Corporate Acceptance Was Completely Necessary For Linux
For IT organizations such as West Virginia Network in Morgantown, which runs the network applications for the state’s higher education institutions on AIX Risc 6000, NT, and Intel platforms, “it would probably take a killer app to move us to Linux quickly,” says Jeff Brooks, lead systems programmer for WVNET.
On the desktop side, however, he says Linux is taking hold. “We have an increasing number of people running a Linux desktop environment for personal productivity, including mainframe programmers. IT professionals who are not supporting PC products are spending too much time maintaining their PCs. We calculated the time people spent doing non-business, non-mission-related maintenance–doing upgrades, or rebooting when that blue screen comes up on NT– and it’s not non-trivial.”
As an embracer of Linux, Java, and other things non-Microsoft, IBM, which dropped to Number 2 in the Software 500, grew its software revenue 6% to $11.9 billion, with total corporate revenue growing 4% to $81.7 billion. IBM, like other Top 10 companies Sun, HP, Compaq, and Hitachi, derives the bulk of its revenue from hardware sales.
IBM’s strategy for making money from software and services is a model the others are also following, each in their own way, says IDC’s Bozman. “If you look at IBM you see a model for how you can make more from software and services, but [IBM's offerings are] more marketable, more cross-platform. Look at Lotus and Tivoli.”
Like IBM, HP “realizes there is a synergy there in combining software sales and services.”
Sun, she says, uses software more as a lever to drive hardware sales. And unlike IBM, “Sun has a small professional services organization and doesn’t want to be concerned about competing with the Andersens, etc.”
Compaq entered the enterprise software fray with its acquisition of Digital Equipment, inheriting not only the software but Digital’s services organization. While Compaq so far has not been able to meld this acquisition as smoothly as it probably hoped, and recently replaced CEO Eckhard Pfeiffer with chairman and acting CEO Ben Rosen, analysts are positive about Compaq’s ability to move forward in the enterprise software world. “Compaq already has a lot of corporate IT accounts; they have extremely strong relations with the IT world. The ability to take DEC and integrate it is an obvious question mark, but you have to believe Compaq will make [DEC] an important part of the future,” says Tim Bajarin, president, Creative Strategies Inc, San Jose, Calif.
He adds, “Clearly they see enterprise-driven software as a key component to the overall value-added products they sell in the marketplace. The demand for complete systems solutions is on the rise, not the decline. I would be surprised if Compaq doesn’t get it right.”
Also pushing hard in the one-stop shopping realm is Computer Associates (#4), now busy absorbing its recently announced acquisition of Platinum Technology. CA in 1998 grew its software revenue 12% to almost $4.9 billion, with total corporate revenue growing to almost $5.1 billion. The combination of Platinum and CA, based on 1998 software revenue would be $5.6 billion, which would rank the combined company this year at #3, surpassing Oracle. Size seems to matter in the systems management market, as the industry consolidates into a smaller group of large suppliers. Collectively, companies in the Software 500 that compete in the systems/network management space grew software revenue an average of 16.2%.
In the enterprise applications arena, where both Oracle (#3) and PeopleSoft (#10) compete, “the key priority for ERP vendors is to extend their applications and frameworks to the world of e-business,” says Steve Bonadio, senior analyst, Hurwitz Group, Framingham, Mass. ERP will be the backbone that enables companies to efficiently and effectively communicate and collaborate with themselves, their customers, partners, and suppliers.”
Both Oracle and PeopleSoft grew at a good pace, with Oracle reporting a 20% growth in software revenue (which also includes their database business) to $5.3 billion. And PeopleSoft hit the billion dollar mark in 1998, with its 48% increase in software revenue. Both companies beat the average software revenue growth rate (17.4%) for companies in the Software 500 that compete in the ERP/enterprise applications market.
While the ERP suppliers are benefiting from a still-healthy demand for their solutions, corporate IT professionals still need to evaluate the health of their potential vendors, and the health of their strategy, says Hurwitz’s Bonadio. “As ERPvendors aggressively round of their product functionality and architectural strategies, companies using ERP applications need to make sure that their existing ERP investments are secure. There is nothing worse than spending millions and taking years to implement an ERP solution than to find out that you have to do it all over again.”
ERP was not the only software segment thriving in 1998. Among the Software 500, suppliers in both the Internet/e-commerce and data warehouse/OLAP markets saw software revenues rise an average of l7.8%.
Across all segments of the software industry, many companies grew through merger or acquisition, a trend that has continued as the industry matures. Among the Software 500, 32% merged with or acquired another company during 1998 (see “Here Today Gone Tomorrow,” pg. 28 for a look at what happened to some of last year’s Software 500 companies). While investment banks tend to say this is largely a positive trend for IT buyers, assuring the continuance of new and innovative products from startups and small companies, and enabling more one-stop shopping and more formalized support organizations, IT professionals are not so sure.
