A new report by Forrester Research states that the market for collaboration and productivity web apps in the enterprise (a.k.a. enterprise 2.0) is set for a shake-up, with prices to fall in some cases by over half. Price drops will be especially sharp in blog, wikis, social networking and widgets. The only exception is mashups, which will increase in price over the next 5 years.
Forrester says the price drops will be due to "cutthroat competition, commoditization, bundling, and subsumption", with many startups and established big companies competing for the enterprise dollar.
There is still expected to be strong adoption by enterprises of web 2.0 apps, which will result in increased license revenue. However that will be offset by the large price drops.
The outlook is particularly bleak for blogging software, which Forrester says will "fall to the lowest average cost per enterprise among Web 2.0 tools" - that's bad news for Six Apart and Automattic, both of whom have been aggressively targeting the enterprise in recent years.
Wikis are also expected to fall in price, however Forrester notes that wikis have had a strong impact on enterprises so far. So there will be more competition, but best-of-breed solutions will continue to do well. Forrester says that "well-designed, intuitive, and cheap wiki technology" will do best.
We've noted over the years that it's very tough to create an easy-to-use and intuitive wiki app, therefore we expect existing best of breed providers such as Atlassian and SocialText to continue to do well. [disclosure: SocialText is a RWW sponsor]
Widgets are expected to drop in price a bit over the next 5 years, mostly because they will become far more common place than they are now. Forrester notes that traditional enterprise applications providers like SAP and Oracle will begin to offer widget solutions for their existing customers.
Social networking is expected to see a big drop, largely due to SharePoint. Forrester states that "much like blogs and wikis, social networking is likely to be commoditized quickly over the next five years." They do hold out some hope thought for "specialized tools that focus on alumni networks, new employee orientation, and cross-department collaboration", which they think may continue to get price premiums.
The one thing we'd caution here is that SharePoint so far has proven to be a complex and difficult to use beast, so we're not so sure that easy-to-use alternatives will be commoditized by SharePoint. In theory it sounds sensible, but in practice how many people actually use SharePoint to network?
Forrester sees mashups as being very early in their market sycle, so it is optimistic pricing will increase. It states that "IT departments will prioritize mashup technology as part of portal, business intelligence, and business process management software investments as well as a major component of SOA implementations."
Update: Jeffrey McManus (no relation) asked in the comments: "Who pays anything for mash-ups or widgets?" The report notes that both aren't common - just 1.8% of North American enterprises had a widget deployment in 2008, while mashups so far have been "small isolated tests, typically limited to the IT department". There are no figures given for how much widgets and mashups will grow, although Forrester says that it "never expects widgets to find a home in more that one-third of enterprises". However there seems to be decent money in it for vendors, with an average of $26,500 per implementation for widgets in 2007 and $76,500 per deployment for mashups in the same period. Examples of current mashup platforms include JackBe, IBM, and Serena Software. Forrester expects the price for mashups to "nearly double to $143,400 per engagement by 2013."
Also in the report, podcasts are predicted to remain largely unchanged over the next five years and enterprise RSS will play "a critical role as the Web 2.0 middleware, staving off major price declines."
The graph below from Forrester summarizes all of the data:
One of the reasons is that old fear of web 2.0 companies: commoditization. As innovation gets copied and 'digested', so it becomes less of a differentiator for the innovators. As Forrester puts it in the report, "for the most part, a blog from one vendor is no better than a blog from another, eroding differentiation and price premiums."
Bundling is another threat to startups, creating "a homogenous set of competitors." Forrester seems to be suggesting that most enterprise 2.0 vendors are attempting to sell a Web Office suite: "Everyone, from blogging vendors like Six Apart to social bookmarking vendors like Connectbeam, is converging on one offering: the enterprise Web 2.0 suite." This, says Forrester, will result in an "industrywide brawl, with buyers the only guaranteed winner".
The third main factor is subsumption, which Forrester says "brings Web 2.0 technology to millions of users at little to no cost." Subsumption in this case has a similar meaning to integration. It's a tactic that the big vendors - like Microsoft, IBM, SAP and Oracle - have more easily at their disposal over startups. Forrester points out that these bigcos can easily roll Web 2.0 features into their existing software packages - in many cases at no extra cost to the user. Microsoft has been doing this with SharePoint, which has lightweight blogging and wiki tools bundled into the main product.
