Tuesday, July 6, 2004
A quick recap on IT spending trends from three recently published Smith Barney surveys. The three reports are the May and June editions of their CIO Vendor Preference Survey and the 6 June issue of softwareWEEK. Tom Berquist, my favorite i-banking analyst, was the lead for all three reports. I have a backlog of blogs to write, so I'll use as many quotes as possible and add context where necessary. (I'm mostly extracting from my smartphone bookmarks for these reports. Warning: I may have coded the May and June issues incorrectly, but the quotes are correct.) NOTE: Highlighted items (e.g., items in bold, like this sentence) are MY emphasis. Items in red are my commentary.
Starting with the Survey editions, "(t)he strongest areas of spending appear to be software (apps, security, storage, and database) and network equipment/apps (Gigabit Ethernet, WLAN, VPNs)" and regarding software, "larger and more well known vendors continue to dominate the list in each category with vendors such as Microsoft, SAP, IBM, Veritas, Symantec and Computer Associates getting significantly more mentions in each of their groups than the remaining vendors did." However, the report admits that their sample group might be biased. Yes, vendors matter -- and so do vendor partnering strategies. However, I'm a bit skeptical about CA and I don't particular care very much for Veritas or Symantec. Not my part of the universe.
"Applications again stand out as a clear area of strength." "Within applications, Enterprise Resource Planning (ERP), Supply Chain Management (SCM), Customer Relationship Management (CRM) and Business Intelligence (BI) all showed extremely well ..." Well, this is the first sign that a recovery may be in the making for SCM. However, I'd emphasize BI and ERP, followed by CRM; don't count on a lot happening in the SCM space just yet. Some other key surveys do NOT validate that SCM is in recovery. "In terms of specific vendors, Microsoft, Symantec, Veritas, SAP, and Adobe were the top beneficiaries of CIOs intentions to increase spending." The report continues that only SAP showed statistically significant results, both in ERP and SCM. "Results were more mixed for best-of-breed vendors in this area, suggesting that horizontal applications vendors are having a tough time competing with the large ERP vendors even as vertically-focused vendors continue to have some measure of success on this front." For the more adventurous SIs in China, SAP presents a lot of opportunities. Tread carefully, though. And "Adobe's enterprise strategy appears to be gaining momentum. Adobe was a clear standout in content management ..." "Survey results were also positive (though somewhat less so) for other leading content management players, notably Microsoft and IBM." Another "win" for Microsoft. Funny that none of the traditionally leading content management players were mentioned. A take on Linux: "Linux continues to garner mind share, but large enterprises remain the main adopter. Interestingly, nearly 83% of our respondents stated that they were not currently moving any applications to Linux. Of the 17% that said they were moving applications to Linux, only one company under $1.0 billion in revenue was making the transition to Linux confirming our views that Linux is primarily being used by large companies to shift Unix applications to Linux on Intel."
"Among CIOs who indicated a higher level of consulting spend, IBM was the clear winner
, followed by Accenture as a distant second. Unisys was also mentioned as a vendor being considered, but it was a distant third. However, we note that Unisys being mentioned ahead of a pure-play consultant like BearingPoint (a low number of mentions, which included mentions of decreased spending) or EDS is positive, given that Unisys chooses to focus in 2 specific verticals, including one-public sector-that was not in the survey." "Over two-thirds of CIOs indicated that they do not use IT outsourcers. Most of the rest said they were unlikely to change the level of outsourcing spend. IBM, ACS and CSC were the only vendors explicitly mentioned as likely to get more outsourcing business." The "two-thirds" figure will likely change in favor of outsourcing. This trend is fairly clear. See a BCG report at http://tinyurl.com/2muy8 , although the report takes a relatively broad perspective.
From softwareWEEK, "(t)he CIOs were also very focused on rapid 'time to market' with purchases. None were interested in starting projects that would take greater than 2 quarters to complete." "This requirement was not a 'payback' requirement, but rather an implementation time frame requirement. The CIOs did recognize that payback times could be longer, though the payback times on IT utility spending were much shorter than on applications or emerging area spending."
