Monday 4 October 2010

Buying results versus buying potential in business IT

It's all about potential
    You have probably noticed that business IT (in general) is very expensive. In fact we (the IT industry) invented a special word to justify the expense: Enterprise. We use the word Enterpise to imply that a product or service is: robust, sophisticated, reliable, professional, complex and (most of all) valuable. But if you look deeper you might notice something interesting about "enterprise" IT; it's all about potential. The most successful IT products and companies make all their money by selling potential. Oracle databases have the potential to handle to world's largest workloads. SAP software has the potential to handle the processes of the world's biggest companies. IBM servers have the potential to run the world's most demanding calculations and applications.

You're buying what could be
    Selling potential is insanely lucrative. After all you're not buying what actually is, you're buying what could be. You're not buying Oracle database to simply keep track of your local scrap metal business; you're buying a Oracle to keep working while you become the biggest scrap metal business in the world. You're not buying SAP to tame your 20 site tool hire business processes, you're buying SAP to help you become the world leader in tool hire. And when the purchase is framed like this customers actually want to pay more. I've been involved in more than one discussion where suppliers were eliminated from consideration for being too cheap. It was understood that they couldn't be "enterprise enough" at that price point.

Really expensive DIY
    The funny thing is that buying potential actually means you'll have to do it yourself. This is actually the defining characteristic of enterprise IT; whatever it costs you'll spend the same again to get it working. You don't simply install the Oracle database and press run. You can't just install SAP on everyone's desktop. You need to hire experts, create a strategy, run a long project, put it live over a long weekend, perform extensive tuning, etc., etc. Of course your enterprise IT supplier will be happy to help with all this, but that'll cost extra.

Small business need results
    Ironically, small businesses want to buy the exact opposite of potential. They want to buy results. Strike that; they need to buy results. A specific action should result in a specific outcome. In a small business you can't afford to waste time and money on something that might be great. What is required is something that is OK right now. I think the web is perfect for delivering this kind of service and I think that's why small businesses are embracing web services like Basecamp, Freshbooks and (hopefully) my very own I think there is latent demand for better technology in small businesses. They can't risk spending big money on potential but they're happy to try out a service will a small monthly fee. If it helps them they'll keep paying the monthly fee and if it doesn't then they won't have lost much.

Harris law of IT spending
    I think this is so powerful I'm going to make it a law. The Harris law of IT spending: "Pay only for results. Never buy potential".

P.S. You might notice that open source embodies my law completely. The thing that has potential is free, and then you  spend time/money on results.

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