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ISV – A Canary in the Coal Mine of Enterprise Software

Recent acquisitions such as the OpenText/ICG deal and my role working with channel partners has led me to think a great deal about independent software vendors and their relationship to the enterprise products they surround. I have come the conclusion that in many respects the health of the ISV ecosystem can be a strong indicator of the strength of a product line and its potential for growth. In conversation I have taken to using the illustration that ISV’s are indeed the canary in the coal mine of enterprise software.

Early Warning System


For those unfamiliar with the reference, in the last century coal miners would take small birds down into the mines with them. There are many dangers in this sort of work but the invisible build up of carbon monoxide is one of the most treacherous. The odorless gas seeps silently into the mine displacing oxygen and creating deadly conditions. The small birds with their rapid respiration and tiny metabolism fall victim to the gas before the miners ever notice it is present warning them of impending disaster.

As enterprise segments mature, consolidation narrows the choices that any given customer has when they need to make a product selection. Saturation of a market limits funding that ever larger providers vie for in fewer opportunities. Consolidation can artificially prolong any vendors tenure in a market as tangential business sustains the main line but the much smaller and faster moving ISV’s do not have that same luxury.

A smaller ISV, with limited resources must commit themselves where they see the greatest opportunity. When these start to fall away from a particular product line or a market altogether it is because of a shrinking opportunity. There is less oxygen ($) to keep the faster metabolism of the smaller organization breathing. So then, while size and corporate dynamics make it challenging to understand the future prospects of one market or vendor, the partner ecosystem around them is a leading indicator of the relative health of the environment.

A benefit to a market is when these organizations, desperate for survival disrupt the business with innovation in order to survive. Finding gold in the coal mine if you will. (yes I know that might not make geological sense but it’s a good illustration so work with me) Similarly when ISV’s pop up and begin to flourish around a product, it can tell you more about the potential than the early sales growth of the product itself. ISV growth is fueled by not only the value proposition of the core product but that of the tangential feature and services spaces that the core expands to fill over time. And the cycle repeats.

Be careful not to assume quantity is necessarily the measure of health in an ecosystem. Profitability of the community is the measure. In today’s world of bizarre economics, VC fueled internet businesses are somehow accepted as healthy even when they don’t plan to make a profit – ever. Not so the ISV’s. They cannot afford that. Development programs that count every email address visiting a site as a partner is not the same thing. The evolving business models may change this dynamic over time but enterprise software is a long way from being funded by micro-transactions with individual employees. That model remains the foot in the door, not the foundation of sustainable relationships between enterprise customers and software providers.

So then if you want to understand the health and potential of your current business, look to your partners. Are they flourishing and profitable, not just numerous. Are they actively investing their time and resources in the vision you have presented to them.

If you are a customer confused by the plethora of magic waves and foursquare punditry, ask the questions. How committed are you to your partners and how committed are they to you? You may learn more about their business than they know themselves.

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