If the melee of emerging technologies means a life-or-death struggle for established software vendors, it also brings a world of new options for their customers. In the third of our series of extracts from his book "The Next Wave of Technologies: Opportunities in Chaos," technology thought leader Phil Simon looks at three key tech trends that business leaders must monitor.
Emerging technologies pose major threats to many firms that were (and in some cases remain) powerful players. If history teaches us anything, it's that current stalwarts rarely embrace new technologies that will cannibalize their existing business models, especially early on.
Displacement at the hands of new technologies has affected many industries and organizations with vested interests in maintaining the status quo. Looking back at the past 15 years provides a veritable litany of examples, including:
- Kodak's dismissal of digital photography until very late in the game
- Microsoft's longtime resistance to open source
- The reluctance of the music industry to accept digital music and the Internet as a platform for commerce
- The opposition of the telecommunications industry to accept voice over Internet protocol (VOIP)
This ethos is best exemplified in the words of Upton Sinclair: "It's difficult to get a man to understand something if his salary depends upon his not understanding it."
Three Key Technology Trends
1. Software as a Service (SaaS). In recent years, few developments in the technology world have scared on-premises software vendors as much as SaaS. Salesforce.com founder and marketing whiz Marc Benioff has stirred up a great deal of controversy by openly talking about the "death of software." Talk like that is not likely to go unnoticed, and Benioff is very aware of this. Benioff is throwing down the gauntlet. He knows that on-premises software vendors have historically relied upon the following revenue streams:
- Costly software licenses, often on products purchased but not used (aka "shelfware")
- Annual support fees to the tune of roughly 20 percent of the initial license fee
- Consulting services
- Routine upgrades
For traditional vendors, SaaS is the very definition of a disruptive technology; if adopted en masse, it would eradicate a significant portion of their revenue and profits.
2. Open Source Software. OS has made inroads in many areas. OS alternatives have emerged to operating systems (Linux), productivity suites (OpenOffice), web servers (Apache), and many other applications. ERP may well be next.
Organizations such as Compiere sell customizable OS applications that their clients not only own but control. This is an important distinction. Clients of traditional ERP vendors purchase licenses but are in many ways at the mercy of their vendors' upgrade and customization policies.
OS applications are fundamentally different than their commercial, off-the-shelf (COTS) brethren. Much like SaaS, OS circumvents a number of major complaints among clients of traditional vendors: forced upgrades, dangerous customizations to the plain-vanilla products, and unnecessary functionality. An organization that wants to run an antiquated version of a finance and accounting system can do just that—sans the vendor's pressure or requirement to upgrade. The organization can simply pay the vendor annual support fees without fear that its system will eventually be unsupported and risk potential system failure. I firmly expect the adoption of OS applications to continue rising in the next few years, further penetrating largely untapped markets such as ERP.
3. A New Breed of Independent Software Vendors (ISVs). Two recent and seemingly unrelated events have coalesced, resulting in more efficient software development. The first is the rise in the use of service-oriented architecture (SOA). In Service Oriented Architecture for Dummies, Judith Hurwitz, Carol Baroudi, Robin Bloor, and Marcia Kaufman describe the SOA world as one in which "business applications are assembled by using a set of building blocks known as components—some of which may be available ‘off the shelf,' and some of which may have to be built from scratch."
In other words, SOA provides greatly enhanced methods for systems development and integration. Individual systems and components give way to business processes and interoperable services. SOA allows different applications to exchange data with one another as they participate in business processes. Service orientation stitches together ostensibly different services with operating systems, programming languages, and other technologies underlying applications.
Second, the passage of the Sarbanes-Oxley Act. (SOX) has resulted in many organizations abandoning efforts to build their own internal systems. Faced with SOX's increased audit requirements, many are now opting to use independent software vendors (ISVs) to build proprietary systems. As organizations have increasingly sought the external expertise of ISVs in creating applications, it should not be surprising that organizations such as Infosys have prospered. (From its initial public offering in 1993 to 2007, the company's stock grew 3,000 percent, absent dividends.)
The end result is that successful IT projects are not uncommon these days—even if well-documented failures still persist. (Infosys's stock would not have climbed so high without high client reference and retention rates.) Unlike the 1980s, few organizations these days want to reinvent the wheel, finally accepting that they should stick to their knitting and not build applications from scratch. More organizations are using ISVs to build custom applications that address specific business needs, especially when those apps can be relatively easily integrated into existing system infrastructures. No longer are they forced to choose among a small number of viable alternatives.
The End Result: Greater Organizational Choice
The threats facing established software vendors are already changing the dynamics of the traditional vendor-client relationship. Unlike a few years ago, organizations running mature applications with varying degrees of success now have much greater choice in the marketplace.
Many organizations have long waited for this day for a number of reasons. First, for years they have resisted their vendors' mandates that they routinely upgrade to more mature versions of applications, lest those applications be decommissioned and unsupported. Second, many organizations have been regularly paying their vendors annual support on unused applications, in effect wasting thousands of dollars per year. Third, IT departments must devote often considerable time, personnel, and expense to system maintenance, such as applying application patches and creating data areas to test upgrades.
To be sure, the increase in the number of different viable technologies for organizations is a largely positive event. Greater choice means lower prices for organizations, greater product innovation, more features, and an overall more efficient marketplace.
As just one of many possible examples, an organization in the mid-1990s was essentially forced to use Microsoft Windows as its operating system (OS) and Office as its productivity suite.
Fast forward to 2009. Organizations unwilling to purchase and use Microsoft products have many alternatives. A bevy of options now exists for enterprises with respect to different types of systems, applications, databases, and technologies. Tool such as Google Docs and OpenOffice are arguably valid alternatives to MS Office. While its hegemony on the desktop OS front remains largely intact, Microsoft cannot ignore potentially legitimate alternatives to Windows such as Linux, Apple's Mac OS X, and Google's Chrome OS.
Against this backdrop, the question remains: How can organizations manage the chaos caused by all of these new technological options? A dizzying array of choices can cause confusion. Say what you will about monopolies; at least they remove the opportunity for an individual or enterprise to make the wrong choice. A similar logic exists among those who believe that the world was a safer place during the Cold War. The rationale is that the United States knew its enemies in those days: the USSR and Communism. According to this argument, the fall of the Soviet empire created a murkier world.
Reprinted with permission of John Wiley & Sons, Inc. Phil Simon, The Next Wave of Technologies: Opportunities in Chaos, 2010.
See our interview with Phil Simon here.
Click here to read Chapter 1 of "The Next Wave of Technologies."
Phil Simon's latest book is "The New Small: How a New Breed of Small Businesses is Harnessing the Power of Emerging Technologies" (Motion Publishing, 2010). More information here.
