Future of software development is co-opetition among vendors
In recent years, the number of choices available to organizations when selecting the right software solutions to manage and grow their businesses has grown exponentially. This is largely due to the fact that SaaS platforms have lowered the economic barriers for developers as well as clients.
A key aspect of this shift is that products are more specialized – aimed at specific niches. Previously, an application vendor might have sought to address the scheduling needs of all blue-light agencies whereas now they are more likely to build specifically for ambulance as distinct from police.
Veeva has built a substantial software business by adapting Salesforce’s platform to the specific CRM needs of the pharmaceuticals industry. The bottom-left quadrant of Gartner’s famous magic quadrant, which hosts “niche players”, is not now a bad place to be. In fact, the 2017 magic quadrant for CRM only has niche players and leaders (there are no visionaries or challengers).
The consequence is that buyers have more options and permutations to weigh up when curating the perfect combination of products to suit their business: a consulting business that makes half its money from permanent employees on projects and the rest from staffing (sub-contractors in interim roles) will need to look carefully at its HR and recruitment software requirements.
In brief, this change is good news for customers and bad news for the fixed, lowest-common-denominator ERP suites that were so popular in the 1990’s. This is also why every major vendor is trying to turn itself into a “platform” and to provide a marketplace that independent software vendors can sell through. Salesforce’s AppExchange has literally thousands of products that work in a complementary way through the Salesforce platform.
But how, in the competitive software space, are these ISV’s integrating together to enhance value for end-users?
An ancient proverb says, “enemy of my enemy is my friend” and no truer words have been spoken when it comes to ISV’s working together. Believe it or not, it’s in their best interest for competitors to shift their mindset to have cooperative competition, or co-opetition as I like to call it, to offer seamless integrations that give customers an unparalleled experience rather than acting as true enemies.
We’re beginning to see this trend of co-opetition take off with many ISV’s and given the usage of the AppExhange platform, I expect that more and more will continue to follow suit. Last year at Dreamforce, it was revealed that 87% of Salesforce customers and 89% of Fortune 100 companies use AppExchange apps. This data suggests that software suites are becoming a thing of the past and customers want the ability to create their own with products that offer more flexibility, functionality and integration options across the business.
Why ISV’s Need to be Open to Co-Opetition
As vendors, when we think about integration, we need to realize and continue to understand that it’s in the interest of our customers that we work together with our competitors to make our offerings robust. Contract renewals, upsells and new customer referrals, among other revenue drivers for ISV’s, stem from successful and happy customers.
Being able to cooperate with others (even competitors) can make vendors stand out. While many organizations may strive to eliminate the number of vendors they work with from the standpoint of managing the relationships, vendors just need to have a clear lead and communication to make a relationship work.
Whether it is the sales, HR, recruiting or accounting departments within an organization, co-opetition allows these functions to have more flexibility to use the products that best fit their team needs versus the overall business needs. For example, HR management software PeopleHR integrates with Sage on the payroll front, despite Sage also offering a similar product for HR teams.
When it comes to invoicing, FreshBooks and Fundbox are also leading the charge with co-opetition. FreshBooks, a cloud accounting software with many features including invoicing, integrates with Fundbox to give customers more choice and flexibility with this feature. This co-opetition is clearly not having a negative impact on their businesses, as FreshBooks raised $43M in 2017 to continue expanding its platform and partnership investments. Similarly, Kimble Applications works with Sage and Concur as well as Salesforce.
Co-Opetition: The Anti-Consolidation
As in other industries, consolidation is inevitable. The question to think about is how integration may affect consolidation in the industry. As we see the bigger players like Oracle and SAP building their suites of products based on acquisitions, it’s clear that for smaller providers to compete, they’ll likely need to rely on partnering with competitors to avoid growth road bumps.
According to experts, the number of software companies will continue to shrink as the role of technology becomes integrative across multiple vertical industries. Because of this, companies won’t compete on having the best product, but rather their ability to leverage one another to offer the best customer experience. That said, companies that aren’t acquired or don’t forge a bond with competitors may be left with limited options to succeed.
On the flip side, consolidation isn’t always in the best interest of the customer. In many cases, consolidation can take away the flexibility and personalization that attracted customers to specific ISV’s in the first place. Vendors who establish strong bases with competitors to work with one another may benefit more from a customer standpoint in this case, versus consolidating with a major company. Vendors with a long-term view of cooperative competition now will fare better than those trying to jump in at the last minute.
The New Normal
The technology industry has long enjoyed the phrase ‘fit-for-purpose,’ but much of the software used by organizations doesn’t meet this definition. As the industry continues to change, developers and vendors who don’t think long-term about cooperative integration with competitors may risk customer retention. Integration between software products, and collaboration or competition between sales teams, is the new normal.
Google apps, Trello and Slack is a natural combination for messaging and documents and they slot nicely together and build on one another. But the latter two tools, were at one point competitors but now put more energy into integrations and add-ins. It has allowed one product development team I know to be more productive with tasks and allows for more streamlined communications with project managers across the organization.
At the end of the day, software needs to be developed to be the best tool for customers. Vendors need to realize and fully understand that it’s in the best interest of their customers to work together as cooperative competitors versus competitors, makes offerings more robust. That mindset will drive long-term growth from a customer and revenue standpoint.