A potential global financial crisis precipitated by the mortgage melt down, globalization pressures, ongoing middle east conflict, and tumultuous political conditions raise concerns about the world economy. Despite such market pessimism, most end users expect 2008 enterprise software budgets to continue to increase in high single to low double digit rates Some key factors behind this growth include:
- Increasing dependence of business strategy on technology. Gone are the days where a business leader could develop a new service or product offering without incurring IT interdependencies. With time to market concerns, requests for agility, and globalization pressures, business leaders expect rapid deployment and responsiveness from future systems. The result - a push to upgrade applications, seek alternative deployment options like SaaS and hosting, and shift last mile solutions to best of breed industry specific providers.
- Continued shift to business process focus. As enterprises move away from functional fiefdoms in geographic silos, new business models require process focused support across distributed environments. Current systems no longer meet these requirements and lack the ability to capture business intelligence by process let alone "play well" with other systems.
- Decreased competitive differentiation in the ownership of enterprise apps. Now that everyone has industry best practices via their ERP system, best practices no longer provide significnt competitive advantage. In fact, most enterprises show negative ROI in their apps deployments. Market pressures push leading enterprises to seek vertically oriented and last-mile solutions that support open standards and work in the spirit of SOA.
As tectonic shifts continue to impact the software industry, expect the following 10 trends:
- Vendor consolidation will continue. Nothing remains more certain than the increasing pace of acquisitions. While there may not be the same flurry of mega deals in terms of size, expect the Big 4 vendors (i.e. Microsoft, IBM, Oracle, and SAP) to bulk up on areas where they are weak and continue to dominate commoditized infrastructure areas such as middleware, hosting services, office productivity, and content and information management. Expect most other acquisitions to be focused on value added solutions that extend vertical footprints. Weak markets will lead to a drop in valuations among competitors leaving vendors without a good cash flow (e.g. maintenance streams) to acquire competitors on the cheap.
- Buying decisions will continue shift from IT led to business led. While IT teams will still lead most vendor selection efforts, expect business users to play a prominent role in collaborating on requirements and expectations. A growing number business users will eventually lead these initiatives with heavy IT support in validating dependencies and overall constraints.
- Business drivers for new investment will align with efficiency and compliance drivers. During economic upturns, the business driver for projects tend to focus on top line growth and strategic investments. Given the pending downturn and increasing regulatory pressure, expect projects to focus on operational efficiency and compliance. Expect commoditized processes to be BPO'd, varying instances to be consolidated, and standardization on middleware platforms such as BEA Weblogic, IBM WebSphere, Microsoft .NET, Oracle Fusion Middleware, and SAP NetWeaver. Expect CFO's to invest in compliance, analytics, and master data management. Expect collaboration projects among stakeholders such as suppliers, customers, and partners to fall under the efficiency camp.
- Partner ecosystems will allow best of breed solutions to reemerge. As enterprises march towards vendor standardization for commoditized technologies, expect business uses to seek best of breed or custom solutions for vertical expertise, mission critical business apps, and other last mile solutions. Standardization onto middleware platforms, and SOA based integrations will allow best of breed capabilities to thrive. Users should not expect one vendor to deliver all last mile solutions. Instead expect to focus on the quality of partner solutions and the level of certification rigor.
- Deployment options will expand. Expect vendors to adopt variants of Multi-tenant SaaS, multi-instance software virtualization, and onDemand hosting. Rapid deployment, subscription pricing, and total cost parity will drive vendors to roll out new products architected and priced to compete with SaaS. Hybrid deployments will become more common as new entrants, traditional vendors, and system integrators introduce new software solutions for SaaS and SaaS-like models.
- Master data management will shift from a luxury to a necessity. Business drivers such as compliance and efficiency require consistent and accurate master data around financial accounts, customers, suppliers, partners, products, locations, and employees. Process improvements and SOA initiatives will not succeed without a master data management strategy.
- User experience will matter even more. Requirements continue to emphasize ease of use, intuitive experiences, streamlined flow, and easy access to information. Expect better role based paradigms to emerge from traditional vendors as they compete with SaaS and SaaS like upstarts.
- Custom apps and app development will reemerge as a key skill set. Powerful new platforms (e.g. middleware tool sets, SaaS development environments, and applistructures) will allow end users to build last mile solutions on top of existing middleware platforms that are supported with each upgrade. SOA architectures will provide the reusable web service components. BPM tools will deliver the both process flexibility and agility necessary to support future requirements.
- Software pricing models will bifurcate by market segment. SMB users will continue to seek user based pricing models such as concurrent user and SaaS. Enterprises will seek user based models but be forced by vendors to look at metric based on enterprise agreements in the spirit of "value based" pricing. The real question - value for whom?
- Third party maintenance will gain traction and force vendors to improve value. The notion of a perpetual license remains an oxymoron. Most software buyers an no longer buy software and not expect to pay a continued annuity stream to the vendor. Despite competitive pressures from the largest vendors to stymie third party maintenance vendors, expect growing interest among the largest users to seek alternatives or more value from existing maintenance.
TRENDS HIGHLIGHT THE NEED FOR A LONG TERM APPS STRATEGY
Apps strategists, CIO's, architects, and IT directors will want to respond to these emerging trends by building a long term apps strategy centered around:
- Aligning project requests to compliance and efficiency drivers.
- Organizing a sustainable governance structure for a 5 to 10 year period
- Ensuring a flexible future state business process model
- Delivering technology and solutions that meet business drivers and business process flexibility
- Identifying white spaces in the overall technology solution footprint and supplier road map.
Copyrighted 2008 by R Wang. All rights reserved