THINK IT Services

I’ve been suggesting for years that the IT system management (ITSM) market is ripe for a new generation of Software-as-a-Service (SaaS) solutions, and a widening array of emerging players are finally fulfilling my vision.

Up until recently, IT departments have been plagued by the same frustrations which permeated most large-scale enterprises contending with overly complex, cumbersome and costly business applications.

In the case of the business units, it was trying to implement and maintain enterprise applications, such as CRM or ERP, which drove them crazy and in the direction of SaaS alternatives from companies like Salesforce.com and NetSuite.

Now, IT organizations are starting to migrate away from the ITSM platforms offered by IBM, HP, BMC and CA in favor of SaaS-based alternatives from Service.now and others.

Why are IT departments moving in this direction? For the same reasons as their business unit counterparts,

• Frustration with the costs and complexities of traditional, on-premise ITSM has reached a breaking point.
• In today’s tough economic environment, IT departments have to do more with less and can’t afford the inefficiencies associated with legacy ITSM.
• Traditional ITSM wasn’t designed with today’s highly dispersed workplaces, mobility and cloud computing resources in mind.
• Technological advancements are making today’s SaaS-based ITSM solutions more viable alternatives to legacy systems.

So, just like in the broader business environment, there is a ‘perfect storm’ of economic, technological and attitudinal forces which are driving IT professionals to adopt various SaaS ITSM solutions.

My latest commentary in Ecommerce Times discusses these drivers further.

But, it is worth noting that between the time I submitted this column to the online publication and when it was posted the following industry announcements and SaaS-based ITSM vendors crossed my radar,

• CA announced its intention to acquire Nimsoft after previously announcing that it would acquire 3Tera.
• Citrix acquired Paglo to strengthen its SaaS-based GoToManage capabilities.
• AccelOps is rolling out enhancements to its integrated datacenter monitoring and ITSM software.
• ManageEngine continues to enhance its ITSM suite which sells for a fraction of the cost of legacy platforms.
• France-based, Staff&Line, is opening offices in the U.S. to offer its ITSM, IT asset management, configuration management database (CMDB) and automatic inventory capabilities here.

These are just a handful of the numerous companies targeting this market. THINKstrategies has over 150 companies listed in the HelpDesk, IT and Application Management categories of its SaaS Showplace. And, this is probably only half of the total number of companies targeting the ITSM market!

Just like in the overall market, these SaaS ITSM vendors are successfully penetrating large-scale enterprises as well as small- and mid-size businesses (SMBs). We’ve recognized many of these players with our Best of SaaS Showplace (BoSS) Awards.

And, the ITSM legacy vendors — IBM, HP, BMC, CA and others — are desperately trying to respond to this significant challenge in the same way as their enterprise application counterparts — Microsoft, Oracle, SAP and others — have done … with a combination of acquisitions, alliances, internal development and external PR.

It is for all these reasons that I identified ITSM as one of the key battlefields for 2010.

My travels this week have taken me from Miami to San Francisco, for Parallels Summit and Pacific Crest Securities’ Emerging Technology Summit to hear and see the latest developments in the ‘clouds’.

In Miami, I witnessed the emergence of a key new player in the rapidly evolving cloud computing industry. Parallels is not a new company, but it has recently realigned its various corporate capabilities into a singular focus on cloud computing enablement.

The company is specifically targeting the vast community of service providers – hosting companies, VARs and telcos — that are supporting the IT needs of small businesses with limited or no IT staff.

In short, Parallels is seeking to help these service providers replicate the success of Amazon Web Services (AWS) in the mainstream small business marketplace.

Although AWS has found a very receptive audience among start-ups and enterprise developers, it hasn’t generated much interest with mainstream small businesses which lack IT skills and demand ongoing support. These small businesses are already turning to various hosting companies, telcos and VARs to support their traditional IT needs and would welcome a broader assortment of cloud services, ranging from packaged Software-as-a-Service (SaaS) apps to pay-as-you-go storage and processing power from these same service providers.