What's more, Microsoft has managed to partner with a number of high profile but small enterprise 2.0 vendors - such as Atlassian and Newsgator. In June we profiled 9 small companies that had launched Enterprise 2.0 offerings that integrate with SharePoint technology. So this could be viewed as another form of 'subsumption', whereby startups have to partner with big companies like Microsoft in order to compete in this highly competitive market.
Even an apparently independent startup like Zoho, which seems to be competing well with bigger companies, has to a degree partnered with bigcos - their use of Google Gears has them relying on a technology produced by Google (ok, Gears is open source, but still it is a form of reliance).
Overall, the trend according to Forrester is that prices for enterprise 2.0 apps will fall but that demand will continue to ramp up. We at ReadWriteWeb can't argue with the overall trend, however we think that startups still have a few tricks up their sleeves when competing against bulky and often hard to use products like SharePoint. However we've always said that partnerships - with bigcos and other startups alike - will be key to startups as they engage their bigger competitors in a crowded market.
Tell us what you think of these trends in the comments.
Image: pansonaut
Comments
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Wait, enterprise apps will go down while "mash-ups" will go up? Sounds like Forrester is making this up.
Who pays anything for mash-ups or widgets?
Posted by: Jeffrey McManus | October 12, 2008 8:32 PM
What I've seen in talking to enterprises is that commoditization is a much bigger issue than a lot of folks realize or admit. It is one thing for similar technologies to be driven down in price when multiple companies offer basically the same thing. It is a deeper, and more troubling form of "technological agnosticism" when companies see diverse tools with very disparate capacities as all addressing the same sets of problems.
Some of these companies really do have problems that "office 2.0" products can address- one CTO I spoke with at a firm with ~30,000 employees said that his middle managers spend 38 hours a week reading and responding to email. There are tools out there that can help with this kind of problem, but management too often sees inefficient work flow as "a cost of doing business", and the tools that can save significantly more money than they cost as "luxuries" that require time up-front to adopt in order to save staff time in the future.
This is unfortunate, because using the wrong tool for the job can give everyone a headache and ultimately cost a company dearly. I think part of the problem is that the problems new technologies solve are not always line-items within a corporate budget- they are often hidden in the form of small transaction costs, and it is this lack of intra-corporate transparency that makes it hard for companies to appreciate the real and compelling value propositions companies offer them. I think of the tool my company, reframeit.com, has created as offering companies a functionality that represents a fundamentally new category of enterprise collaboration software- private, internal communication about the external public web in context. But I think that if companies in our sector let themselves get boxed into old categories, they hasten the commoditization that will ultimately be the undoing of their revenue models if they are not careful.
Posted by: Bobby Fishkin | October 12, 2008 8:36 PM
there is innovation in how to structure data ... quantifying the value add is tough but no more so than kilowatts or bandwidth ... what is your information (structured & unstructured)? what is equitable consideration for the innovator?
Posted by: Wes | October 12, 2008 8:38 PM
Bullshit your Forrester, that is.
Look at the diagram - AVERAGE deal size. What sort of measure is that? Where did they get the numbers from anyway?
And what is a 12% revenue drop over 6 years when the hardware and traffic costs get halved every 18 months if not faster? Add scale and efficiency improvements and everyone can drop 50% off the price in 6 years and still be better off.
Posted by: mukzz | October 12, 2008 9:36 PM
Jeffrey, to hopefully answer your question, here is a bit more context from the report (I can't quote too liberally from it, so I have to pick and choose for the post):
"In 2007, Forrester estimates that the few enterprises with mashup deployments paid an average
of $76,500 per deployment, with the lionâs share earmarked for mashup platforms like those
from JackBe, IBM, and Serena Software. Forrester expects that price to nearly double to
$143,400 per engagement by 2013."
Posted by: Richard
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October 13, 2008 12:49 AM
I added more detail into the post. Great question Jeffrey, because the figures given do indeed indicate that usage is very low currently for both widgets and mashups in enterprises.
Posted by: Richard
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October 13, 2008 1:12 AM
Mashups are just a simplified integration. Its what used to eb known as screen scraping. Simple mashups are cheap and easy, but if allowed t proliferate will leave an organisation with a mass of applications owned by no oe and understood by no one. IT and the business will want these pulled under the IT wing and built using enterprise technology by people who can think through the consequences. It's much like the early corporate use of spreadsheets was - numerous business critical apps were built by accountants and others and later no one knew how to manage them or what they do or even if they were accurate.
