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Midyear Outlook on Technology: The incredibly Shrinking Platform—and
Price!
By Ann Grackin
Transformation to New supply chain technology market
Wave is already occurring. That’s good news for some and bad
for others. Read on...
When these technology waves occur, at the outset, there is
never a ‘whole solution’, so people have to purchase
a cluster of complementary parts to achieve the goal. Always,
the solutions never quite catch up before we move on. As implementations
role out and technology providers can fill out their solutions,
the law of natural selection takes over, with the stronger,
adaptable, nimbler and differentiated surviving and replacing.
The Recent Technology Waves....Y2K, The Internet, and....
In recent history, technology and opportunity brought high
performance servers that could visualize and solve large enterprise
problems, so that APS and ERP could encapsulate a large enterprise.
Great, but the acceleration in investment was brought by Y2K.
Quickly ERP and APS have become foundational systems. Foundational
systems—think infrastructure, think utility—still
keep an important place in the portfolio, but they are no longer
strategic buys. We went from Neiman Marcus to Macys.
Users can fuss, having been tweaking these technologies for
years, as we had with various generations of accounting and
MRP systems. But if technology plus opportunity knock, we move
to the next wave, keeping our foundation. Yet depending upon
the speed with which the next wave hits, users may have to
adapt quickly. Premier mental attention units will shift focus
on the next wave, as we had with the Internet. CIOs were becoming
presidents of Internet start-ups—talk about a heady distraction!
Plus lots of interesting excitement with technologies, opportunities,
etc. Marketing messages can get confused with all sorts of
players getting in, trying to get a nibble of the action!
Users can spend prime time sorting this out.
During the wave, pricing also is premium! We pay more for
the technology, as well as for the scarce resources to implement,
etc. Sales people have to turn away prospects! Imagine that!
Once a solution is foundational though, the tables are turned
with buyers focused elsewhere. Death and carnage, and out of
the ashes the adapters—now foundation players—survey.
A bit less exciting, but we do need them—but less of
them.
So where are we now? With the tracks layed-out—fiber,
Internet, satellite, etc., the advent of pervasive technologies—wireless
devices, radio frequency—we are not only poised, but
already in the next wave, SmallSmartFast.
figure 1
click on image for larger view
Technology meets opportunity—virtual businesses are
information centric businesses! Large complex deep supply chain
processes rely on information, too—the more real-time
and accurate, the better. ehubs, ihubs, etc., vs. inventory.
Enter pervasive wireless, RFID, etc. there is a reason for
the mania—it’s not just the Wal-Mart/DoD mandates.
For several years we kind of knew this was going to pop. One
of our RFID clients that we knew for several years, we informed
them one day—that they would be the new masters of the
universe—for awhile. Constant pursuit of better data—better
intelligence—is the driver, which has been the obsession
of best enterprises.
But, early in waves we also have mayhem because of various
perpetrators of confusion. Marketing messages can get confused
with all sorts of players getting in, trying to get a nibble
of the action! And users don’t really do their homework
when acquiring technology.
On the positive side, it does create an opportunity for older
players to create new solutions. If they don’t freshen
up their look, they are relegated to the unexciting backwaters
of grueling sales cycles or the ex-wives club.
SmallSmartFast means that
In session after session, we hear CIOs concerned about shelveware,
long implementations, and risk. They are curious about the
On-Demand or hosted models that promise low set-up costs, pay
as you go, etc. And these models, which offer ‘small’ profiles,
are gaining popularity.
However, the revenue profile is different, how services are
offered are different, etc.
(More of these systems in future PVs).
Suffice to say, to be successful going forward, you have to
service new requirements. Foundations have to constantly expand—complete
the transaction—and continue to add value. All the goodies
are not just for new wave vendors.
