Wednesday, 16 December 2009

2010: Another year of “if it ain’t broken….

…. don’t fix it”.

I’ve had the opportunity to talk to a number of software and service suppliers to the UK local authority market over the past few weeks, and with the exceptions of out-sourcers and suppliers into the social services, education and housing sectors, they are broadly pessimistic about the opportunities for new business in 2010.

As I predicted early this year, 2009 has not been too bad a year, with the April re-organisation throwing up some good new contracts and opportunities, whilst some existing customers have had the budget to buy additional functionality and services from existing suppliers. But now supplier orderbooks seem to be depleted, and without significant new business in the offing, many suppliers continue to review their costs and staffing structures to batten down the hatches for a tough 2010.

As 2010 is an election year (both general and local), it will spread uncertainty in many purchasing areas and exacerbate the opportunities for indecision. In normal times suppliers would have expected a poor year, but in today’s troubled financial times, it promises to be even worse.

Not surprisingly, several companies are looking at acquisitions as a way of growing their customer base, and with poor sales forecasts for many smaller suppliers potentially driving down their valuations, I think 2009 will see further consolidation in the application software market. Indeed, a few suppliers are not expecting their competitors to survive the the next couple of years, and I would agree that there are a number of smaller suppliers that will not survive what I believe will be an orders drought through to at least 2012.

As I've said before, existing suppliers will try to maximise revenue from existing customers, both through increased services offerings and new modules & functionality for existing systems. Larger suppliers will attempt to cross-sell between departments within existing customer sites (I think, in 2010, with limited success, although customers may be tempted by the lower cost of procurement).

However, the corollary to all this, particularly for the smaller or bolt-on applications, is that we may see the arrival of new, smaller players with new offerings that are significantly cheaper and potentially technically superior to existing suppliers who have not invested enough in their products.

So 2010 – an even tougher year for the software suppliers.

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