IT needs to get its act togther early and get involved to ensure the business gets the responsiveness it needs while ensuring professional applications are built and managed.
Posted by: Neil Murphy | October 13, 2008 3:28 AM
Will the addition of a semantic (web 3.0 ) layer on top of the various components drive up the price?
Posted by: Gareth Murran | October 13, 2008 5:42 AM
Even if prices do drop, does the report say anything about the cost of implementing such applications?
A likely scenario: given that software prices are already a small component of total cost of implementing and supporting enterprise 2.0 systems, total costs [for enterprise 2.0 system implementations] will continue to rise given the increasing proliferation of solutions that require integration and support. (The folks in the I.T. departments understand that already.)
Posted by: Dennis D. McDonald
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October 13, 2008 6:33 AM
Richard, thanks as always for an astute analysis. I agree wholeheartedly with the trends that Forrester is identifying, but as you might expect, I would argue strenously with the effect you're describing for Six Apart.
Put simply, the downward pressure on Enterprise 2.0 platform pricing is something that we're aggressively driving at Six Apart, especially with Movable Type, and as a result, I think we'll be the biggest beneficiaries.
For example, the social features on top of the Movable Type platform were previously available as a higher end solution called the Community Solution. With our last release, we folded them all into MT Pro, which starts with simple commercial pricing and only ramps up if a client wants to purchase an Enterprise license for additional management features. That's a model we've followed for years, with innovative features falling down the price curve from the high end to the standard commercial license and then eventually into free or open source offerings.
At the same time, as you've outlined, we're providing deeper and deeper integration. Oracle's blogging community, for example, is powered by Movable Type because it offers integration with key platform pieces like Oracle's database layer. That's something unique among serious Enterprise 2.0 platforms and again drives adoption versus the less complete, more expense, more complicated Enterprise 2.0 suites offered by traditional enterprise vendors.
And that, perhaps is the biggest thing missing from your comparison of the factors driving down adoption costs for this tech: We can do this because Six Apart is a smaller company with less overhead than the traditional tech vendors, who are optimized for suite sales that cost millions of dollars for software licenses, and millions more for integration and deployment. Our typical engagements are a fraction of that cost, even when you factor in the increasing popularity of our professional services.
So we think it's fantastic news if the cost-per-seat for enterprise blogging software is dropping -- that's happening in large part because Movable Type dominates this space and lets you power an unlimited number of blogs. And it does so at a tiny fraction of what it would cost to build even a portion of this capability on, for example Sharepoint.
Finally, I'd argue that, with all due respect, Automattic and WordPress are almost entirely irrelevant to the conversation about Enterprise 2.0. Popular as they may be for tech geeks or individual bloggers, no serious enterprise would consider that platform. WordPress is consistently insecure, meaning an average of a constant two to three week upgrade cycle just for maintenance, without adding any new features. Worse, the vaunted partnership that you'd mentioned as "taking on Six Apart" less than two years ago has completely collapsed. Despite Automattic's own founder and CEO assuring your readers of their interest in this market, and despite KnowNow being the sole provider of enterprise support for WordPress, KnowNow has gone completely out of business and their site doesn't even redirect to any other options. Frankly, I don't fault Automattic for focusing on other markets, as the enterprise is a tough market to break into if you're not serious about it. But I think it's pretty clear that enterprises would never choose a platform with that kind of track record.
The good news is, there is still plenty of great competition in the enterprise 2.0 space, and nobody's further ahead in creating a great social publishing platform than we are at Six Apart. In a tough economy when businesses are running very tight budgets, we think that strongly favors Movable Type as the platform of choice for driving down the costs of collaboration.
Posted by: http://dashes.com/anil/
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October 13, 2008 6:59 AM
Yes,
I agree in principal with the report as well, however, I do think that prices will fall due to standardization of prices too. Prices were high to start with and we will see more set bundle prices to emerge. All you can eat for $20-50$k per server price. This may hurt the big companies like MSFT, IBM and SPA (they don't have Enterprise 2.0 tools as far as I know by the way). We know that they give out their sub- standard Web 2.0 tools to free, yet I don't want to use them as well.
I also agree that we all have our tricks that can differentiate us not only from the big companies but from each other as well. You can try to compare simple tools like social networking between Jive and Blogtronix or our Wikis or our blogging tools. Little things like statistics, workflows, compliance, or simple live video blogging. All of these count when you are compared in the end.
