Becoming mission critical

Two terms that often get tossed around when discussing technology companies are "business critical" and "mission critical," and it is important for investors to understand the difference.

3 min read
I know that analysts have a tendency to get carried away with terminology, but sometimes it is necessary. Two terms that often get tossed around when discussing technology companies are "business critical" and "mission critical," and it is important for investors to understand the difference.

For starters, let us make a distinction between the role of Internet technology solutions and that of Enterprise client/server solutions. Understanding the distinction should help investors differentiate between companies that provide the two technologies, and get perspective on what I consider to be the software/services companies best positioned to benefit from the Internet.

The term "mission critical" has been embraced to describe software that plays a fundamental role in a given company, or software solutions that have become integrated into the makeup of the way that company does business. When a certain software package--or, more likely, a customized software solution--runs a core function in the operations of a particular company, it can be described as mission critical because if that software were to cease working, repercussions would be felt across the company.

For example, the role of inventory management software at a company like book retailer Barnes & Noble is central to the way it does business. If, for the sake of argument, Barnes & Noble's logistics system was to black out for an extended period of time, the company would become essentially inoperative. Barnes & Noble's logistics application, therefore is mission critical.

Given that example, it is obvious why vendors of mission critical technology solutions have been able to grow such tremendous businesses--they have companies relying on their software. Chief information officers have fairly little negotiating power with a vendor that is or has been providing a mission critical function for their company.

Business critical functions are an entirely different story. While they serve a core function, it is one that is ancillary to that of the majority of companies. Sticking with the Barnes & Noble example, I would argue that the Barnes & Noble e-commerce Web site, barnesandnoble.com, is business critical and not mission critical. Unlike with the logistics application, if Barnes & Noble's Web site were to go down, life would go on for the company. Granted, the cash register would ring less as a result, but life could go on.

Whether they like it or not, Internet software/services vendors must come to terms with the fact that, during the next couple of years, the very great majority of them will be providing business critical and not mission critical solutions. Customers therefore will not feel the same urgency or need to buy and keep buying software/services from one vendor. In fact, clients often refuse to accept the same terms from Internet software/services vendors that mission critical vendors have been able to bully them into.

Until business critical functions do become mission critical (or until vendors that provide business critical function see enough opportunity to spin off into their own, independent companies) business critical vendors will have to be a great deal more compromising and fluid than mission critical ones. They simply will not be able to get away with as much.

The companies which will do best given these circumstances are those that will be able to move up the customer's food chain--those that benefit from the fact that today's business critical functions are the mission critical functions of tomorrow.

Danny Rimer is an equity analyst at Hambrecht & Quist covering CNET and Netscape. He writes regularly about the Internet in Marketwise.