In technology, entrepreneurs are always looking for the next great opportunity, the next disruptive innovation that will change the IT landscape. In the early 2000s, that opportunity was Software as a Service (SaaS), which displaced traditional on-premise software in enterprise accounts and penetrated the generally cost-averse middle market space that had long eluded large traditional software vendors. Just as the SaaS opportunity was enabled by the technological advances of its time, so too are technological and business model innovation enabling a new wave of enterprise software applications. The first software wave was enterprise resource planning (ERP), which transformed back-office operations. Then came customer relationship management (CRM), which changed front-office operations. This new wave aims to reinvent how companies create, deliver and market products and services through end-to-end solutions from content creation to marketing execution to measurement.
What’s driving the new class of enterprise software?
The Enterprise Software Market is driven by technological advancement and concentrated business processes, which have led business owners to look for smarter business ownership and management solutions. On the technology side, the generational shift toward cloud computing has provided a massive tailwind for global enterprise software services. According to a recent Forrester report, more than 50% of North American companies are developing bring-your-own-device (BYOD) programs in response to workforce demand, thereby raising demand for enterprise software solutions that must be compatible with a wide range of devices and operating systems. A host of enterprise mobility solutions that enable employees to have greater flexibility while keeping corporate data secure at the same time have been adopted and implemented at scale across enterprise platforms. On the business process side, companies must now contend with massive amounts of data that need to be processed daily, which has fundamentally altered the way in which businesses use and interact with enterprise software. Private sector investment and rising corporate IT budgets are facilitating a new reservoir of data that is being used to create bespoke solutions for frontier commercial industries such as big data analytics. The next generation of end-to-end enterprise software applications will come with huge leaps in functionality and increased usability that open machine learning capabilities into applications in areas such as infrastructure & transportation, manufacturing, retail, and insurance.
Sizing up the enterprise software market
According to Market Research Future, the current global enterprise software market is worth $504B and is expected to grow to $634B by 2023, an 8% CAGR between 2019 and 2023¹. The growth of the market can be attributed to both new line-of-business operations and penetration into new, adjacent industry verticals. Enterprise software is increasingly used by organizations across the globe for a number of applications including web conferencing, business intelligence, customer relationship management, project and portfolio management, digital content creation, enterprise resource planning, enterprise content management, and supply chain management. Enterprise software is used by organizations of all types — businesses, schools, interest-based user groups, clubs, charities, governments — in various industry verticals such as manufacturing, media and entertainment, healthcare, retail, public sector, banking, financial services, and insurance, telecom, transportation, energy and utilities, and distribution.
Beyond these core functionalities, global spend on enterprise application software is anticipated to grow as organizations replace, modernize and functionally expand current office and business applications. Shifting IT budgets away from saturated areas such as mobile phones, PCs and on-premise data center infrastructure to cloud services and Internet of Things connected devices validate businesses’ needs to embrace more agile, cost-efficient and responsive operating models.
As software vendors change their business models from in-house software to cloud-based hosting, the need for governance remains the same. IT is no longer just a platform that enables organizations to run their business. It is becoming the engine that powers the business. Despite these changes in enterprise software applications, purchasing managers continue to struggle to balance the business agility that enterprise software promises with risk mitigation and control. With new use cases in more categories, bigger deployments, and more geographic regions, businesses must sort through the proliferating landscape of software vendors, all of whom need to address customization and flexibility issues, the high cost of support and licensing, and complexities related to the migration of existing data.
At Fusion Fund, we like to hear from companies who are entering the space with a technological advantage or strong customer moat. For example, since nearly every aspect of business is moving to “real-time” monitoring, companies that support computing capabilities at the edge provide a business-critical value proposition that would make switching partners disruptive and re-training costly.
Furthermore, we view companies that give business leaders an easy way to find and deploy solutions that meet standards as well-positioned to compete on standardized technology architecture in a fragmented enterprise software world. Platform-like offerings in the business intelligence (BI) space and supply chain logistics enable pure-play vendors to maintain their competitive advantage over the large, traditional software vendors who seek to expand their core stack. Servicing enterprise accounts requires the type of customization and focus that large vendors have trouble replicating across their vast consumer markets. In this void, start-up companies are competing to not only capture value from existing players, but fundamentally grow the market for enterprise software solutions.
We have engaged with founders to learn more about AI/ML tools spanning the entire pipeline. As data collection continues to grow at an unprecedented rate, a shortage of data scientists to obtain insights from the data sets has resulted in a strong need for AI/ML tools. Additionally, DevOps has been an area of interest, especially as corporations look to innovate more quickly and improve collaboration amongst teams. We are excited about the new upcoming developments in enterprise software. If you have a technologically differentiated enterprise software startup, we would love to chat!