Software Agenda for 2006
Industry watchers M.R. Rangaswami Erik Keller and Vinnie Mirchandani predict the year ahead in Open Source, Software as a Service, Services-Oriented Architecture, consolidation and other important software business developments.
By Maryann Jones Thompson, Sand Hill Group
Jan. 20, 2006
Put three industry veterans in a room, ask for their predictions about the software business, and be ready for an earful.
VC Opportunities Abound - "The exciting part is that every major category of software is going through a redefinition process. CRM as currently implemented is mostly about salesforce automation and call center management. But CRM is a actually a lot more than that - there are marketing issues, channel issues, customer order issues, and so on. There is an opportunity to rethink that category from a process perspective and from a new technology perspective. Same thing with HRM - it's not just payroll. Now it encompasses social networking and internal collaboration applications. Every category of software is opening up with new opportunities." - Vinnie Mirchandani
No Big Migration to SOA - Actually, a big migration to Services-Oriented Architectures is just not going to happen anytime soon. The industry is not going to go off and spend a half-trillion dollars and make this upgrade in the next couple of years. No major vendor has given their customers a good reason to do the upgrade other than this techno-flash-babble about SOA being more flexible and more wonderful. Are any of the major vendors guaranteeing the price of these upgrades? Guaranteeing performance levels? Guaranteeing business benefits? Guaranteeing process improvements? Until customers see these guarantees, buyers are going to look at SOA as just another 3-letter buzzword that analysts are going to make a mistake about predicting." - Erik Keller
The Year of Software as a Service - "This will be the year that software as a service comes of age. There will be lots of innovation, lots of new products, lots of adoption, and the market will grow tremendously. But there will also be a lot of new problems as the market expands, including issues with security, availability and recovery [witness Salesforce.com's recent outages...] Another interesting conversation will be the resurgence of the best-of-breed vs. suite discussion. You have Salesforce.com and RightNow Technologies providing in-depth CRM apps on-demand and then NetSuite providing a suite..." - M.R. Rangaswami
The Real Open Source Opportunity - "The big open source opportunity is the community... There's a community out there that is very robust and dedicated which is available for testing products. I hope that software CTOs step up and take advantage of that community out there." - Vinnie Mirchandani
LBOs Based on Wrong Bets - "The big leverage buyout deals may be missing the point: there is a fundamental shift going on in the price and value of initial software. Therefore, large equity firms are actually making some bad bets in the way they are looking at software financials and numbers. One problem they tend to have is to rely on past revenue mix models. These financiers may not be going back far enough in the history of software to understand what the real financial model might be in the years to come. That might come back to haunt them." - Erik Keller
Bad Year for the Big Guys - "This year is the beginning of bad times for Oracle & SAP. If you look at maintenance revenue and the "big bang" upgrades these guys are talking about, it is going to be difficult to meet the requirements of Wall Street. It's not to say that either of them will do badly but I think that they won't do well enough to meet the requirements of Wall Street. And that will affect their valuations. When you look at how much they both have to grow to stay healthy, and when you look at the fundamental budget increases that IT buyers have out there, it is not a pretty picture." - Erik Keller.
And For Microsoft Too - "Microsoft is going to have a tough year. Overtly, the company seems very focused on Google. But the bulk of its margins come from the corporate world. And Microsoft is behind in delivering in so many different areas, both against their own schedule or against the competition's. The lack of progress has CIOs saying to me, "I feel like I'm just subsidizing Microsoft's assault on Google." - Vinnie Mirchandani
The Maintenance Party is Over - "2006 will be the year of entitlement - NOT. There will be problems with the maintenance numbers that vendors pull in. Buyers are not going to simply go out and pay out the maintenance fees like they used to. So I think you're going to start to seeing a degredation of this revenue stream for the major providers." - Erik Keller
An End to SOX Suffering - "2006 will be the year that Enron's Ken Lay goes on trial. It is also an election year. In spite of that more and more corporations are going to lobby congress and say compliance budgets are out of control. Gartner said the impact on IT budgets is something near 15 percent - that's a tax that Chinese and Indian companies do not have to pay. Compliance is important but global competitiveness is also important. And I'm predicting - hoping I guess - that Congress wakes up saying, "We've tortured everyone long enough so let's move on." - Vinnie Mirchandani
If our experts are right, 2006 will certainly be an eventful year in the software business. To hear more observations about IBM's prospects, dissecting SaaS' business model from its technology, the Capex/Opex budget dance, making money in open source and the strength of the Indian services vendor model, click here to listen to the entire podcast.
Maryann Jones Thompson is editor of SandHill.com. In 2006, SandHill.com will host a number of podcasts on software business strategy. To submit an idea for a podcast or to be a participant, email editor@sandhill.com. To subscribe to all future SandHill.com podcasts, click here.
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- "2006 will be the year that Software as a Service comes of age..."
- "The big open source opportunity is the community..."
