It will not be news to vendors, or CIOs, that the New Zealand ICT market is considered a one-off. Unable to be compared closely with the Australian market, and barely at all with ICT trends in the wider Asia Pacific region (an area of boom growth for ICT vendors), New Zealand stands alone as a mature ICT market populated with savvy, closely networked CIOs and strategists. If ICT vendors fail to approach New Zealand as an individual market, they often fail to approach it at all. Of course, some international ICT brands decide the size of the New Zealand ICT market is not worth putting people on the ground for, leaving their Australian offices to work out how to sell and support from across the Tasman. Others put a skeleton sales crew to work in Auckland or Wellington, armed only with contracts and reassurances of on-tap international support via phone and online service channels. It’s a strategy that rarely works — New Zealand is a small country whose ICT executives operate as a community and know a ‘thin blue line’ of support when they see one.
Every now and then though, a gutsy CIO or CEO pushes for an internationally proven, possibly superior ICT solution to be supported from afar. It’s a calculated risk in a global economic environment where every organisation is seeking an ICT ‘edge’. Yet, even these well thought-out attempts to side-step locally established brands often ends with an admission of failure. New Zealand is geographically isolated and amongst some memorable ‘misses’, are the CIOs who report that less-than-ideal business broadband performance and pricing in New Zealand seriously hampered their attempts to access online and video support from international ICT vendors and consultants.
Small wonder then, that ICT vendors and service providers who gain a stronghold in the New Zealand market are those that make a serious local investment. Many also realise the potential to improve their products and services through interaction with dynamic and innovative New Zealand organisations — be assured, the likes of Microsoft and HP closely monitor New Zealand market reaction to their new products and services.Tim Sheedy, senior analyst IT sourcing and vendor management for Forrester Research Australia, says it’s important to remember ICT vendor decisions and movements in both New Zealand and Australia, are also driven by the demands of the large number of small businesses in both countries.
“There are more small businesses in New Zealand and therefore a limited choice for larger New Zealand organisations when it comes to buying ICT. Australia is similarly limited compared to Europe and the US. All this means ICT vendors or platforms that are making an investment in the [local] market will attract interest,” says Sheedy.
Successful ICT vendors in New Zealand are not necessarily those with the best technology or price. Yet, many CIOs will happily rework and extend an existing vendor or channel partner contract on the basis of previous reliability and service commitment. ‘Being there’ counts immensely for the New Zealand ICT market, as does an ability to create solutions uniquely suited to New Zealand business conditions.
Operations and platforms
So, who is buying what in New Zealand — and from whom? Fairfax Business Research conducted New Zealand-specific research into the ICT buying trends of more than 1200 New Zealand organisations. (See graph A: Industry groups and graph B: Business applications) The manufacturing sector comprised the largest number of respondents at around 42 per cent, followed by wholesale and retail trade at 19 per cent, government and defence at 11 per cent; then came finance and insurance, education services and business management and scientific services.
A majority of these organisations say they have upgraded to Microsoft Windows XP as their PC operating system of choice, with most having migrated to XP from Windows 2000. Meanwhile, the volume of upgrades to Windows Vista remains low in New Zealand — a trend in line with Australian research from Fairfax that shows only 0.8 per cent of desktops in the Australian government sector and 2.7 per cent of desktops in the manufacturing sector have been migrated to Windows Vista. That ‘there’s plenty of time’, seems to be the thinking on Vista. Of course when it comes time to upgrade again, Microsoft will get the call or simply win by hardware default — operating system research in New Zealand and Australian markets rarely has cause to graph non-Windows PC operating systems, while the use of open source systems is particularly low in New Zealand.
On the server operating front, Microsoft server products remain dominant and cross-sector Microsoft server OS dominance is particularly high on this side of the Tasman. Systems from Solaris/Sun, IBM, SCO Unix and VMS scrabble to make up the difference. Again, when it comes to database management systems, IBM, Informix, Sybase, along with a number of less established systems, lose out to versions of Microsoft SQL server and MySQL. Oracle database management systems continue to mount the only serious DBMS challenge in New Zealand, but have lost ground against Microsoft in recent years.
