Customer demand for enterprise software has fundamentally shifted from spending on new functionality to reducing IT operating expenses, according to new research by Tech Strategy Partners, a consulting services firm founded by former Credit Suisse First Boston and McKinsey & Co. thought leaders. The report, titled "Post-Bubble Demand for Enterprise Applications and Implications for the Software Industry," indicates that the top priority for enterprise customers is consolidating systems to lower operating costs, which account for 70-80 percent of their budgets. This will put greater pressure on maintenance revenues, one of the remaining sources of profitability for enterprise software vendors. The research was led by George Gilbert, former chief software strategist at Credit Suisse First Boston and Rahul Sood, previously with McKinsey & Co's North American software practice. Considered among technology's foremost authorities, Gilbert and Sood have impacted the strategic direction of leading software companies in the U.S. and abroad.
"The enterprise software industry has changed from an 'initial-sale' to a mature 'after-market' business," said Gilbert. "However, with operating and maintenance expenses comprising 80 percent of most CIOs' budgets, customers need to make the upkeep of their systems cheaper. As CIOs increase their focus on lowering operating costs, enterprise software vendors will have to slash maintenance fees and rely on innovation in order to survive."
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