- "Every major category of software is going through a redefinition process..."
- "Large equity firms are actually making some bad bets..."
- "This year is the beginning of bad times for Oracle & SAP..."
- Erik Keller - principal of enterprise technology strategic consultancy Wapiti, former Gartner analyst and author of Technology Paradise Lost.
- Vinnie Mirchandani - principal of vendor management consultancy SourcingWorld Partners, former Gartner analyst and PwC executive, and author of the Deal Architect blog.
VC Opportunities Abound - "The exciting part is that every major category of software is going through a redefinition process. CRM as currently implemented is mostly about salesforce automation and call center management. But CRM is a actually a lot more than that - there are marketing issues, channel issues, customer order issues, and so on. There is an opportunity to rethink that category from a process perspective and from a new technology perspective. Same thing with HRM - it's not just payroll. Now it encompasses social networking and internal collaboration applications. Every category of software is opening up with new opportunities." - Vinnie Mirchandani
No Big Migration to SOA - Actually, a big migration to Services-Oriented Architectures is just not going to happen anytime soon. The industry is not going to go off and spend a half-trillion dollars and make this upgrade in the next couple of years. No major vendor has given their customers a good reason to do the upgrade other than this techno-flash-babble about SOA being more flexible and more wonderful. Are any of the major vendors guaranteeing the price of these upgrades? Guaranteeing performance levels? Guaranteeing business benefits? Guaranteeing process improvements? Until customers see these guarantees, buyers are going to look at SOA as just another 3-letter buzzword that analysts are going to make a mistake about predicting." - Erik Keller
The Year of Software as a Service - "This will be the year that software as a service comes of age. There will be lots of innovation, lots of new products, lots of adoption, and the market will grow tremendously. But there will also be a lot of new problems as the market expands, including issues with security, availability and recovery [witness Salesforce.com's recent outages...] Another interesting conversation will be the resurgence of the best-of-breed vs. suite discussion. You have Salesforce.com and RightNow Technologies providing in-depth CRM apps on-demand and then NetSuite providing a suite..." - M.R. Rangaswami
The Real Open Source Opportunity - "The big open source opportunity is the community... There's a community out there that is very robust and dedicated which is available for testing products. I hope that software CTOs step up and take advantage of that community out there." - Vinnie Mirchandani
LBOs Based on Wrong Bets - "The big leverage buyout deals may be missing the point: there is a fundamental shift going on in the price and value of initial software. Therefore, large equity firms are actually making some bad bets in the way they are looking at software financials and numbers. One problem they tend to have is to rely on past revenue mix models. These financiers may not be going back far enough in the history of software to understand what the real financial model might be in the years to come. That might come back to haunt them." - Erik Keller
Bad Year for the Big Guys - "This year is the beginning of bad times for Oracle & SAP. If you look at maintenance revenue and the "big bang" upgrades these guys are talking about, it is going to be difficult to meet the requirements of Wall Street. It's not to say that either of them will do badly but I think that they won't do well enough to meet the requirements of Wall Street. And that will affect their valuations. When you look at how much they both have to grow to stay healthy, and when you look at the fundamental budget increases that IT buyers have out there, it is not a pretty picture." - Erik Keller.
And For Microsoft Too - "Microsoft is going to have a tough year. Overtly, the company seems very focused on Google. But the bulk of its margins come from the corporate world. And Microsoft is behind in delivering in so many different areas, both against their own schedule or against the competition's. The lack of progress has CIOs saying to me, "I feel like I'm just subsidizing Microsoft's assault on Google." - Vinnie Mirchandani
The Maintenance Party is Over - "2006 will be the year of entitlement - NOT. There will be problems with the maintenance numbers that vendors pull in. Buyers are not going to simply go out and pay out the maintenance fees like they used to. So I think you're going to start to seeing a degredation of this revenue stream for the major providers." - Erik Keller
An End to SOX Suffering - "2006 will be the year that Enron's Ken Lay goes on trial. It is also an election year. In spite of that more and more corporations are going to lobby congress and say compliance budgets are out of control. Gartner said the impact on IT budgets is something near 15 percent - that's a tax that Chinese and Indian companies do not have to pay. Compliance is important but global competitiveness is also important. And I'm predicting - hoping I guess - that Congress wakes up saying, "We've tortured everyone long enough so let's move on." - Vinnie Mirchandani
If our experts are right, 2006 will certainly be an eventful year in the software business. To hear more observations about IBM's prospects, dissecting SaaS' business model from its technology, the Capex/Opex budget dance, making money in open source and the strength of the Indian services vendor model, click here to listen to the entire podcast.
Maryann Jones Thompson is editor of SandHill.com. In 2006, SandHill.com will host a number of podcasts on software business strategy. To submit an idea for a podcast or to be a participant, email editor@sandhill.com. To subscribe to all future SandHill.com podcasts, click here.
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