Fairfax Business Media research for the 2008 New Zealand MIS100 report (CIO May 2008) featuring the top IT user organisations, found more than 100 Microsoft SQL and 20 MySQL installations within 110 of the country’s largest organisations, compared with around 70 Oracle database system implementations within the same organisations. IBM’s DB2 systems were found in at least 20 organisations of the 110 surveyed, and Sybase and Informix systems in 24.
Sheedy describes New Zealand as one of the most ‘Microsoft-friendly’ markets in the world and says while it’s incorrect to say Microsoft has a monopoly on platforms here, few enterprise companies fall outside the Microsoft basket, in both software sales and ISV platform investment. That the New Zealand market hits the Microsoft ‘sweet spot’ for product offerings, says Sheedy, creates a different ICT spending pattern here.
“While there are still ISVs that do not support the Microsoft SQL server platform and choose to develop for DB2 or Oracle databases, it’s a harder choice for a New Zealand organisation to move down these paths because of less support,” says Sheedy.
Beyond platform observations, application software decisions are made according to
the demands placed upon an organisation by the industry and markets they operate in. In New Zealand’s case, this often translates to a focus on the international market and export — a focus less significant amongst
Australian and Asian organisations, which focus on competition with internal markets and inter-state rivals.
“When we speak to New Zealand organisations, the vast majority are focused on markets outside of New Zealand purely because they can’t grow considerably without [exporting],” says Sheedy.
He says application decisions here are often based on what best supports these markets. Examples include language choices and tax modules in software products, or a decision to choose a more advanced version of a product because of global or industry-relevant features. A good example is the NZ Defence Force’s request for a defence-specific version of SAP’s ECC6 system, to allow it to operate a replicated version of the system between head office and ships and mobile units.
The MIS100 report shows business intelligence, disaster recovery and storage, and unified communications and server virtualisation are all notable areas of ICT investment and growth in New Zealand for the coming 12 months.
The educational services sector is particularly active with disaster recovery and unified communications solutions; while education, government and defence and health and community services sectors have a significant commitment to virtualisation projects. VoIP and wireless projects are also popular in the educational services sector.
Around a third of New Zealand organisations are heading towards a peak in the normal business intelligence software investment cycle (typically five years) and need to address the information silos formed over that period. Another third say they have yet to implement BI products and systems — or see no need to. Those struggling to consolidate legacy BI systems, including highly customised in-house solutions, seek consolidation of information into one highly-functional BI solution able to be accessed across multiple platforms. This desire is particularly strong among export-focused manufacturers.
Cognos and Business Objects products are the most common pure BI reporting brands used by New Zealand organisations, but Microsoft, SAP and Oracle branded BI products and modules are snapping hot at their heels. Crystal Reports and SAS BI products deserve an honourable mention, for managing to hold BI market share and customer loyalty in what is clearly a growth market for New Zealand ICT.
Sheedy says the number of BI projects is increasing worldwide, with uptake tending to be spread across BI projects of different types. While some organisations are just beginning to plan for BI, others are consolidating existing software, or moving to operational BI, where it becomes embedded in business systems and “humans are taken out of the picture”.
He says Cognos and Business Objects dominate the pure BI reporting market in New Zealand and Australia, with SAS a strong player in analytics. Hyperion, which has a small BI presence in New Zealand (but counts the University of Auckland and Vodafone as customers), is a strong performer in other markets and one to watch, says Sheedy.
ERP and CRM
Oracle and SAP continue to battle it out on the ERP implementation and upgrade front.
In the MIS100 research, of 77 New Zealand organisations that had implemented an ERP solution, 35 say they were using Oracle-branded ERP products — legacy PeopleSoft and JDE implementations comprising a notable percentage — and 26 named SAP-branded ERP products. Just five organisations say their main ERP products were Microsoft branded, not surprising given the relatively recent arrival of a consolidated ‘Dynamics’ ERP brand under the Microsoft banner.
On the CRM front however, a different pattern emerges for Microsoft, with Dynamics CRM gaining more early ground than expected. As the market stands, in-house, customised CRM solutions lead the way in New Zealand, as they do in Australia. Of the 110 organisations surveyed for the New Zealand MIS100, 17 say they used their own in-house developed CRM system, followed by 12 organisations using Microsoft Dynamics CRM. By comparison, there were less than five organisations that specifically identified an Oracle or SAP CRM system, despite the large number of organisations using SAP and Oracle ERP systems. Specialist enterprise CRM vendors with a notable presence in New Zealand include Siebel, with half a dozen MIS100 organisations as customers in New Zealand, and Pivotal.
