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Do Large Enterprise Software Companies Enjoy Economies of Scale?


August 14, 2012

Enterprise Software Success Myth #2

Doug Hadden, VP Products

FreeBalance is a medium-sized Independent Software Vendor (ISV) with considerable success competing against very large Enterprise Resource Planning (ERP) vendors. We are sharing 16 lessons learned by bucking conventional wisdom to encourage industry innovation and creativity.

Conventional View

Companies selling into the “enterprise” and “government” markets that are larger are able to satisfy more requirements, invest in more advanced technology that “future-proof” clients.


  • Enterprise software firms fight about market share as an indicator of leadership
  • Enterprise software has become so complex with such a large portfolio that economies of scale have been lost because internal coordination problems are introduced. The larger the portfolio, the greater the communications problem in product development adding layers of coordination among product managements and software developers.
  • Enterprise software firms leverage legacy software languages that require more effort to add code for extensibility and new features to meet customer needs. The code base is larger.
  • Enterprise software companies engage in many vertical and horizontal markets meeting that the minimum code base and requirements for database tables is excessive.
  • Enterprise software market consolidation reduces economies of scale because these ERP vendors are supporting more than one technology in many markets, sometimes up to 6, each with different legacy technology. This also adds to the intra-suite integration burden.
  • Enterprise software firms acquire middleware vendors (database, application server, virtualization etc.) to increase the code base even further.
  • Enterprise software firms’ attempts to move to fully modern technology have failed or been delivered late. Some ERP companies have not bothered to upgrade to modern technology.

Ethical View

  • Large ERP vendors provide tools to enable customers to measure environmental footprints. These vendors also have CSR sustainability programs. Yet, these vendors continue to market bloated software that requires unnecessary additional hardware and bandwidth at the cost of electricity.

Emerging Trend

  • Enterprise customers have alternative “middleware” choices through open source technology. ISVs are electing to leverage proven open source technology to provide customers with more cost-effective solutions. Open source provides more economies of scale than enjoyed by any proprietary vendor. (It should also be noted that many large proprietary vendors discover that it is better to have communities manage certain product elements.)
  • Smaller ISVs are leveraging more modern software practices to generate pure-web software that is technically more advanced that achieved by the large ERP vendors.

FreeBalance Approach

  • Focus on optimizing the product footprint and reducing communications needs makes for a green IT solution to make implementations sustainable.
  • Designed exclusively for government to optimize the footprint and achieve the software non-functional and functional needs of government.
  • Delivery of an open system to enable government customers to use open source or commercial middleware.
  • Tapping into the open source ecosystem to achieve a technology leapfrog to future-proof our customers.


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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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