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Commentary: Choose a product – not a vendor

Companies often purchase software from big-name players because they feel it is a safer investment. Unfortunately, that is often not the case.

You can email Carsten Bange, the author of this section, if you have any comments, observations or user experiences to add. Last updated on May 13, 2010 .

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Bigger is not always better – especially in the software industry. When companies seek assistance in selecting a software vendor, investment security is always one of their top concerns. Many are wary of small software vendors due to the potential risk of bankruptcy or competitor buyouts, which could later result in additional investments or expensive migration projects. Although these concerns may be valid, the conclusions made by many decision-makers are just plain wrong. Choosing a bigger software provider is no guarantee for a stable software solution. In fact, large vendors typically release products outside of their core offerings more slowly than small, specialized companies that have just one or two products. We regularly find that such non-core products are uncompetitive compared to products from specialists.

The Business Intelligence market is a prime example. No major player has a clean slate when it comes to product continuity. IBM has discontinued its Business Intelligence tools and DB2 OLAP Server – and not just the OEM components, but its own development as well. Oracle has also made a break from its own portfolio, and from some of its acquired Hyperion products, and now promotes the former Siebel BI front-ends that came with the Siebel CRM products. SAP also stopped development of all of its front-end tools and applications after acquiring Business Objects. Even Microsoft, which purchased Data Analyzer back in 2001, pulled the product from the market without further comment and, more recently, stopped development of its planning product PerformancePoint Server in 2009 after just two years on the market.

Another way to look at the investment security is the share of revenue that specific business intelligence tools have from the total revenue of a vendor. The whole of Cognos – one of the top 3 players in the BI industry with about $1 billion revenue before the takeover from IBM – now makes up only 1 percent of the total revenue of IBM. Similarly, the BI related revenues of Oracle and Microsoft are less than 5 percent of the total revenue. A large vendor is unlikely to find it difficult to discontinue one unsuccessful tool from a sizeable BI portfolio. More probably, that large vendor would swallow more vendors and use newly acquired tools to replace existing ones.

Of course, specialists also discontinue products in their portfolios. However, if a small vendor has competitive products that make up the core of its business, your investment is much safer there than with a weak product from a large company. Even if the niche player were bought up by a competitor, acquiring the technology or the good products would most likely be the driving motive. In most cases, the larger company continues to sell and develop the specialized products.

Before you invest in new software, ask yourself the following questions:

Does the software have functional and technological advantages over other products in the market, including those from less well-known vendors?
Is the software a core component of the vendor’s portfolio?
Is the product prominent in the vendor’s Web site, user conference program, marketing events and financial reports?
Does the software fit in the vendor’s overall product and market strategy?
Are there no overlapping products in the vendor’s product line that may replace it in the future?
Has the vendor invested in significant further development in recent years (or was the product just supported?)

If you have answered “yes” to all of these questions, the vendor offers the minimum required level of investment security. Size alone, however, is irrelevant when buying software.

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