Are we in an enterprise startup bubble?

This year, enterprises will spend more than $2.5 trillion on IT. You can forgive VCs for wanting a piece, but the real market is much, much smaller

Page 2 of 2

All this still begs the question: How big is the enterprise pot of gold? According to Gartner, $297 billion will be spent on enterprise software this year, but SaaS will amount to only $14 billion. And open source? Red Hat, the most successful open source software company ever, just crossed the $1 billion mark last year -- 19 years after it was founded.

There's some indication that reality is setting in. Last week, Ben Horowitz warned that the capital market has changed -- and startups must be prepared for tougher fundraising. The bubble, such as it was, may already have floated off.

Don't get me wrong. I believe historic change is afoot -- that's one reason InfoWorld just launched the New Tech Forum, which covers the explosion in new enterprise technology in detail. The enterprise really is marching to the cloud, albeit slowly. Developers are most definitely rising in importance, and authority over enterprise IT spending will continue to slip away from the CIO to various other power centers, such as the CMO's office. Plus, momentous trends like big data, the Internet of things, and SDN really represent enormous new potential. Why else, for example, would VMware have bought the network virtualization startup Nicira for $1.2 billion?

But enterprise technology adoption always proceeds slower than you think it will, in part because the switching costs of, say, abandoning on old ERP system in favor of a shiny, new cloud application are astronomical. Change happens fastest where individuals have control -- when people use their own smartphones for work, when the sales department decides to use a SaaS app for recruiting, or when a developer signs up to use a PaaS to build and deploy a new Web app. It simply takes a very long time for decisions around the edges to eat their way into the heart of enterprise IT spending, especially when insurgents' success relies on customers paying very little to start.

Whether we're in a bubble or not really depends on expectations. When I asked how realistic it was to presume enterprises would spend big for any of the cloud services offered by the panel participants, John Collison, the cofounder and president of Stripe, which offers a payment solution for developers, joked that "if we're all constantly moving upscale, we'll all be defense contractors."

That's a nice, realistic perspective for an enterprise startup to have. Yes, we're at the start of a huge shift to the cloud and consumerization and software-defined everything. But those harboring overinflated expectations will hear a popping sound soon enough -- unless, of course, they've developed a lovely piece of enterprise intellectual property a big incumbent vendor wants to buy.

This article, "Are we in an enterprise startup bubble?," originally appeared at InfoWorld.com. Read more of Eric Knorr's Modernizing IT blog. And for the latest business technology news, follow InfoWorld on Twitter.

| 1 2 Page 2
From CIO: 8 Free Online Courses to Grow Your Tech Skills
Notice to our Readers
We're now using social media to take your comments and feedback. Learn more about this here.