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Seasons greetings
First of all on behalf of all the staff of SSP wish you a very happy and prosperous New Year.
So how was 2003 ?
After 2002 there were high expectations that 2003 would be better but in all reality it has still been a hard time for most technology companies with lengthening sales cycles and in some cases a deminishing number of buyers.
Levels of investment in new technologies and startups are at a trickle compared to four years ago as Venture Capital becomes harder to get. Indeed many would claim that High Street banks are taking more risks !
Virtually all venture money is finding its way to established companies with a track record of successful management and a track record of profitability.
2003 saw the continuing consolidation of the industry particularly in the CRM and Business Intelligence community. 2003 also saw companies vanish as losses could not be sustained. However, not all was doom and gloom and our regional assessment would be as follows:
USA
Another year of lengthening sales cycles as the early adopter markets have totally shrunk and buyers are cautiously evaluating new vendors and products.
Silicon Valley is still in decline as Venture money has all but evaporated and the aftermath of September 11th and the Gulf war has meant that many US companies have focused on their domestic market at the expense of overseas expansion.
Outsourcing of development to countries such as India has continued at a pace but the number of projects is still in decline.
It may be too early to determine whether there has been a permanent paradigm shift with Silicon valley losing its dominance in innovation for all technology. Whether the valley can adapt as the centre for outsourced development remains to be seen.
Europe
The UK in comparison to the rest of Europe has remained relatively buoyant fueled by massive government IT initiatives totaling in excess of $15 billion. Germany, some would argue, spent most of 2003 in denial, failing to recognise the underlying and fundamental changes in buyer behaviour.
Increasingly, Europe has looked eastwards in anticipation of the emergence of the new clutch of EEC countries awaiting to join. In particular Russia is poised to become a major growth market.
The Middle East
Despite the Gulf War technology sales continued to grow in the Gulf region as Governments, such as the UAE ,created demand and infrastucture.
India
India continues to dominate the technology outsourcing market but during 2003 there emerged the beginnings of a significant software products market. This is not surprising given the wealth of domain expertise in the technology centres of Bangalore, Chennai and Mumbai.
Most Indian companies, display a naive approach to marketing believing that the ONLY value proposition is lower cost. We expect that to change as their levels of marketing sophistication and capital funds expansion into new markets.
China
It was once said that Software companies had thousands of users but only one customer in China. However, as software piracy has diminished so has the Chinese economy grown. The recent IPO’s of telecommunications and energy companies is testimony to this growth.
Furthermore China has both an emerging technology industry as well as the potential to be the largest consumer market in the world.
Indicators for 2004
The days of spiraling technology growth have gone and it is highly unlikely they will ever be repeated. We predict that there will continue to be significant consolidations in the industry as too many vendors chase too few customers.
Integrators
The large integrators will have to accept some accountability or go under. We have already started to see the emergence of fixed-fee or with % of profits on results integrators who are prepared to predict pay backs to the business from their services. Users will also accept that “off the shelf” solutions can be quicker to implement and give better returns despite the fact that they may not be the ideal solution.
Many Indian companies are now offering both development and domain knowledge expertise which pose a real serious threat to larger integrators.
Innovators
Building a better mousetrap is not needed. The withdrawal of risk capital has had one major benefit in that at last the days of the true risk taking entrepreneur has returned. Invariably, it is the remortgage that is financing the dream so making the right decisions are vital.
Our advice is spend as much on your market research as on every line of code and continue to validate ideas with real world customers. If they are not going to buy it this year they probably won’t next year either.
Significant Opportunities
Reach into new markets. Eastern Europe has significant growth. As does the Middle East. China is still underdeveloped and is certainly not for the short term.
2004 The year of Marketing
We believe that the winners in 2004 will those that understand the true value of marketing and in doing the necessary research to be brave enough to assess the long-term opportunities, because there is no short term any more.
The winners will scrap or sell of products that customers do not need and focus on delivering real solutions that have technology at their core but business value at their heart.
Successful companies will partner at every opportunity to reduce risk while increasing sales and do so on a global basis.
Best of luck and look forward to 2004 with relish and pragmatic optimism.
SSP is continuing to help companies grapple with the challenges that confront software companies in today’s markets and further details on our search services, consulting and other services can be found at www.sspltd.com
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