CRM solution sales continue to be robust in New Zealand, particularly in the manufacturing, transport, and health and community services sectors. The CRM application market is also one with plenty of room to move — only half of the 110 Top 100 organisations surveyed say they had a CRM product or plan in place, while there are multiple CRM vendors vying for business across all sectors, including small and medium business, and industry verticals.
Hardware truthsMatt Boon, managing vice president for Gartner Research Group Australia, says HP and IBM have been at the forefront of hardware server sales in New Zealand and Australia for some time — no surprises there, then. HP’s server success occurred on the back of its mid-‘90s purchase of Compaq Computer, says Boon, but is also the result of a long-held strength in high-end server systems.
“When Dell gained ground on HP server sales, it was at the low end. For sheer volumes, HP is in a strong position in New Zealand, but at the high enterprise level IBM does hold its position quite well,” says Boon.
According to Gartner research for 2007, HP sold $US40.5 million worth of hardware servers in New Zealand compared to IBM’s $US35.3 million for the same period. Sun sold $US12.5 million and Dell followed with nearly $US5.8 million in hardware server sales.
Boon says while organisations often fear dominant hardware vendors will become complacent, there is plenty of competition in the New Zealand market between HP, Sun and IBM, as well as Dell and Acer. Unlike the late ‘90s when ICT buyers had “more money than sense”, says Boon, hardware vendors can now ill-afford to lose a customer to a rival and there is more pressure to stay on the ball.
The average selling price for servers has increased in recent months, which Boon attributes to the demand for systems able to properly support virtualisation. While a consolidation push started four years ago, he says Gartner didn’t predict a reduction for hardware vendors because not all servers are candidates for virtualisation.
“Vendors still sell servers that suit virtualised environments and customers need new software to support enhanced DR and backup systems. Virtualisation comes at a price and in return it hopefully delivers long-term benefits and cost savings,” says Boon.
He claims mainstream storage vendors — which in New Zealand are HP, IBM, EMC, Sun and Dell — are more interested in sustaining profitable revenue streams, rather than introducing revolutionary architectures and technologies and so have generally established large, but narrowly focused user bases from which they get their revenues. While some storage vendors are attempting to grow organically, others use acquisition as a means to grow revenue and acquire new technology. The majority of mainstream storage vendors therefore remain largely proprietary-solution providers.
“To embrace storage opportunities will require greater standardisation [from vendors]. However, we don’t expect true cross-vendor portability to happen in the next few years due to the external controller-based disk storage market,” says Boon.
Desktop PC and laptop hardware sales are interesting, says Boon, because brand choices there are still driven by personal preference, including younger employees who may take part in an employee-purchase programme. He says the business market is seeing a crossover from desktops to laptops, with more laptops sold than desktops for the first time.
Dell has been predominant from a design point of view, claims Boon, but Lenovo has lately been doing more innovative work beyond producing the ‘traditional IBM’ corporate PC.
“HP is still a key player, and Toshiba has the brand recognition and perception of being a top-tier laptop player, although it has lost ground to the others now that HP and Dell [are shifting] focus from desktops to laptops.”
He says average hardware prices continue to fall, particularly for PCs, as users see fewer benefits in new products and see less need to replace products as frequently.
As hardware commoditises, there’s also less scope for product-level differentiation and vendors become more interchangeable. While ‘switch costs’ will never be zero, the technical contribution to these becomes minimal.
“However, commoditisation is clearly challenging for vendors: They must find ways to differentiate their products and reduce costs to remain price-competitive. This gives rise to an ongoing quest to increase efficiency in manufacturing, sales and distribution operations.”
He says CIOs and IT managers need to ensure hardware procurement remains competitive and multiple vendors vie for the business.
“We often think that hardware isn’t that important, but server and storage hardware are current priorities. Some companies will say it is all commoditised, but when you talk to people that have to install and run this stuff, they realise there is more to it,” says Boon.
• Fairfax Business Research provided the data and graphs for this article. For additional research information including detailed ICT information across a wide range of industry sectors, please contact Sheila O’Brien (email@example.com).
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