August 5, 2015

Star Walkers: Innovation Among Major IT Vendors

CIO Strategy Exchange, New York, 2008

“It is change, continuing change, inevitable change, that is the dominant factor in society today. No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be.”
-Isaac Asimov

Setting the Agenda

Last Spring’s CIO Strategy Exchange report and meetings covered the general topic of IT innovation as seen by our membership, successful venture capitalists, and leading industry visionaries. This paper extends that query to personal interviews with key executives at six of the membership’s seven most significant IT vendors: [REDACTED] (with [REDACTED] and so forth postponed). In each company, we conducted interviews with between three to six executives positioned to influence product and service directions. In most cases, these executives were the heads of important product groups, CTOs and (in four companies) the CEO. The discussions concentrated on new products and services emerging over the next five years that could provide enterprises with new business value in the sense of increasing company revenues and/or differentiation — as opposed to purely improving IT efficiency or lowering IT costs. In that context, we were bound to consider not just new technology but important shifts in markets, business models (e.g. cost structure), competitive factors (e.g. industry consolidation), and even the demographic composition of the IT work forces at both the CIOSE members and the vendor community. We have chosen to present these results in a new format, modeled after the NY Sunday Times Magazine Q&A weekly dialogues. (These appear as an interviewer question followed by a “response” as reconstructed, reordered, and tightly condensed by the article’s author after a lengthy session.) Here, the questions covered in our interviews are detailed below and thereafter condensed into a heading to save space and your time.

New Technology?

Do clouds, mobile devices, multi-core micros and other new technologies represent real platforms for a new/different generation of applications – as the personal computer did for previous generations? Or are they merely extensions of what exists today? For a definitional starter: Clouds are the virtualized and parallelized computing complexes famously offered today by Amazon and Google. Mobility refers to the popular hand-held email and web-enabled devices characterized by RIM Blackberries and Apple iPhones. Multi-core micros from Intel and (perhaps) other suppliers may supply 100-fold gains in computing power.

Business Models?

Are there new ways of producing, selling, delivering and/or servicing IT products that are radically impacting vendor cost structures? Two visible trends are Software as a Service (SaaS) and the introduction of appliances (i.e. software pre-installed on dedicated servers located at the customer’s site). Sellers expect shorter sales cycles and more flexible updates; buyers expect to bring applications on stream faster and less disruptively. At least that’s the theory. In concert with SaaS and appliances, the pricing formula is also changing, morphing into a subscription model. Quite the reverse of the traditional software license model that is paid both up front and through a continuing revenue stream for maintenance and updates

Dominant Markets?

The interests and investments of IT vendors and investors have moved away from enterprises and turned sharply towards consumers and small and medium businesses (SMB). Consumer technologies hold the promise of huge sales volumes in markets easily reached and tested without a hopelessly expensive sales force. And small businesses may be more willing to implement SaaS offerings without costly customization and vendor hand-holding. By contrast, the enterprise market is considered saturated, costly to penetrate, and stifled by complex IT infrastructures that constrict the installation and integration of anything new. So can large enterprises exploit the overabundance of innovation initially targeted at consumers – just as they previously did with PCs and Blackberries? And similarly, will the IT vendors’ current investments and concentration on non-traditional markets provide coincidental benefits to large enterprises? As examples, does SAP’s retargeting of its ERP systems for small and medium businesses ultimately serve the interests of major corporations? And can [REDACTED] strategy/hope of reviving its fortunes by serving hyper-growth entrants like Facebook and LinkedIn unveil innovative technologies that benefit enterprise customers as well?

Worker Profiles?

Will enterprises and their IT organizations be helped (or hurt) by dramatic shifts in the location and demographics of the work force? Economic assumptions are rapidly changing – with powerful consequences. Consider these potent trends: 1) skyrocketing energy costs of moving employees and transporting products; 2) the increasing convergence in labor rates caused by the collapsed dollar and intensified competition for skills in India and China; and 3) the preference for new technologies (e.g. open source) by college recruits in contrast to the baked-in preconceptions of the incumbent work force.