Foundations are M&A riche harvesting Fields
M&As players like Agilisys, Optum, and SSA, etc., help
customers hang on to their installations. Grateful customers
of Daly.com, or WDS, etc., tend to be concerned, but happy
about these acquisitions. But these deals don’t necessarily
represent net new business for software firms, unless they
understand how to manage the install base.
The jump in M&As can help the acquirers ‘grow’,
by blending assets and reducing expenses. But to create true
growth, they have to address the value proposition for these
new customers!!!
figure 2
click on image for larger view
The smart player will get in there—early in the game—and
delight the customer with fresh capabilities. If they play
this well, they can significantly expand the relationship with
other modules from their portfolio. Otherwise, over time, they
will just be a collector of maintenance checks. Maintenance
is another slippery game. Witness the restating of revenue
and other such issues. Many users are asking what they get
for this annual check and some are willing to risk going it
alone. Or at some point ‘do the math’ and they
bolt to the player who is offering a ‘new way’,
i.e. ERP, On Demand etc....
The Whole Foundation Stack Gets Cheaper
Supply and Demand—less demand, drives lower costs. And
in our industry, through finer and cheaper supply chain management
manufacturing of hardware and software (think Indian software
developers), the costs of the whole stack has gotten cheaper.
Ubiquitous Internet has the pipes mostly in place for hosted
solutions, subscriptions, term contracts, etc., etc.
It is telling when an organization like Sun states “We
now think that network computing will change the way people
will buy technology. Instead of just buying the technology,
they will want to buy the benefits of technology.[1]" That
is a signal of the ways we will buy technology and what we
will pay for it.
Among the services Sun will detail is a subscription-based
package of what it calls preventive services. The package includes
more than 100 services that are designed to reduce costs and
increase service levels in data centers.
At a recent PeopleSoft executive conference, PeopleSoft, in
partnership with IBM’s SMB group announced an ERP package
on the server for $100k!!!
Linux—the close to free operating system, has become
highly embraced by CIOs, and is sold by the big three—IBM,
HP and Sun, with all these firms continuing to drop their pricing
on Linux. Software firms report more and more requests for
Linux based ERP, as well.
In the Wall Street Journal’s mid year report, it was
telling what group filled the 3 years’ worst performers
club! Many of the supply chain software firms are private or
just too small to make the top losers list, but technology
infrastructures was clearly the dog. What do you do when you
don’t differentiate or live in the foundations? Lower
prices some more!
figure 3
Conclusion/Recommendation: Get SmallSmartFast
Software firms, like any business, have to address their Cost
of Sales, their cost of production. Like HP or Dell, as painful
as it sounds (to me, at least), they have to face the realities
of outsourcing, off shoring etc., with all the risks that entails.
(Erosion of intellectual property, quality, etc.)
Lower your software development costs, lower services costs,
create inside sales!
You can’t spend $250,000 on the sales cycle to sell a ‘connect’ at
$10,000, or $50,000 for a software suite.
Of the five major IT systems that ChainLink uses, four are
Hosted/On-Demand. It is extremely instructive to us how these
organizations sell, service, educate, upgrade, etc., their
solutions. I suggest you take a hard look at this. Many of
your organizations use Salesforce.com, Hoovers, technologyevaluaton.com,
etc. But most of the senior folks never touch these systems.
So, software Presidents, I suggest you do so. For me, who spent
the first part of my career designing, building, buying and
implementing systems, and spending hundreds of millions in
the process, it is mind-boggling! No doubt, there are limitations,
but it is interesting to watch these organizations reach for
more and more complexity and customizations, yet scalably.
There are three major issues we will discuss in subsequent
articles about this new SmallSmartFast wave:
- New pricing profiles that will impact all deals- hardware
platforms, software and consulting.
- How SmallSmartFast environments work—outsourcing.
We just completed a survey with our manufacturing subscribers
and will share with you the results.
- SmallSmartFast technologies
More to come.....
References
[1]
Larry Singer, Executive Vice President SUN Microsystems
©2004
ChainLink Research, Inc.
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