The supposed benefits of one-stop shopping “depend almost completely on the willingness of the vendor to try to fit our enterprise situation,” says WVNET’s Brooks. Some vendors, in his experience, “try very hard to lock you into multiyear contracts with little added value. Some conglomerates have offered us software they think is a great deal but that we don’t necessarily need. In that sense, the whole merger mania for us every year looks a little gloomier, because we have to deal with a smaller number of suppliers that give us heartburn. But then again, I’m not a stockholder.”
In addition, says Brooks, “we tend to lose relationships with developers we may have worked with for 10 years. All of a sudden there’s a layer of management between us and them–if they’re still there.”
Agreeing with Brooks is Lynn Manzano, Y2K project manager at Experian Inc., a leading supplier of information on consumers, businesses, motor vehicles, and property, in Orange, Calif. “You do lose a lot continuity, and you lose the depth of support.” On the other hand, she says, “Hopefully I’ll get a better price. With some of these bundled purchases we saved a lot of money, from a cost perspective. From a functionality perspective, I don’t know yet” the benefits from a merger or acquisition.
Another overriding concern for IT in 1998 was the Y2K issue. 1998 was the year the software industry and the IT community got serious about Y2K, scrambling to address millennium date issues before year-end, so 1999 could be spent testing. Among the Software 500, 89% of the companies reported that their primary software products are now Y2K compliant. Only 1% of the companies said they will not be compliant by year-end ’99, nor will they make it by 2000. And 10% of the companies did not respond.
The Y2K issue proved to be a double-edged sword for IT. On one hand, many organizations were forced to put off new development projects to concentrate on their millennium fix. On the other hand, Y2K has prompted a massive updating of legacy systems to, in many cases, new packaged applications.
Says WVNET’s Brooks, “In 1998 we were largely sidetracked by Y2K. Every application we were working with from mid-year 1998 through now had been with an eye to getting everything done for Y2K. The fringe benefit is massive updating. I think, architecturally, that’s clearing out a lot of deadwood. It’s really a new broom–inadvertently.”
And while it didn’t get quite the attention in the U.S. that the Y2K issue received, Europeans were busy grappling with the debut of the Euro currency, which observers say creates a more complex coding challenge than Y2K, as it affects fundamental business rules. Among the Software 500, which are predominantly U.S.-based companies, 50% reported that their primary software products are Euro compliant, while 6% said they are not compliant yet. Twenty-nine percent reported that Euro compliancy was not applicable to their software products, while 15% declined to answer.
With the Euro now launched, and Y2K soon to be winding down, what’s ahead for 1999 and beyond?
WVNET’s Brooks cites storage management as an area to watch–”the whole issue of integrating storage management across the enterprise, particularly the interoperability of storage and the prospects for data interchange on a rapid, secure basis.”
Says Mark Gorenberg, a partner in the venture capital firm Hummer Winblad Venture Partners, San Francisco, Calif., “Lower cost and plentifulness of storage is a huge trend for people in IT.”
Other trends, Gorenberg notes, include the management of the extended enterprise, the movement of ERP vendors to e-commerce, and the rise of vertical software markets. “Vertical markets are very much in vogue. It’s possible to create a vertical company as a standalone company now. Before, they couldn’t grow large enough.”
For Brooks, he is looking to the new millennium to bring simplification. “It seems that over the 25 years I’ve been following the industry, complexity grows at a fairly good clip until people refuse to tolerate it, then something comes out to simplify it. It used to be the desktop environment was fairly complicated, then Windows came out, and pretty much everybody’s PC looked the same for a few years. There has been another one of those [trends] with the Web, but it’s not done yet. I have a feeling our architectural issues in about four years will look very different. But I’m not seeing anything from the pundits that satisfies me about what could be next big thing.”
So is life e-beautiful for IT professionals today? Both WVNET’s Brooks and Experian’s Manzano agree there are lots of opportunities for IT professionals, both employment-wise and innovation-wise. And the software they have to work with keeps getting better. “The tools are significantly more compatible,” says Brooks. “You can have a toolbox and have some hope that most of them work together somewhat.” With more packaged products, he notes there are also fewer opportunities to provide solutions for users that the software vendors won’t, “but at the same time you can devote more time to doing other things, like developing new applications, or training, or doing production evaluation, and spend less time looking at code.”
Gorenberg adds, “There are a number of huge opportunities in IT. Outsourcing has created real capitalism for people in IT. Outsourcing and the whole service provider phenomenon are growing like gangbusters. For the first time venture firms are funding service companies, and those companies are growing and going public, making great IT people the new rock stars.”