I do think also that after we (the E2.) companies have enough data to show what is the ROI in companies; we will be able to demand a better price. SalesForce.com was charging $20 when they started per user per month, now they charge $65. So, if you can create a focused E2.0 tools that can save $ for the companies, than you can charge more.
Web 3.0 tools for example will be able to find you the right information you should be reading and the right people you should be connecting automatically, which means that it can save you time. Multiple this by a number and here is your ROI (so to speak..)
Any ways, good post guys, keep it up. You have become the top site I read on E2.0
Cheers,
Vassil
Posted by: Vassil Mladjov | October 13, 2008 7:43 AM
Great post. At Zoho, commoditization is one of our recurring themes. CRM is another important category where pricing pressure is very strong: I believe Salesforce has very unsustainable pricing - asking for $60-120 per month is particularly hard in a difficult economic terrain. We think $12 a month for full-featured CRM is much better, and customers seem to agree. Watch for falling prices ahead!
Posted by: Sridhar Vembu | October 13, 2008 8:12 AM
Thanks for such a great link, guys!
We're a small vendor of Enterprise 2.0 tool, and from our point of view, the problem with different tools will be not in their availability inside an application, but in integration.
Customers should be able to use their beloved tools, but all the tools should have same aspects within Enterprise solution, like 'being searchable and permissions-aware'.
NetVibes has almost all mashups available, but it's not an enterprise tool. RSS means nothing if you haven't collected all the data in one entry point.
So, we suppose the price would be not per-feature actually, but per-result of integration of all features available.
That's just a thought right now, but our current experience supports this point fine:
"pay not for the tools, but for result"
And thanks for this:
however we think that startups still have a few tricks up their sleeves when competing against bulky and often hard to use products like SharePoint
:)
Posted by: Alex Postnikov | October 13, 2008 8:56 AM
thank you..
Posted by: raf | October 13, 2008 11:51 AM
An interesting report from Forrester. It can be difficult to figure out exactly what these reports are trying to say when you don't have the entire thing in front of you.
I also find it strange that mashups are going increase in price for enterprises... doesn't make much sense. The best apps will still continue to get the most attention and money, but I can see the overall price of web 2.0 apps falling.
Brian
http://www.konnects.com
Posted by: Brian | October 13, 2008 11:54 AM
thanks.
Posted by: söve | October 13, 2008 12:07 PM
"that's bad news for Six Apart and Automattic, both of whom have been aggressively targeting the enterprise in recent years."
I disagree (speaking for Automattic). Our growth and revenues are not dependent on enterprise blogging. We've seen (much more) rapid growth in other areas of blogging, so those are the ones we've been focusing on.
Posted by: Toni Schneider | October 13, 2008 7:04 PM
thank..
Posted by: izmir evden eve | October 14, 2008 7:03 AM
thank..
Posted by: mantolama | October 15, 2008 9:57 PM
"Even an apparently independent startup like Zoho, which seems to be competing well with bigger companies, has to a degree partnered with bigcos - their use of Google Gears has them relying on a technology produced by Google (ok, Gears is open source, but still it is a form of reliance)."
most of the google gears offline database API has been included in the HTML5 spec - which firefox and webkit have implemented ( the local db storage ) in the latest nightly builds. It should be trivial to 'switch' from the gears API to the html5 spec.
this is probably the only way to move the web forward - write proprietary extensions, but be open about it, then have other vendors implement the spec, and finally, retroactively include it in the html spec. google/firefox/apple/webkit/mozilla have been pushing in this same direction.
so ironically - to get the ball rolling, the best way is to use proprietary extensions! (and hope microsoft implements it )
Posted by: gene | October 16, 2008 1:30 AM
We run into many customers who use SharePoint, but most are using it mainly as a document repository. Richard hits the main issue that Sharepoint is complex. Even our customers are preferring to store their project documents on our process and project management Web 2.0 tool (PIEmatrix). However, since customers have invested lots money on SharePoint, they can't scrap it. They're looking for ways to keep what they have and use new tools without redundancy. This means firms like us need to investigate ways to integrate with SharePoint to have best of both worlds without duplication.
Posted by: Paul Dandurand | October 19, 2008 6:56 AM
thanks.
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Posted by: söve | October 24, 2008 4:52 AM