The Enterprise Software Buyers Club
The reasons why companies buy software may not be what you think
by Joshua Greenbaum
One of the software industry's myths is that features and functionality are what make or break a vendor, new or old. This enduring myth is part of another high-flying fantasy: The software industry is largely a meritocracy where good ideas will always find a forum, if not a multimillion-dollar market cap. While we're having a laugh, how about the myth about technology being the ultimate justification for any software purchases?
The problem with these worldviews is that they clash so starkly with reality as to be almost comical. But even in this cynical, post-Enron, post-Microsoft vs. the Department of Justice era, these myths are still so prevalent that it's worth answering this fundamental question once and for all: What motivates companies to make the enterprise software purchases they do? Sadly, it's often not what many vendors — and the coteries of consultants, marketers, and flacks — would like to believe.
Who Knows Whom?
Every time I meet a bunch of eager entrepreneurs who want to launch a new company, the first question I ask isn't about technology; it's about the company's Rolodex. Who in the startup knows a CIO, CEO, or high-level manager at a marquee company well enough to place a call and make a sale based on friendship or prior track record alone?
This motivation isn't just about incumbency, although more and more software vendors are finding that a foot in the door is the best guarantee for future sales. It's also about mutual back-scratching and the continual cross-pollination of people across the industry. I always say, only half-seriously, that 35 people comprise the entire industry, and we just keep circulating from one company to another. It's a slight exaggeration, but one sure way to get companies to buy your software is to make sure they're your old buddies first. So much for the meritocracy.
The truth behind this fact is that software is often bought as a favor to someone — former boss or employee, future manager, or golfing buddy — independent of how truly useful it will be.
Public Perception
A software company's public perception is worth its weight in gold. That's why so many vendors spend so much time and effort trying to get on the radar screen of analyst firms, large and small, even though it's acknowledged that the firms' "objective analysis" can be influenced by money and, of course, who knows whom. The difference between this buying motivation and the who knows whom issue is that public perception is often used as a means to justify a software purchase to higher ups. That's where the value of the analysts can be huge: A glowing market study by an analyst firm can be particularly useful in convincing your techno-illiterate boss that product X is the one to go with.
Of course, many of these same analyst firms are now scrambling to rationalize all the justifications they made in the last few years about companies, products, and strategies that, shall we say, didn't stand the test of time. But persuading the influencers is still a key way to sell software, particularly when a product's functional merits aren't as strong as they could be.
The "Me, Too" Imperative
This buying impetus is the purview of the customer satisfaction survey and the return on investment (ROI) study. As I noted in "The Paradox of ROI" such studies and customer surveys are problematic. (One vendor, Siebel Systems Inc., has made a whole market position out of its stratospheric — and highly questionable — customer satisfaction ratings by playing with the wording of key survey questions.)
But a company positioning itself as the customer's best ally is only one of the factors that influence a sale. The other is the "me, too" effect, also known as "the software my competitor uses is the one I need to buy, too" imperative. This reason probably explains why companies selling Internet market and procurement software did so well before the dot-com bust: Once some big companies bought into the concept, a lot of companies that had no business buying these products ponied up millions for me, too rights. As for the technical merits of the products, well, some analysts said this stuff might work.
A Step in the Ladder
Anyone who thinks that career enhancement doesn't play a role in software acquisition doesn't have a career in the software industry. Some of this incentive is appropriately subtle, as in, "If I don't buy the right software for the job, I'll get fired." But all too often, the driving force is resume and experience enhancement, as in, "If I can get one more big ERP implementation under my belt, I can make CIO."
This career-motivated reasoning is behind seemingly contradictory software acquisition approaches: maverick CIOs taking unnecessary chances to look good at their next job and more conservative CIOs sticking with proven (safe) products so that they can keep their jobs one more year.
Behind the Hype
All those PR people who inhabit the industry's leading edges actually serve a purpose, as annoying as many people — vendors, analysts, and the press — may think they are. The who knows whom factor really works in PR, and those six (or four or two) degrees of separation between vendor PR firm and key influencers — analysts and press, for the most part — can make all the difference in how each of the previous factors work.
Building a web of perception that makes friends and influences people — particularly software buyers — starts at the PR level. And much of the budget for getting those analysts in line and publishing those customer surveys and ROI studies comes out of a PR and marketing budget. You may not think you're buying software because someone spent money six months ago betting that you could be influenced, but chances are that if they did, you were.
And Finally...
What functional business problem does the software solve? Okay, this buying rationale isn't necessarily so unimportant that it's got to be last. But look at such issues as supply chain management, partner relationship management, or any other buzzword-compliant problem you might have in your company. Does one easily identifiable vendor's products uniquely fit your company's needs and solve all your problems at an appropriate price and in an appropriate timeframe?
Maybe yes or maybe no. But one thing is for sure: Performing technical analyses on all the currently available options on the market is extremely difficult. It's surely a lot easier to start with whom you know and what others think about them. Then you can move on to checking customer references — or at least look at some survey results. A quick view toward what the product will mean at your next job, and pretty soon, you've successfully whittled your choices down to, at the least, something you can handle.
Welcome to the enterprise software buyers club. Don't forget to check your technical criteria at the door.
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