The Internet is changing the nature of enterprise software vendors and the companies they serve.
Increasingly, companies that don't focus on technology are being shoved onto the Internet, either by their existing competitors or by new competitors. As a result, booksellers and blousemakers are no longer only using computerized communications to streamline internal operations, but also to sell products. Barnes & Noble, for example, opened up a Web storefront after being challenged by Web upstart Amazon.com. Likewise, more and more airlines are allowing online reservations and bookings to match the efforts of their competitors.
Yet, even as Internet technology becomes more central to companies' core competencies, these same firms are turning more and more to outsiders for software and services that will "Webify" their businesses. I call this new breed the "Out Company." Out Companies don't rely on their internal MIS departments to create external transactional engines to sell their goods. Instead, they are looking to full-service "In Companies" to do this for them.
As I explained in my last column, In Companies represent the next evolutionary step for enterprise software businesses. These companies serve the Out Company not just by selling licenses to software, but also by selling expertise and implementation. Many of you wrote to complain that I didn't offer examples of In Companies. Your complaints have been heard.
One company that is ahead of this trend is Calico Technology. Calico has migrated its business model to that of the In Company because customers were buying software licenses and not receiving the corresponding benefits. Calico has since moved from a model in which it relied on customers to do their own implementation of Calico software to a model in which Calico service personnel, in addition to channel partners, do the implementation. The reason for this is that the implementation is the key factor to success. By managing the implementation process, Calico can ensure that customers achieve the real value of the company's software.
One such example can be found at Compaq Computer, which is using Calico's Concinity software to run an e-commerce Web service for its U.S. resellers. Calico is working on the effort with Price Waterhouse, but the two companies are focusing on their core competencies. Price Waterhouse is working on the enterprise project management and the large-scale systems integration, while Calico is focusing on the implementation.
Whereas Calico used to view professional services as a "necessary evil" of the enterprise software business model, it now expects services to comprise anywhere from 30 percent to 50 percent of its revenue mix going forward.
Rather than seeing the customer as the definitive target of the sale, In Companies focus on serving the entire supply chain of their targeted customers. In other words, these software vendors are aware of the multiple degrees of separation that their customers must plan around.
Cost efficiency is a key element of Ingram's business model. Historically, communicating and providing pricing information to its 100,000-plus resellers has been a huge expense that squeezes margins. But by using Marimba' Castanet software, Ingram now has an extranet application that streamlines and homogenizes while providing a significantly better form of communication with its resellers.
More importantly, however, Ingram has been successful in cutting costs. As a result, the company can efficiently provide information to every reseller without needing to worry about what hardware/software configuration the resellers have. Ingram's sphere of influence (and consequently Marimba's sphere of influence) has been extended to every last desktop.
Having penetrated Ingram's supply chain, I expect Marimba to provide ancillary channels to the Ingram network, homogenizing and automating other processes for Ingram's resellers, such as a shipping channel that might be provided by a Marimba partner like Federal Express.
In my last column I discussed the importance of subscriptions as a part of the new business model. Subscriptions provide a more constant revenue stream and the ability to defer a significant amount of revenue over the life of the subscription. Furthermore, by providing a more significant amount of professional services and customization work, subscriptions create other, ancillary revenue streams that contribute to overall revenues. This can help protect these companies from seasonal weakness.
One of the most innovative companies that has leveraged the subscription model is Intraware, the leader in Internet upgrade management services. In July 1996, Intraware started negotiating with Netscape to be the company's electronic distribution partner. Netscape, acting as an Out Company, used the In Company, Intraware, as its partner to service thousands of Netscape customers that use Netscape browsers and servers.
Through SubscribNet, Intraware now provides updates, fixes, upgrades, and information about Netscape's Communicator and SuiteSpot servers to over 900 Netscape customers (including Charles Schwab, Boeing, and Safeway). Interestingly, these Intraware/Netscape customers now have become so dependent on Intraware's services that they are asking some of their other vendors (like SAP, PeopleSoft, and Baan) to work through Intraware for electronic distribution of software-related upgrades and information.
Thus, Intraware has satisfied two of its constituencies: the software vendor, Netscape, by off-loading one of its "necessary evils" that is not a core-competency; and the customer, who now has a dedicated service provider upon which it can rely on for all software upgrade and software information related issues.
As the Internet invades more aspects of our lives, look for more companies to fall into the In/Out Company model.
Dan Rimer offers his Internet insights regularly in Marketwise.