The external analysis will use various frameworks to analyze the following: changes and trends in the environment, Porter’s Five Forces industry analysis, competitor analysis, industry segmentation and demand issues and opportunities in the industry.
This section will use frameworks to describe the external factors, such as environmental changes, industry position and competitors, that affect Atlassian. It will include a brief introduction to the company, changes and trends in the environment, industry analysis, analysis of existing competitors and industry segmentation and demand issues. These analyses provide a description of the industry landscape, which allows for informed and thoughtful conception of opportunities in the industry.
P.E.S.T.E.L. Analysis
A P.E.S.T.E.L. analysis looks at six segments, political, economic, social, technological, environmental and legal, to describe the business climate. Political and economic changes that affect Atlassian include Brexit and the 2016 election of United States President, Donald Trump. These two political events have caused the U.S. dollar to strengthen, while foreign currencies have weakened. This is a good change for Atlassian, as the company solely accepts U.S. dollar as payment, but incurs costs in various foreign currencies from countries in which it operates. Social changes include the trends of inclusion and acceptance of all people. Atlassian is vocal about being a proponent of inclusion for all. This is also positive for Atlassian, as it makes the company attractive to the rising number of consumers who support these values. Two changes in the technology segment that affect Atlassian are cloud computing and X-as-a-Service business models. To stay relevant considering these trends, more companies will develop digital products to add to their portfolio. One of Atlassian’s main targets for its products is software development teams, so this change will increase its number of potential customers. An environmental trend is climate change, and the idea that companies have corporate social responsibility (CSR) to reduce their affect and impact on the environment. Software companies as a rule are ‘green’, having only two main inputs: humans and electricity. Atlassian is no exception to this rule. Potential trends in the legal segment could have negative impacts on Atlassian. One possibility is cyber security laws. As they mature, Atlassian’s product development and delivery could be impacted by higher security standards. Secondly, U.S. President Donald Trump has proposed increased import tariffs. Atlassian’s products are subject to U.S. import laws, and so this could increase their expenses. Analyzing trends in these segments provides an explanation of Atlassian’s current and future business climate.
Industry Analysis: Porter’s Five Forces
Porter’s Five Forces model, as the name would suggest, analyzes an industry’s attractiveness based on five forces: threat of new entrants, power of buyers, power of suppliers, threat of substitutes and competition within the industry. To understand the software industry’s attractiveness, a Porter’s Five Forces analysis has been completed. Within the software industry, the threat of new entrants is medium. This is because it is relatively easy to enter the software industry, with very low initial investment costs, but it is more difficult to create a product that will gain traction. The power of buyers is also medium. Buyers in the software industry traditionally have had low power due to high switching costs due to the vast scope, cost and schedule of enterprise software implementations. The new model of monthly subscription cloud-deployed software, however, has lowered the cost of switching and inversely raised the power of buyers. The power of suppliers, on the other hand, is high. The main input for a software company is their employees. Competition for highly skilled workers in the tech industry is extremely competitive, and so the ‘suppliers,’ or employees, have great power in negotiating their ‘price,’ or salary and benefits package. The fourth force, threat of substitutes, is medium for the software industry. The software industry is reaching maturity, and there are many alternative enterprise software solutions available for any industry, task and price range imaginable. The ability to create a homegrown solution using basic tools such as Microsoft Word and Microsoft Excel also exists as a substitute to the software industry, especially for small and medium businesses. The final force, competition, is high within the software industry. As the industry reaches maturity, and the market is saturated, the competition increases.
Existing Competitors
Within the software industry, specifically the B2B workplace software industry, the key success factors are as follows: product capabilities, flexibility, total cost of ownership, ease of access and use, performance and scalability integration, customer satisfaction and global reach (Atlassian Corporation Plc., 2016, p. 42). Atlassian breaks its competitors into three groups, based on the recipients of the products: IT and service teams, software and technical teams, and business teams. The distribution of Atlassian’s competition based on recipients of product offerings. Competitors of Atlassian within these three groups include Microsoft, IBM, Hewlett Packard Enterprise, Google, ServiceNow, salesforce.com, Zendesk and several smaller software vendors like Slack and GitHub (Atlassian Corporation Plc., 2016, p. 42). While these companies include some small startups and some legacy solutions, the majority are enterprises who have been actively engaging in acquisitions of solutions to create a ‘one-stop shop’ software solution for other companies. Even small, niche companies could create change in the competitive dynamic in the software industry, if acquired by one of the tech giants to create a competitive offering.
Industry Segmentation and Demand Issues
Customer satisfaction and loyalty in the software industry is driven by the following: product capabilities, flexibility, total cost of ownership, ease of access and use, performance and scalability, integration, customer satisfaction and global reach (Atlassian Corp Plc., 2016, p.42). This general base of customers, in which Atlassian competes well, is segmented by various factors, namely, deployment, size of customer and customer need. The three types of deployment are cloud, on premise and data center solutions. Though Atlassian’s original deployment method was on premise, they positioned themselves early to pivot to cloud deployment, which has allowed them to gain traction in the cloud space. Atlassian also offers data center solutions (Atlassian Corporation Plc., 2016, p. 42), allowing them to provide solutions for customers of all sizes, from individuals to enterprises. Beyond knowing that they have over 60,000 customers, and that they provide solutions for 291 of the Fortune 500 companies, the distribution of their customers across company size is unknown, so it is difficult to say where they are positioned in the customer size segment. The overall customer need that the Australian software company fulfills is software for teams. Atlassian creates team software: IT and service teams, software and technical teams and business teams. Atlassian, through their flagship product JIRA, is extremely well positioned in the segment of products for software and technical teams. The recent acquisition of Trello, a free online collaboration software targeted at business teams is allowing Atlassian to further position themselves into the segment for business teams. Atlassian has footing in the segment for IT and service teams with JIRA ServiceDesk, but is directly competing with large, well-known companies like Salesforce.
In an article published by S&P, “Software Industry Survey,” it is predicted that companies in the software industry will to increase revenue and cash, continuing the trend of the last five years, and that gross margin will likely decline as companies invest in cloud technology and complete acquisitions (Kessler, 2016). These acquisitions reflect a trend in enterprise companies creating ‘one-stop shop’ solutions. This, along with the software industry reaching maturity, indicates that low-cost competition will soon begin. However, the workplace and collaboration software industry specifically will likely see an increase in potential revenue due to the increase in global knowledge workers and the conversion of companies and industries to digital.
Opportunities in the Software Industry
Using these frameworks to analyze the software industry and the external environment allows for identification of opportunities in the industry. Customers and segments that are not well served within the current workplace collaboration software subindustry are non-technical businesses and consumers. The options that exist have vast features that the average user will never utilize, but the price is reflective of the features. Applying Clayton Christensen’s theory of disruptive innovation, indicates that there is great opportunity at the bottom of the market that is open for a company to fill and begin to siphon off those lower hanging customers. Eventually, with increasing features, the disruptive innovation will reach the trajectory of customer needs and disrupt the traditional legacy technology. Another opportunity that exists in the software industry is upward vertical integration. As stated previously, the main input in the software industry is skilled workers, and the competition for employees is extremely high. An interesting opportunity for a company in the software industry, then, would be to be their own supplier of talented workers. One way that a company could do this would be by offering a free training program in return for an employee to sign a contract to work for them for a specific amount of time. This runs the risk of a company expending time and incurring costs in an area that isn’t their core competency, but could work if internal training content had already been developed, as is the case for Atlassian.
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