Have tech consumers located in enterprise businesses become the new, blue sky frontier for mature ISVs? If Professor Emilie R. Feldman is correct, then the answer is “yes”. She contends Meg Whitman’s decision to retain operational management control of Hewlett Packard, Enterprises is an example of just this strategy at work.
Readers can listen to a 20 minute discussion with Professor Feldman on this topic by downloading a podcast from the Knowledge@Wharton website. The podcast is titled HP and the Case for Corporate Spinoffs. Bottom line: just 3 years ago, lots of cloud computing champions (and even, as we wrote back on December 11, 2011 in a post to this blog titled VCs that Know Nothing, the VCs financing their early stage cloud efforts) scoffed at enterprise markets as dinosaurs galloping towards extension. But Professor Feldman’s conjecture, if correct, about just why Meg Whitman decided to hold onto the throttle for the enterprise half of the business split, illustrates just how rich a pot of business enterprise markets actually represent to mature ISVs.
In late 2014 a lot of business discussion, and just how to value mature ISVs, amounts to close scrutiny of margins. As Professor Feldman notes, the margins enterprise business consumers are willing to support when they purchase products and services are just much higher than the margins the other side of HP’s business split, meaning the PCs and Printers business, is likely to produce. What’s driving this stampede to higher margin business is, of course, investor demands for not only healthy sales growth, but, even more, sales growth based on profits.
Prominent cloud ISVs, including Google and Salesforce.com (though Amazon.com hasn’t got a seat at this table), have either released recent products clearly designed to deliver revenue at better margins, or transitioned business management to people with deep experience successfully selling to enterprise business consumers. This is a healthy turn of events. There is never anything wrong with making money, and changing direction to pursue buyers with deeper products certainly amounts to a smart move. This writer suspects even Amazon.com will have to join this stampede sometime soon.
Ira Michael Blonder
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