"In terms of spending, the CIOs all used a similar methodology for making decisions that essentially divides their IT spending into one of three categories: 1) sustained spending on their 'IT utility' (i.e., infrastructure such as network equipment, servers, storage, databases, etc.); 2) new project spending on applications (business intelligence, portals, CRM, etc.); and 3) investment spending on select emerging areas (grid/utility computing, identity management, collaboration, etc.) It was pretty obvious that the CIOs recognized that business unit managers were more interested in spending on new applications/emerging areas than on the IT utility ..." "(S)ome of the CIOs were experimenting with grid/utility computing initiatives to try to increase their utilization of storage/servers and reduce the amount of new equipment to be purchased. In one example, a CIO showed their storage/server utilization around the world and many regions were in the 50% or worse bucket for average utilization. Their goal was to use grid computing architectures and storage area networks (along with faster communication links) to better share the pool of resources." Yes, this is it!! Take this to heart!! If you think grid and utility computing are Star Trek stuff, think again.
"In terms of new projects, the CIOs mentioned they were spending on business intelligence, portal/self-service applications, CRM, and collaboration. Collaboration was a heated discussion, with all CIOs commenting that this was a big problem for them and there was no clear solution on the market. While it wasn't completely clear to the audience what the CIOs were looking for in a collaboration solution, the elements that were described included: more intelligent email, corporate instant messaging, web conferencing, integrated voice over IP with instant messaging (so that a conversation could quickly shift from typing to talking), and collaborative document editing (spreadsheets, presentations, publications, etc.). Within the business intelligence arena, business activity monitoring was discussed as was building of enterprise data warehouses/data marts. The portal/self-service applications being built or deployed were primarily for customer and employee self-service (remote access to email, applications, and files was a big deal for all of the companies). On the CRM front, the discussion from one CIO was around their need to increase revenues and manage channel conflict better." [I'll be posting to this blog a bit more about collaboration opportunities over the next week.]
"While vendors were not discussed in any detail during the panel, the CIOs did say that they remain open to working with smaller vendors (public and private) as long as they have plenty of relevant references (in their industry, particularly with close competitors) and they offer a compelling value proposition versus larger vendors. One CIO stated that they get called by 20 startups a week to sell products to them, but most of them cannot articulate the value proposition of their product. Nonetheless, the CIO does take 5 meetings a month from startups because some of them are working on things that are interesting to the business."
Whew ... Lots of good materials. To reiterate, all highlighted items are my emphasis. Bottom line: The market is heating up. Get your ISV relationships in place. Pick your verticals (see the "Tidbit on Microsoft" which follows). Pick your apps -- and the apps I like the best are content management and BI, although ERP is looking good, too. Collaboration can be a major source of revenue if the SI can provide a truly effective solution.
Tidbits on Microsoft
A quick update on some happenings in the Redmond universe. (See http://tinyurl.com/36xgu
; the article is titled, "Microsoft focuses on its enterprise-applications business".) First, app areas that are of particular interest to MS include those for manufacturing and life sciences. So, how about a MS build-to-their-stack strategy focused on either of these two verticals?
Second, MS is moving beyond purely horizontal offerings to very specific functionality. Their Encore acquisition is an example of MS moving in this direction. Finally, new releases of all four of Microsoft's ERP product lines are due for this year. Not surprisingly, MBS marketing is up 20% from FY04. Hmmm ... ERP spending intentions are strong and MS is a key player in this space -- with several updated offerings scheduled for release this year. Another opportunity?
Tidbits on Infosys
Infosys formally enters the IT strategy consulting biz. (See http://tinyurl.com/2xxlo
.) Yes, it was inevitable. In April Infosys Consulting, Inc. was formed and, "(i)t's no secret that the winning model will be high-end business consulting combined with high-quality, low-cost technology delivery done offshore," according to Stephen Pratt, the head of Infosys' consulting unit. The Infosys Consulting unit now has 150 employees in the States and plans to expand to 500 within three years. Note to SIs in China: You need more -- a lot more -- IT strategy types And you need people in the States (at least on an "as needed" basis) in order to capture -- and serve -- new accounts.