Recently, while overseas, I was speaking to members of a software development company that operates in the enterprise software market. “We’ve just decided to halt development of a product,” they said. “It’s costing us millions to maintain our product development team and we’re just not making the level of new sales to justify the cost. We are looking at what to do.” They detailed three options: 1. Close down their development group: It would add millions on the bottom line but would not give them a future 2. Redevelop their software product, but that would take years and cost millions. And, after all, does the world really want another ERP system? 3. Resell one of Microsoft’s products, like Axapta: It would keep them alive but they would lose their unique IP and they would just be one of a large crowd. So what is the future for that company? Over the years it has converted its growing knowledge of its clients’ industries into substantial IP value -– but without crystallising that knowledge into its own product it cannot see how to derive value from that asset.
This company is not alone with this dilemma. The turmoil in the enterprise software world is seen in the misfortunes of JD Edwards and its purchase by PeopleSoft, now being devoured by Oracle.
In the emerging world, such companies will be able to convert their IP into corporate DNA and develop unique systems for each customer. That is the future as I see it for hundreds of software companies currently in the same boat. But will the future come fast enough?
News slipped out last month that Microsoft’s enterprise products –- Navision and Great Plains –- are, in effect, obsolete, or at least to be replaced by Project Green by 2012. Microsoft’s Business Systems division lost nearly half a billion dollars last year and, considering that it had only recently purchased these products for close to US$5 billion, it seemed a little naïve to talk about their replacement and not have that decision affect sales, no matter what the timeframe.
Almost overnight I got a call from a US colleague whose ERP product was up against Microsoft in a sale. They weren’t holding out much hope and put a make or break, deal-closing offer on the table to the prospective customer. The day the Microsoft “obsolete” news made the wire, they closed the sale.
In the words of The Enterprise Systems Spectator, Frank Scavo: “Why did Microsoft even bother to buy Great Plains and Navision if it was planning to write new applications from scratch? The answer, in my opinion, is that Microsoft was buying not the technology of these vendors but their customers. In this regard, Microsoft's approach is similar to that of SSA Global: it is cheaper today to buy an existing customer base than it is create one through new sales” Microsoft was buying a base for Project Green.
The amazing paradox in all of this is that well over 50% of enterprise software in use by business today is obsolete -- the product is no longer being sold, and many other products are no longer making significant new sales. Much of what is available is far more ancient than what Microsoft is selling. In fact, Axapta is one of the younger ERP packages, having been introduced in the late 90s. We should be grateful that Microsoft is promoting software euthanasia instead of eking it out until its last gasp, then declaring it dead and gone leaving thousands stranded.
Why has Microsoft done this? What is its underlying motive? I believe it has seen the writing on the wall -- that monolithic architecture will not support the “IT as a utility” world we are moving into. Microsoft’s technical gurus talk about Model Driven Architecture (MDA) and Domain Specific Language, a radical departure from the current ERP software orthodoxy.
An analogy to Microsoft’s new approach to development is consider how you would build a human body, starting with the little finger of your right hand moving up to your hand, arm, across the body and then finishing with the little finger of your left hand.
Given that as you develop the system (body) your knowledge changes, it is highly unlikely that your left little finger would look like your right little finger. How do you make it compatible? You need a model. In the body you call it DNA. In the computing world it is called MDA, and Domain Specific Languages enable you to describe different models within the same framework in the same way that human DNA would use a different language to fish DNA –- flippers, not hands.
This new way of thinking is part of computing becoming a utility. From my perspective the IT industry is in turmoil and when you are in the midst of a revolution it is hard to see what is going on. Just as you don’t think twice about installing your own phone –- you just plug it in -- tomorrow you won’t think twice about installing your own equivalent of today’s enterprise computer system. As we move from a techie-world to the user world we’ve already said goodbye to big iron and we are about to farewell big software. The cellphone device will become your link to the next world, making computing power as ubiquitous as electrical power.
The question in the Harvard Business Review was “Does IT matter anymore?” My answer is, “Who cares?” There is no choice. We have already gone past the stage of having to make the decision. Now we need to make use of the opportunity. In this instance we are confronting radical change and the best guess that can be made is that computing will become a utility.
What does this mean for the IT Industry and everyone else? It can be depressing for the IT Industry. Everyone got pretty indignant with the Harvard Business Review suggesting IT doesn’t matter. It’s like being told you are not a rock star any more and finding yourself relegated to supermarket openings. You may not be wearing blue overalls but working in IT will be no more glamorous or mysterious than working for the local power board.
But IT providers should be able to do better. We are already seeing a view of what IT could look like as a utility. Take a look at www.1and1.com, which brings you any level of computing power on line. Just one example from 1and1’s portfolio options is Microsoft Sharepoint, with 500MB web space, 50 user accounts, 6GB monthly transfer volume; 25 POP3 accounts, 1and1 WebMail, Microsoft Office integration, picture library – all for just US$19.99 a month and no install hassles.
The 1and1 launch in Business 2.0 was one the largest advertising sections I have seen, offering a huge variety of options at an unbelievably low price -- raw computing power you can add value to and on-sell. New Zealand-based Hosting Data Services is similar.
This is a good starting point for many companies, but what happens when you need a customised system? The only reason most of us have a computer in our business is because we have needs specific to our business and customers. If we were able to access customised software online all we would need is access to the internet. Utility software would mark the end of piracy. There is no point to stealing it if you can only gain access via a wire. Which also brings us to the question: in this world, what will the CIO actually do?
New Zealand has an opportunity and were it not for our appalling broadband access we would be able to run a nationwide utility access system today. One frontier left to cross for utility computing is for users to be able to define their own systems. Today we have incredibly complex software products that need to be supported by competent software technicians. It used to be that you needed a technician to set up your telephone or television. Now you don’t.
This is the transition that is happening in software. It is why we are seeing US software giants consuming each other.
Today, according to Gartner, every $1 spent on software costs $9 to implement. Clearly there is something wrong with this picture. In the future as I see it you will spend a $1 on software -- and that is all you will spend. Connecting to the internet will only require a cellphone and, if you want a full-motion life-size video connection, access to the nearest OLED screen – and you will find them everywhere since they will be extremely cheap to produce. All your computing power and software packages will be delivered online. Work will become truly mobile and computing power will be sold as a utility – making it as ubiquitous as electricity.
This is not just my view, but one held the world over. The actions of Microsoft and other big global players are already endorsing that the fact that the transition has begun.
John Blackham is a well known Auckland entrepreneur developing his own software solutions. Contact Blackham at email@example.com.
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