Micro-verticals are nipping at the heels of enterprise application vendors

Vertical solution providers are fighting back against the likes of Oracle, SAP, and IBM

Just when the likes of Oracle, SAP, and IBM start to target vertical solution providers, these providers are fighting back with business-savvy, tech-smart, highly verticalized, industry-specfic applications.

Despite what the outsourcing naysayers think, a new trend is emerging among these vendors that is worth watching. A trend that even if you don't want to watch you can bet companies like Oracle, SAP, Microsoft, and IBM are watching very, very closely.

The trend is micro-verticals

A micro-vertical is a subset of a vertical. So if you are an outsourcer for the financial services industry that provides horizontal BPO services for benefits administration, a micro-vertical outsourcer drills down further and does BPO for benefits administration in wealth management.

The degree of specialization depends on the horizontal market the outsourcer plays in, say Tony Viola, vice president at Patni Computer Systems, a global software development firm.

According to Viola this trend is being driven by customer demand across the board in all industries including insurance, manufacturing, telecomm, and product engineering.

Patni partners with Oracle, for the time being

Patni just announced, for example, Patni Atoms (Accelerated Telecom Operations and Media Solutions) for Oracle. This BPO product is targeted at telecommunications and media providers and enables them to launch wireless, phone, cable, Internet, and media products and service.

Obviously, micro-verticals are a reflection of the growing sophistication or should we say business savvy of outsourcers. No longer are they just coders doing what they are told and saving a company money. Now they are being asked to help a company make money.

Some outsourcers, not all, can do this by acquiring the business savvy through acquisitions and combining this with the knowledge gained by simply working with companies over many years.

Because these outsourcers now understand where a company is coming from in terms of the business, they are increasingly being asked to become partners in developing the kinds of applications that speed time to market and increase sales.

But this trend may have another unexpected consequence. When a life sciences company asks Patni to develop an application for "adverse events claims processing" it is because they are not expecting that their traditional enterprise software vendors have that capability or product.

Despite what Oracle CEO Larry Ellison tells his customers about leaving Oracle business applications alone and to refrain from customizing them, this isn't what happens in the real world. Packaged applications will never do. Customization will always be a critical component in a competitive marketplace.

So while Viola says Patni is a partner with Oracle, I see a different competitive future. I see this because the use of micro-vertical, customized solutions will increase in the marketplace not decrease.

Oracle realized a long time ago that it could not survive selling its database management system and needed new products. Like SAP and Microsoft, it began offering business applications on top of the database. Then Oracle -- and they are just an example -- began to offer more vertical solutions for financial services, manufacturing, and so on.

What is the next step? No company can survive offering the same product for 10 or 20 years. They must continue to add to their product portfolio and this is where they begin to bump up against companies like Patni.

Look for the largest enterprise software vendors to start creating their own micro-vertical solutions. When that happens customers will demand the same things they want from outsourcers who are already offering application development for highly vertical business processes

They will ask, Are they savvy about my business? Do they understand the competitive landscape and can they help me increase my bottom line?

The outsourcers have a big head start and it will be interesting to see who comes out on top.