This is part of a three-post series on enterprise application software over the decades, meant to serve as background to a DBMS2 post on issues in enterprise apps.
- The first lays out very general issues in understanding and subdividing this multi-faceted sector.
- The second (this one) calls out characteristics of specific application areas.
- The third discusses application software products’ underlying technology.
1. When I started as an analyst in 1981, manufacturers seemed to still be over 40% of the IT market. For them, the distinction between “cross-industry” and “vertical market” application software wasn’t necessarily clear. Indeed, ERP (Enterprise Resource Planning) can be said to have grown out of the combination of MRP and accounting software, although it never was a manufacturing-specific industry category. ERP also quickly co-opted what was briefly its own separate category, namely SCM (Supply Chain Management) software.
2. Manufacturing aside, other important early vertical markets were banking, insurance and health care. It is no coincidence that these are highly regulated industries; regulations often gave a lot of clarity as to how software should or shouldn’t work. Indeed, the original application software package category was probably general ledger, and the original general ledger packages were probably for banks rather than cross-industry.
3. Payroll processing is of course highly tied to regulation, especially in the area of state and sometimes even local taxation. It’s also one of the very oldest sectors of the computer services business, indeed predating most commercial computing. See for example the Wikipedia article on Automatic Data Processing (ADP) Inc.
In the early days (e.g. 1960s), banks tried to compete for payroll processing business. But the independent computer services industry won.
4. Human resources software often lives in its own world, which is often but not always separate from payroll processing. Reasons include:
- HR departments often live in their own worlds.
- HR is often the most regulated part of otherwise lightly-regulated businesses.
- HR deals with stuff like employee communications, employee benefits programs, applicant tracking, which are pretty disconnected from the rest of the business’ data.
On the other hand, while Dave Duffield has started some very innovative HR-first companies — consider the names of PeopleSoft and Workday — they eventually expand(ed) into much of ERP.
5. There are of course many other kinds of department-specific applications. The biggest area is marketing, discussed below. Another set of examples is more verticalized — certain industries use certain kinds of equipment, and there’s an associated need for software. Examples include but are hardly limited to:
- Shop-floor control in manufacturing.
- Test results in medicine.
- Check scanners in commercial banking.
- Meters in electricity and other utilities.
I think this group could become much more important in the age of machine-generated data.
6. It is widely reported that marketing departments now control more IT budget than central IT does. Obviously, marketers have used technology since the earliest days of commercial computing, but the big growth started in the 1990s. Signs and triggers I recall from that decade include:
- Huge amounts of new data became available to marketers, in two waves:
- Detailed transaction tracking, via point-of-sale (POS) devices and loyalty programs, in industries such as retail and travel/lodging/gaming.
- The internet.
- Data warehousing rose, generally for marketing purposes.
- One of the industries I knew best, retailing, went from being a cheapskate IT investment laggard to an aggressive user of technology.
- When I asked business intelligence companies whether, since they thought everybody should use BI, everybody in their own company was, the answer was usually “Well, the marketing department uses a lot of BI, but the rest of the company doesn’t yet.”
Accordingly, we’ve seen the rise of several marketing-related application software categories, the first few of which got combined under the rubric CRM (Customer Relationship Management). The first of them all was arguably salesforce automation (SFA). Siebel Systems was an SFA pioneer in the 1990s, with a big assist from Andersen Consulting, which was looking to repeat its great success in SAP-related business, and then grew into the rest of the emerging CRM category.