Just a few weeks ago, the Enterprise 2.0 world was humming along smoothly, to all outward appearances. Vendors and analysts alike were bullish on growth prospects for modern collaboration and productivity platforms.
The tide is turning, according to an analysis from Forrester Research analyst Oliver Young. He predicts that average deal sizes for most Web 2.0 tools will fall over the next five years, with some deal sizes dropping by more than half. Fine, but the lousy economy is currently pounding the technology industry, which will further reduce cash flow.
Young attributes the drop to "cutthroat competition":
"With only a few exceptions, technology innovation in the enterprise Web 2.0 market has given way to a period of refinement and digestion. ... For the most part, a blog from one vendor is no better than a blog from another, eroding differentiation and price premiums."
From IBM, to Socialtext, Jive Software, Awareness, Near-Time-you pick the company-there are just too many vendors out there selling similar products to expect that they will all live long and prosper.
I can get on board with that, though I take about three to five briefings a week from vendors in the Enterprise 2.0 space who want to tell me how big the Enterprise 2.0 pie is and that it doesn't matter that there are 200 vendors offering similar solutions.
There is another reason deal sizes will shrink that Young doesn't mention. The current weak economy is reeling from the downgrades in technology stocks in the last two weeks, and this will help curb a lot of the spending on Web 2.0 productivity and collaboration software sales. The New York Times highlights the effect of these financial woes here.
I saw this in 2000 and 2001, and I believe we will see it again in 2008 and 2009.
There is good news, but much as with the current real estate industry, the good news is for buyers. Yes, Enterprise 2.0 is becoming a buyer's market, as Young notes. "Subsumption brings Web 2.0 technology to millions of users at little to no cost," as the price premiums that vendors have been able to command will disappear, Young said.