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A wake up call to the Enterprise Solutions giants
[Edward Tsang, Senior Strategist, Utility Computing 2003/7/1]

When Michael Dell first begun trading in 1984, he was knocking on what appeared to be a very firmly closed door. Between them, HP, IBM and Compaq controlled an overwhelming majority of the PC industry. Dell's newbie firm raised very few concerns amongst the giants of the thriving desktop industry.

Yet, of course, the model of dis-intermediation that Dell's company exemplified was to prove revolutionary. Year upon year, he has taken market share away from the rest of the PC manufacturers. HP and Compaq were even (partly) driven to merge in an attempt to retain economy of scale in this segment of their business.

The key point for the PC industry arrived circa 1998, when it became obvious that Dell's direct model gave them a serious competitive advantage. The indirect manufacturers were faced with difficult choices:

  • They could either continue to compete at an efficiency disadvantage (but attempt to differentiate on associated services).
  • They could abandon their distributors and replicate the Dell model - taking a very significant revenue-hit in the process.
  • They could follow a hybrid model, endeavouring to offer the best of both worlds.
Most chose the later course - but a hybrid model is always a difficult one to make work, as it is fundamentally not as efficient as the competitor who operates as a "pure-breed."

 

Today, there is every possibility that the enterprise-level CRM industry finds itself at a similar turning point. The utility computing model that Salesforce.com follows asks some very serious questions of the incumbent industry leaders. Offering flexibility, minimal costs for expansion and a payment profile that is close to reflecting actual usage - the traditional CRM revenue model faces a serious threat from this comparatively new entrant to the market.

As media attention obsesses with the aggressive tactics of Larry Ellison and the wavering affections of the PeopleSoft shareholders, serious industry users might do well to look beyond this latest round of mergers. They should be asking themselves if the truism that drove Andy Groves' famous paranoia is proving itself once again: "Sooner or later, something fundamental in your business world will change."