Some Thoughts On Enterprise Software: Increasing Consumerization, A SaaS Bubble & Cross-Company Network Effects

Here are some thoughts related to enterprise software that have been rolling around in my head for the last few weeks.

Consumerization’ Of Enterprise Is Accelerating

Aaron Levie (founder of Box) tweeted this the other day following the Zoom IPO:

I’m not sure we’re fully there yet, but the tectonic shift Aaron refers to is absolutely happening faster than I had thought.

Back in 2011, Chris Dixon wrote a blog post discussing why consumer tech is so much better than enterprise tech. I posted this comment:

In a [B2B] transaction, one good salesperson (the “seller”) only has to sell one person (the “buyer”) on the value of the technology. Once the product is sold, the buyer forces their 50,000 employees to use that technology whether they like it or not. A good salesperson with a good deck can do this fairly reliably.

And a good account manager can typically retain the client for a while; employees usually get used to the product and rarely complain enough for the buyer to cancel the contract and force the seller to improve the product. As a result, an enterprise product can suck and still flourish.

With a B2C product, this is much, much more difficult. The seller has to sell 50,000 individual “users”, one by one, on the value of the product without the luxury of a face to face meeting or 18 holes on the golf course. The B2C model forces the seller’s product to “sell itself”. As a result, a consumer product can’t suck if it wants to flourish. It has be good. Much better than the enterprise product needs to be.

In light of the Slack and Box IPOs, things are looking a lot different than they did back in 2011. There are a few trends causing enterprise software to look more like consumer software.

1/ Bottoms-up enterprise distribution is expanding. This is where an employee within an organization signs up for a service and tells a few colleagues. Soon, when enough employees are using the product, a sales call is triggered and the salesperson tries to sell the product into the organization top-down. Unlike the old days, this strategy only works if the product is really solid.

2/ Micro use cases are increasing the number of buyers inside an organization. The purchase of a CRM or ERP system will likely always be a complicated, top-down decision. But because of the emergence of SaaS products with narrow use cases that require relatively small budgets, the purchase of a SaaS product that, say, improves the efficiency of making sales commission payments to salespeople, will lie with a middle manager in the sales operations or finance function. When buying responsibilities are spread more widely and the decision maker is closer to the user (or is the user), the quality of the product has to improve.

3/ Buyers are getting smarter and products are getting more transparent. The internet has enabled thousands of micro trade groups and private communities to form, allowing professionals to share insights and best practices and advocate for one another. I recently joined a collective of revenue leaders from all over the world. We have a Slack account that we use to share information, ask one another questions, etc. There’s a #techstack channel where we discuss different SaaS products focused on sales and marketing organizations and our experiences with them — Outreach, Gong, Troops, Docusign, etc. I’ll never buy another sales-oriented SaaS product without consulting this Slack channel. At some point, nearly every buyer within a company will be a member of one of these groups (if they aren’t already). This only accelerates the transparency of information for buyers and makes product quality and delivery equally important — and in many cases, more important — than distribution.

There are still a lot of old school industries where top-down purchasing is a requirement because of outdated buying practices, the need for legacy system integration, security concerns, etc. But in the coming months and years enterprise software will continue to look a lot more like consumer software.

A SaaS Bubble?

I’ve heard many people refer to the explosion of SaaS as “the unbundling of Microsoft Excel”. That is, Excel used to do everything for us but now a bunch of companies have peeled off use cases and have built SaaS products around those use cases. This is really true in many ways. Fifteen years ago the companies I worked with did just fine without many of the SaaS applications we have today. We just did all of it in Excel. Sales pipelines, expense reports, commission payments, time tracking for consultants, project management, OKR management, etc. Now all of these things are managed by products like Salesforce, Expensify, Exactly, Harvest, SmartSheet and 7Geese. Companies today use so many SaaS products that Parker Conrad, the founder of Zenefits, raised $60MM to start Rippling, a new SaaS company that helps organizations set up and manage access to all of these applications. Largely due to bottoms-up distribution, the number of applications being used inside today’s companies has gotten way ahead of many system administrators.

Related to all of this, we’re due for an economic slowdown. Recessions seem to come around every ten years; we had the oil price shock recession that started in 1990, the tech bubble recession that started in 2000 and the mortgage crisis recession of 2008. We’re just about due for another one as we head towards 2020. When economic growth slows, it’ll be interesting to see the impact on many of these SaaS products. Many of them seem like ‘nice to haves’ rather than ‘must haves’. If that’s true, you have to wonder how many CFOs will cut back on some of these products and force their teams to go back to using tools like Excel. ‘Bubble’ is a strong word. And those that are bullish on SaaS will tell you that the market share of enterprise software that sits on the cloud is still a small fraction of total enterprise software spend. But it does seem logical that the boom is SaaS is supported by the bull market we’ve been in.

Enterprise Network Effects

Perhaps the most exciting thing happening in SaaS these days is network effects across companies. Network effects happen when you have a product that gets more valuable to each user as more users use it. Facebook is a classic example — the more friends you have on Facebook the better your experience is on Facebook. But now we’re seeing cross-company network effects all over the place. allows companies to share files with their customers. Companies can invite their customers to Slack channels. My company, PatientPing, is a classic example of how this happening in healthcare. It will be interesting to see how far this goes. Competitive and privacy concerns cause companies to be hesitant to share and open up their data troves to competitors and even vendors in many cases. If a company like Salesforce could find a way to get their customers to open up their data it would change the world of enterprise software. The use cases would be infinite. A fun trend to watch in the coming years.

It used to be that employees would sit around the water cooler chatting about systems and processes that don’t work as well as they could or complaining that they’re spending too much time doing low-value work that could be automated with software. This is still true. But now that it’s so easy and inexpensive to launch a software company, many of those same employees are realizing that other companies have the same set of problems and they’re building companies around solutions to those problems. As we’ve seen with Slack, Zoom, and others, some of these solutions can be multi-billion dollar companies.

Enterprise software used to be considered the boring part of tech. It doesn’t seem so boring anymore.