By Jeff Nolan
It’s almost comical to suggest that a single blog post or article could cover the breadth of possibilities that the “future of enterprise software” might embody. Having said that, the future of enterprise software will not be determined by any one technology or architecture. Nor will it by be shaped by buzzwords — on-demand and Facebook and collaboration initiatives are not the future, but means to an end.
The future of enterprise software will depend on how independent software vendors define their solution set and how and where they go to market; it will also be shaped by the tighter integration of customer communities with vendors, and lastly, by a restructuring of IT itself.
To market with SOA
The biggest change in enterprise software technology over the last decade has been the shift from client/server to service-oriented architecture, with the most significant progress being delivered in the last four years. There isn’t a serious application provider on the planet that has not embraced SOA principles; they are logical and cost-effective, with benefits flowing to both vendors and customers. Also driving change is the calcification of existing enterprise resource planning, customer relationship management, and human resource application silos.
Simply put, customers have spent tens of billions deploying working solutions and they depend on them to run their businesses. Much as mainframes stayed with us for a few decades longer than was originally anticipated, solutions from SAP (SAP), Microsoft (MSFT), IBM (IBM) and Oracle (ORCL) – both those they’ve originated and those they’ve acquired — will be with us for decades to come, as SOA migrations are designed to offer customers inline upgrades while at the same time breaking away from the 18-to-36 month product cycles in which these vendors have traditionally operated.
As a result, periodic, Big-Bang product upgrades from vendors will become increasingly infrequent. New features and components will be upgraded in-flight, with little disruption to the client. For customers, the risks associated with upgrades will diminish, and as such there will be an expectation put on vendors to play according to a common set of engagement rules.
The other primary beneficiary of large vendor SOA plays is the independent software vendor community, which has historically been forced to replicate or integrate existing functionality in order to offer their own captive solutions. When maturity is achieved for these new platforms, rather than making a remote function call or passing data and waiting for a response, ISVs will be able to pick and choose functional components offered by major platform vendors. Integration will be tighter and resemble syndication in that application functions will be self-contained and self-described, much like a data feed today.
Having an even greater impact on SOA strategies is a shift in how companies go to market; it has become exceedingly difficult to do so independent of the existing platform vendors. That’s not to say that a company must get on the price list of, say, SAP or Oracle, but it is essential that the ISV be part of a larger “business value network” that’s anchored by one of the vendors.
The number of architecture stack decisions that ISVs will be faced with will subsequently have more to do with their go-to-market aspirations than their respective technical capabilities. With few application categories left untouched — and with analytics trumping transactions for the foreseeable future — ISVs will leverage platform vendor functions according to their targeted customer segments.
A global perspective
Of course, the future of enterprise software is increasingly being formed not in North America and Europe, but elsewhere. Indeed, primary growth opportunities lie in China, India, Brazil, and Russia, not just in terms of revenue, but in the low-cost talent pool each country offers.
Historically, application vendors have been geographically constrained: vendors with high-touch direct sales models have had structural obstacles to growing international markets, and have sought to absorb regional market fluctuations by diversifying their product offerings. In the future, rather than continuing to diversify, companies will move to specialize, going functionally and vertically deep while achieving mass scale by leveraging their ability to reach a global market through the business value networks they participate in.
In the past larger software vendors such as Oracle and SAP tried to sell globally, but the typical $200-million-a-year-in-revenues, mid-market vendor relied on a patchwork of direct offices and resellers but still generated the lion’s share of revenue in the North American market, where breadth of product portfolio was critical. Going forward these smaller vendors can now make a more coherent global push and diversify just like the behemoths.
Yet even more than vendors, globalization directly impacts enterprise software customers – customers whose business models are defined by an ability to change and adapt. Case in point is Spain’s Zara, which through unique vertical integration and extensive automation is able to deliver 18 “seasons” of apparel to their retail outlets every year. This kind of business simply cannot be delivering on a traditional ERP backbone.
The hobgoblin of business process automation has always been the fragility of automated business processes themselves. This fragility is a consequence of the linear nature of a business process in a hard-wired supply chain. As customers move to more adaptive modular supply chains — where they focus on core operations and leverage best-of-breed suppliers for context — the demand on enterprise software providers will be to mimic that modularity by providing an increasing array of functions in the form of a data feed that requires little integration expertise.
The financial services industry is a great example of this in action. Through industry-wide standardization of data formats and the emergence of a broad array of data providers, this sector has substantially grown revenue while increasing margins across the board – the sector’s IT costs, in other words, do not map proportionally to its sales growth.
Globalization, then, is more than a just buzzword popular among the digerati. Globalization drives customers by redefining their requirements; ISVs, by extension, are now faced with a range of strategy decisions that will serve to determine where they build their products, how they sell them, and what functional assumptions they make.
A restructuring
Enterprise IT itself is also the target of a makeover that will dramatically transform both what is expected of IT departments, and how their success is measured.
CEOs are concerned about growing their businesses in an era of increasing uncertainty and efficiency demands; business managers need real-time visibility for intra- and inter-company events, as well as the ability to reconfigure processes with increasing frequency; the CFO, meanwhile, has to ensure regulatory compliance and business integrity.
For the CIO, these challenges come at time when maintenance costs are rising and the number of trusted partners are shrinking — systems remain undiminished, yet there are fewer vendors capable of supporting large-enterprise customers. We are down to less than 200 publicly traded tech providers from over 400 in 2001. Ask any CIO how many vendors they have today versus four years ago and the number will be smaller.
With the advent of SOA, we have the promise of less data-centric systems that are, as a result, more flexible and efficient. The IT industry as a whole needs to earns the trust of its customers back not by promising ROI gains, but by delivering systems with business benefits that truly work, with focus on lowering costs.
Technology as a lever has been a greater ROI generator than any other initiative in large enterprise businesses and those software dollars have disproportionately gone to ERP. Having spent my career in the ERP business, I have seen the benefits so I’m not suggesting that ROI isn’t there, but it has come at a cost. The #2 item on SAP’s internal long-term strategy plan, after revenue goals, is to “regain the honest broker status with our customers” — so even SAP itself acknowledges there is a trust issue.
With fewer application and architecture stacks, the industry is on the verge of maturing much like other industrial sectors. Core systems like ERP, HR, and CRM are transforming from highly customized, expensive systems to “good enough,” off-the-shelf solutions that will depend on an array of context providers who add disproportionate value to customers by leveraging core systems via unique IP and standardized integration.
Jeff Nolan is vice president of corporate development for NewsGator Technologies.
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