors.

  • Several ETL vendors have expanded their offering to include dataintegration. This is great for their customers, but since it involves moreexplanations, more software, and larger purchase prices it is quite naturalthat the sales cycle has been extended. It may take the market a little time to absorb the great benefits of moving to a data-integration solution.

Unless the economy changes significantly in either direction, the software sales the slump is probably more a reflection of lengthier sales cycles and cautious customers.

The complicated marketplace means prospects have more choices and more to consider before they make a purchase.

About the author:

An author of this post is Sherry Edwards – editor and journalist at bpm’online. She explores the frontiers of leadership, innovation, education and careers. If you want to know more about what is CRM system stands for, you can easily contact her. In her works, she combines big ideas of business innovations and bold examples in ways that inspire campus and business audiences.

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