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Risking it all on a start-up supplier

by Keith Rodgers
September 20th, 2004

The instant Christopher Crowhurst, vice president and principal architect for Thomson Prometric, signed the ink on a contract with web services management vendor Actional, the nature of his relationship shifted.

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The process when buying from specialist start-up vendors is one of minimizing rather than eliminating risk:
  • Early adopters have to buy before the market is proven
  • Vendors may have no referenceable customers
  • VC-backed start-ups may be years from proving their viability
  • Established vendors like to spread fear and uncertainty
  • Exhaustive research helps buyers mitigate risk

Glossary terms: services management, SOA, lookup tool

Having spent 14 months in an exhaustive vendor selection and vetting process, Thomson's fortunes — and the success of a $5 million implementation at the heart of the Prometric business unit — had become inextricably tied to the vendor's viability. The success of the project wasn't just down to functionality, implementation skills, technical prowess and the other factors involved in making any IT system operational — it was also down to Actional's ability to sell the same system elsewhere and so stay in business. Although Actional has since notched up multiple live customers, at the time he began his selection process there were no referenceable customers in production.

As one of the earliest adopters of management software in a market that's still in its relative infancy today, Crowhurst's informed gamble on Actional was an extreme but telling example of the factors that come into play when customers purchase from smaller, relatively young vendors. In any market where much of the pioneering work is being carried out by venture capital-backed specialists, organizations that require bleeding edge technology have to take two tightly-connected risks. Firstly, they need to be sure that the technology is stable and does what it's supposed to do — and secondly, they need to know the vendor will be around for long enough to keep on developing it.

As markets develop, larger vendors tend to seize on this kind of issue, flaunting their size and longevity as a key selling point once they've made their way into a fledgling market. IBM, after all, built a business around spreading Fear, Uncertainty and Doubt about its competitors.

With virtually every major player joining the fray in the SOA space, the smaller specialists come under intense pressure to allay potential customers' fears. That's why two staple components of any specialist vendor's marketing presentations are updates on the latest round of funding and a run-through of new customers.

Simplistic scare-mongering
While the SOA space has seen its fair share of fire sales and closures, the larger vendors' scare-mongering is overly simplistic. For one thing, few organizations today will need to take the scale of gamble that Crowhurst undertook with an unproven product — vendors like Actional now have an established and evolving customer base, even if the overall SOA customer base is still relatively small. And while there's risk inherent in purchasing from a smaller company, risk also attaches itself to products supplied by the largest organizations. For more than a year now, customers of one of the top three enterprise software vendors have faced uncertainty as PeopleSoft and Oracle have fought a fierce takeover battle. The hostilities have cast a worrying question mark over how much development resource Oracle would pour into PeopleSoft's products if it succeeded in taking the company over (an outcome that now seems increasingly likely).

What Crowhurst and others have done, however, is push back the boundaries of the research process typically undertaken by customers prior to making a purchase. Most organizations do some kind of financial due diligence prior to making a large or strategic investment, for example, but they might be surprised by just how exhaustive others have been — and also concerned about the practical limitations of any research exercise.

Ultimately, there's an answer to the Fear, Uncertainty and Doubt that tends to be spread by larger organizations about their smaller rivals. The process when buying from specialist start-up vendors is one of minimizing rather than eliminating risk — but even so, organizations looking to implement technology in the early stages of the IT adoption curve have to accept that some degree of risk inevitably comes with the territory.

This is an excerpt from a four-page feature article published in this month's Loosely Coupled monthly digest. To read specific recommendations from early adopters like Chris Crowhurst and Motorola's Toby Redshaw for evaluating small private specialists in emerging technology markets, subscribe here today.

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