By Matthew Healey
Verticalization is a continued focus among major software providers as smaller industries demand applications with more customization. Improvements to large-scale software platforms allow integration for partners and ISVs to improve vertical reach. This creates developer ecosystems that support custom markets without the need for intense customization of applications or business processes.
The history of IT has been a story about the ability of hardware and software to automate basic tasks required in most businesses. The goal of IT was to automate manual business processes to improve speed and accuracy. Initially, large-scale business applications were horizontal solutions that addressed traditional business silos or departments for enterprises that realized the need to better manage and plan large-scale operations.
To address this, the first enterprise resource planning systems were built and deployed. And, as businesses realized their supply chain needed to be more effectively managed, supply chain management systems were developed and deployed. This story continued as IT pushed further into the enterprise, moving from horizontal process to horizontal process until the most common big picture enterprise functions were addressed.
Vertical Application Spend
While horizontal systems improved processes and efficiencies for a range of organizations, many in the IT industry felt something was missing. In many cases, organizations had to complete massive customizations to software to fit the particular business or industry, or business processes needed to change to align with the software. Over time, the IT industry—specifically the application software segment—made improvements to software. In many cases, these advancements were an effort by software vendors to capture a greater share of their customers overall IT spend. These improvements range from superior user interfaces to improved analytic capabilities.
Most notably is the slow but steady progress in building applications that are more directly relevant to a specific industry or vertical. For example, while both banking and the retail industries need customer relationship management (CRM) software, the demands of the industries are vastly different. Therefore, it is no longer simply a matter of “what can CRM do for me?” but, “what can CRM do for me as a regional bank?”
Results of recent Technology Business Research (TBR) studies indicate that spending on industry-specific applications tends to be between 10 and 15 percent of overall IT spending.
While vertical advancements have helped the customer and provided additional value, they still did not complete the full vision for the enterprise. In many cases, the improvements to underlying business applications reduce the need for dedicated industry specific applications; however, TBR does not expect that the current 10 to 15 percent that enterprises spend on these applications will ever drop to zero.
Going Niche
In many cases, vertical industries play in market sizes that do not make economical sense for large software vendors to focus. This presents an opportunity for partners and ISVs capable of developing applications on the platform that integrate with the largest horizontal business applications.
By effectively leveraging an ecosystem of technology partners, application vendors present customers with a suite of applications to meet a diverse range of needs. From a customer perspective, this is critical.
TBR recommends that when customers look to upgrade or expand applications, they pay particular attention to not only the traditional functionality of the software, but also the provider’s ecosystem to ensure that they can provide all of the functionality required for their industry.
By looking not only at the classic “speeds and feeds,” but also at the ability of the software to be easily configured to their needs, customers avoid the costly customizations or business process redesigns that limit the value of the software. SW
Matthew Healy, principal analyst for Technology Business Research, Inc.’s software practice, leads the firm’s SourceIT program, a research imitative that analyzes customer buying behavior by vertical industry.
Jul2014, Software Magazine
