Software

The Five Biggest Threats to B2B Software & Cloud Companies

The changing landscape of technology has caused rippling effects through countless industries, including everything from commerce to data storage.

Much of this is increasingly being led by software and cloud companies. Innovation is pushing the bounds of what used to be impossible.

As one prominent Silicon Valley investor put it, “software is eating the world.”

Yet, as companies like Intuit, Salesforce.com and others have experienced meteoric rise over the last few years, the larger industry may be blind to looming threats.

A changing environment means no company is safe.

Here are five imminent threats facing software companies:

1. Forecasts Predict Lower IT Spending for 2014

A chart of corporate IT investments have gone in one direction over the past few years: up and to the right.

While the overall trend is likely to continue, recent figures pose a concern for some enterprise software and cloud companies.

recent Forrester report cites that global IT spending is trending below previous projections for 2014.

Worldwide spending in this area is expected to only grow by 3.3%.

For companies based in the United States, nearly half of the IT spend will be directed to customer-process technologies. Cloud companies that deal with data storage and backend functions may not benefit from this.

Gartner echoed the Forrester perspective by revising down their estimates as well.

Despite these lower-than-expected forecasts, most people believe the long-term outlook for software and cloud spending is extremely bright.

The threat becomes increasingly real if this trend continues.

2. Security Concerns Make Old Tools More Attractive

Selling software used to involve a two-step discussion: First, why they should move into the cloud. Second, why they should trust and select your cloud solution over any other one.

Now, the discussion is more of the latter. Security concerns revert the conversation entirely back to the first question.

Let this statistic sink in: 73% of companies have been hacked at least once in the last two years by way of insecure web applications.

Whether the concern is around security from hackers or government snooping, this fear is real.

Software companies that don’t invest enough in security can jeopardize their future and the future of the industry.

Customers will happily return to offline and on-premise storage and applications if they believe it will keep their data safer.

3. Customer Pricing Expectations Are Changing

Enterprise software companies are still adjusting to the consumerization of IT trend that encourages employees to use more consumer-like tools for business purposes, much like the BYOD transformation.

What’s becoming paired with this shift is the perception of consumer-level pricing for enterprise-grade features and reliability.

One prime example of this is cloud storage pricing. As I’ve discussed multiple times, cloud pricing is on a race to zero.

As employees, and people in general, receive utility with personal tools at zero cost, they are increasingly expecting a similar cost-to-value experience in the business space.

A 2013 PWC report further described a changing customer expectation from a per-user-licensing model towards pay-for-usage model.

This threat is more of a financial and business model concern for business owners because the manner in which you become profitable may have to change.

While we are still in the early stages of this, it will definitely be an area to keep an eye on.

4. Social Media Is Looking Increasingly More Like Competition

While social networks have long existed for personal use, they are increasingly encroaching on the territory of some traditional enterprise software companies.

When people in recruiting, sales and marketing were tasked with things like lead generation, they previously turned to specialized software tools like Hoovers and Salesgenie.

Now, LinkedIn and other social platforms fill this niche.

Companies previously relied on customized software tools to gauge customer feedback. Now they can turn to Twitter for everything from evaluating brand strength to fielding customer complaints.

In fact, according to a 2012 report, nearly 80% of companies do or plan to use social media for customer service.

Much of the efforts around website development, SEO and online marketing used to be accomplished via web-based software. Now, social products like Yelp, Pinterest and others make it easier for businesses to reach customers and display their brands and products.

The list of examples goes on and on.

Software companies in these industries better take notice because social media is here to stay and will only become more integrated into peoples’ lives.

5. Growth of the ‘Private Cloud’

As contradictory as it may seem, one of the biggest threats to cloud and software companies will soon be cloud technology.

The only difference is that this competition is from the private cloud.

Unlike traditional cloud technology, services in the private cloud are managed and maintained by the corporation and behind the company firewall.

While popular enterprise software companies have worked hard to develop products and services that they can continually innovate on, tools that live in the private cloud don’t offer that level of creator control.

Therefore, the choice for CIOs, IT Directors and others is often either or, not both. They will buy tools built traditionally for the public cloud or invest in products designed for the private cloud.

According to a recent report, the private cloud market is projected to grow at a rate between 40% and 50% for the next few years.

Even though this sector is still in the early stages, I argue that this field will become a threat to many existing players.

In Closing

With all that said, we know the future of each company and the collective industry are determined by those who live and build in this space every day.

Those who innovate will survive and thrive. Those who don’t will die.

These five threats only signal a portion of the challenge that B2B software companies face.

What do you think? Did I miss any or include any that you disagree with? I would love to hear your thoughts.

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