THINK IT Services

Once again Gartner has demonstrated why it is viewed as a lagging indicator of meaningful market trends. Check out a new article in CIO Magazine entitled, “Gartner: Four Disruptions That Will Transform the Software Industry.”

In this article, Gartner analyst Yvonne Genovese identifies the following “disruptive” software industry trends that will take shape by 2010-2015,

• Rise in New Technologies and Convergence of Existing Technologies
• Change in Software User and Support Demographics
• Revolutionary Changes in Software and How it is Consumed
• Software Market Moves to Megavendors Supporting Large Ecosystems

To call any of these trends potentially disruptive in 2010 or 2015 is to ignore the significant impact each of them is already having on the software industry today.

Web mash-ups became the play things of the Facebook crowd over a year ago and are already being used by a wide array of companies of all sizes today.

That same Facebook generation has already brought their social networks into the corporate environment, making Gartner’s suggestion that “By 2015, no company will be able to build or sustain a competitive advantage unless it capitalizes on the combined power of individualized behaviors, social dynamics and collaboration”, ludicrous.

“Revolutionary Changes in Software and How it is Consumed” are already well underway and will be yesterday’s news by 2010. Software-as-a-Service (SaaS) and cloud computing are gaining mainstream and Main Street acceptance and adoption.

Gartner may be right that the “Software Market Moves to Megavendors Supporting Large Ecosystems” but it won’t be yesterday’s leading vendors. Instead, it will be Google, Amazon and Salesforce.com leading a new generation of SaaS and cloud computing providers.

Gartner’s forecast would be laughable if it wasn’t so sad how many companies spend millions of dollars to obtain this type of ‘insight’.

This is especially disappointing at a time when most companies are in desperate need of practical help and advice to overcome the unprecedented realities of today’s turbulent business climate, as opposed to the hypothetical world of the future as seen by a market research firm.

It is always gratifying to have the major research firms affirm my perspectives and THINKstrategies’ predictions.

Recently, Gartner predicted that the global outsourcing market will grow 8.1 percent in 2008, and that this growth would not be in the form of traditional IT and business process outsourcing (BPO) agreements, but fueled instead by growing the acceptance of Software-as-a-Service (SaaS) and other utility computing services offerings by companies of all sizes.

Let’s have some fun and do a side-by-side comparison:

According to Gartner, “publicly reported IT outsourcing (ITO) and business process outsourcing (BPO) contract values decreased overall by 50 percent in 2007.”

In January 2002, I wrote in a NetworkWorld commentary that the traditional outsourcing model was dying. Even at that time, the size and duration of these deals was shrinking because their rate of success was abysmal.

As I’ve been stating for many years, companies of all sizes must focus on their core businesses and rely on third-parties to perform various IT tasks in order to withstand intensifying economic and competitive forces. This has led many to adopt ‘out-tasking’ rather than outsourcing strategies, in which they contract for specific services which can perform particular IT tasks. As I stated in a 2005 NetworkWorld commentary, this sourcing strategy reduces their risks. And with the advent of powerful new on-demand utility computing services and SaaS alternatives, companies can also gain greater business benefits.

So, now Gartner is catching on and predicting, “the outsourcing market has reached a tipping point with regard to utility delivery models, and that change and innovation will take hold and accelerate in this area through 2008 and beyond.”

I made my own prediction of this shift in 2004 and allusion to a similar tipping point in 2005.

Gartner goes on to state, “The trend toward software-as-a-service (SaaS) is gaining the most traction, with major software vendors, such as Microsoft and SAP, and large Internet players, such as Google and Amazon, making announcements about new SaaS offerings and mass-customized software platforms.”

You could have learned about the same trends from THINKstrategies four years ago if you read my commentary, “IT’s the services, stupid!”.

Gartner suggests, “User organizations need to realize that the utility delivery model is a viable alternative to traditional outsourcing, and they should seriously consider utilities in their sourcing strategies.”

Although Gartner prides itself about having the ear of the CIO, CIOs were telling me about their growing interest in SaaS and utility computing services in 2004.

So, if you want to stay ahead of the Gartner hype-cycle, stick with THINKstrategies and check out our latest writings and publications.

I had the privilege this week of participating in an interesting webinar sponsored by Makana Solutions regarding the sales implications of Software-as-a-Service (SaaS) and other subscription services.

Tom Wilson, of the Wilson Group; Makana’s founder, chairman, and CEO Liz Cobb; and I discussed how the sales skills and processes differ in the on-demand services world from the traditional packaged product environment. Specifically, on-demand services come at a lower price-point which necessitates higher volume sales to be successful. This requires a transaction oriented sales process and telesales skills, rather than the long salescycles and highly personalized approach of traditional legacy software sales. Therefore, restructuring the sales process and retraining or restaffing the sales team is critical to transitioning to the SaaS and subscription service model.

Similarly, the support function also changes in the on-demand world. Rather than rely on technical support to react to problems implementing and maintaining software, customers expect their on-demand solutions to be easy to deploy and administer. They also expect their SaaS providers to ensure the availability and performance of their online applications, and to proactively assist them in utilizing the solutions and continuously enhance the solutions to make them more useful and easy to use.

Mikael Blaisdell explores these differences in greater detail in his recent blog, “SaaS & The Ghost of Computing Past.” It is worth reading his perspective which he will also discuss during his presentation at SaaScon.

As Treb Ryan of OpSource likes to say, in order to be successful in the SaaS business, vendors must stop thinking like software companies and start acting like web companies.

I’ve referred to this transformation as an ‘inversion’ process because it forces most established software and technology companies to re-think how they operate and how they go to market. It also will force them to replace many of their staff with a new breed of people that view their jobs and their customer relationships differently.

It is for these reasons that many established players will face traumatic changes in 2008 as customer interest and adoption of on-demand solutions will become as mainstream as ecommerce.

Gartner is predicting that economic and organizations forces will combine to fuel greater outsourcing, with SaaS gaining the greatest traction as a viable alternative to traditional IT and business process outsourcing (BPO). Gartner’s market assessment echoes my reasons for forecasting strong growth for on-demand services in 2008.