The Future of Enterprise Software: I Am So Scared, I Am So Excited

It is not very often that one gets to hear about events that can dramatically change an industry. And yet there it is, right in front of us in the form of a lawsuit filed by Waste Management against super-large software vendor SAP. The lawsuit allegedly exposes some of the ugliest and most dishonest practices in enterprise software sales and the court’s reaction to it has the potential to dramatically transform the industry as we know it.

Basically Waste Management spent $100mln on a system that it claims was of little use after delivery. But instead of just swallowing it like many other purchasers of ill-fated software products, they decided to sue. And sue big.

The court materials are actually a pretty interesting read. In it, Waste Management alleges that the software it bought from SAP was “utterly incapable of running the operations of an American waste and recycling company” despite SAP presenting it is “out-of-the-box,”, “integrated end-to-end solution”. Another quote from the court materials that I found intriguing:

As part of its fraud, SAP presented Waste Management with a series of pre-contract product demonstrations consisting of what SAP represented was the actual Waste and Recycling Software. Yet Waste Management has discovered - and, in internal documents, SAP has admitted - that the pre-contract demonstrations were in fact nothing more than fake, mock-up simulations that did not use the software ultimately licensed to Waste Management

The full text for the court filing can be found here. Now, I Am Not A Lawyer and am the last one to know which direction this lawsuit will go. Moreover, this is the story from Waste Management side only and I am sure SAP has something to say as well.

However, the implications of this lawsuit and the attention it drew can be profound and go much further than toxic publicity for SAP. Rest assured, the business community at large is taking note of these developments. If the courts rule in favour of Waste Management in any of the counts, the salesmen at your enterprise software company might be in for a completely different experience next time they try to make a sale. Maybe at the next product demo given to a customer, instead of just people from IT and the potential users there will be also a couple of people from the legal team in the audience. Oh, and the microphone is on ‘record’, by the way. And how much of this demo is fake anyways?

Whichever way you look at it, the implications for the reputation of the large software vendors are not positive. Popular articles like this don’t help either. And all this is happening while in a report by William Snyder from Gartner comes out basically saying that enterprise software licensing model is in for a radical change (original can be purchased from here, discussion of the report can be found here) .  One of his reasons? The existing sales and licensing models just won’t fly in the emerging markets.

It looks to me like the big enterprise software vendors may be headed for a period of soul searching over the next few years as their sales and licensing models become increasingly under scrutiny and more and more customers balk at the existing practices. The good ole days of fat profit margins may be coming to an end, a sentiment echoed by Snyder as well.

But in every crisis there is opportunity, and there are plenty of opportunities in this one. The opportunities are there for enterprise software companies that maintain good, healthy relationships with their clients and don’t turn their potential users into irate and vociferous litigators. And the opportunities are there for companies that invest the time and effort on building new products and technologies that innovatively solve customer’s problems instead of relying on sales prowess alone. Given the potential PR damage and legal costs from this highly public lawsuit, I wonder if SAP now wishes they had spent more R&D time and effort on designing and implementing software that better meets their customer’s expectations.

More so than ever, the time is coming for companies that build it right and do it right to prosper while the ones that exclusively focus on just selling it right and who-cares-what-happens-after-the-deal-closes to stare at a lacklustre or flat  revenue curve. Because you really can’t fool all the people all the time.