Hosting companies, telcos and VARs have recognized this opportunity, but have been unable to fully address it because it has required considerable technical skills and financial resources to build the service delivery infrastructure, provisioning and management engine to support a cloud computing business.

While there are plenty of virtualizations vendors, led by VMware, and business service management vendors, including BMC and HP, they are primarily focused on the enterprise, as well as the major telcos’ operational support systems (OSS). Jamcracker has also struggled trying to help telcos generate meaningful revenue from its SaaS marketplace capabilities.

This has left a gap in the market for an ‘end-to-end’ cloud services solution which Parallels is attempting to fill. Its product portfolio has evolved via a series of acquisitions and organic development to now include the following elements,

• Server virtualization
• Management automation
• Service provisioning & billing
• SaaS marketplace creation

These elements enable a service provider to build and administer a cloud computing business which can help them win and retain customers who are seeking a strategic source for their widening array of on-demand service needs.

This is a very appealing value proposition for service providers who have found themselves in an increasingly competitive marketplace and need to better differentiate themselves and reduce the risks of customer churn.

With these ideas in mind, Parallels appropriately used the tagline of “Profit from the Cloud” as the theme for this year’s Summit. The timeliness of this theme and Parallels’ newly realigned portfolio was clearly illustrated by the jump in the conference registrants, from 800 last year to 1400 this week, and sponsors, doubling from 30 to 60, including Google, HP, Intel, Novell and Microsoft.

The tone and energy of this event reminded me of the ConnectWise Partner Summit which I attended last year.

It is also important to note that Parallels has added senior executives from Amazon, Microsoft, VMware and other major players to accelerate the company’s growth. I had an opportunity to meet with the executive team during an analyst briefing session the day before the conference. (Disclosure: Parallels paid for my travel expenses for this trip.)

The company has not only aligned its product portfolio around cloud enablement, it has moved its headquarters to the epicenter of cloud innovation, Seattle. This puts the company closer to the pioneer in this market, Amazon, and Parallels’ key partner, Microsoft. 

I couldn’t stay for the entire Parallels conference because I had to fly to San Francisco for the Pacific Crest Securities event where much of the discussion centered on how Amazon is revolutionizing the computing industry in the same way Salesforce.com and an assortment of SaaS vendors have disrupted the software industry. (I serve as a member of Pacific Crest’s Mosaic expert program.)

As further confirmation of the timeliness of Parallels’ cloud enablement strategy, Pacific Crest reported that its latest CIO survey found that the organizations it is tracking expect to dedicate upwards of 30% of their software spending on SaaS solutions in 2010. This is two years ahead of the pace which Gartner predicted.

This week’s announcement that Microsoft and Intuit are linking their respective Platform-as-a-Service (PaaS) capabilities has attracted lots of attention and generated plenty of speculation. It is also the latest escalation of the PaaS wars I predicted would take center-stage this year.

Although Salesforce.com’s Force.com PaaS has gained the lion’s share of industry attention because of the company’s unparalleled marketing machine, I’ve felt that Intuit’s Partner Platform (IPP) represented a dark-horse in the PaaS race because of the vast installed base of small- and mid-sized businesses (SMBs) using Intuit’s QuickBooks and QuickBase, along with its powerful channel relationships.

I’ve also believed that Microsoft would make considerable progress in penetrating the cloud computing market this year, not because of the technical capabilities of its Azure PaaS, but because of its historical prowess in building a vast partner network of ISVs and developers.

With those thoughts in mind, here’s my take on the strategic business implications of this alliance,

1. Both companies are aggressively attempting to catch up to Salesforce.com’s Force.com PaaS initiatives both in terms of mindshare and marketshare. Both companies want to quickly expand their reach into the ISV/developer community to strengthen their competitive position in the PaaS market. (Disclosure: I’ve written a series of whitepapers on behalf of Salesforce.com regarding the Force.com capabilities.)
2. Both companies also want to demonstrate the ‘openness’ of their PaaS capabilities to offset the alliances which Salesforce.com has made with Amazon, Google and Facebook, and capitalize on accusations that Salesforce.com’s Force.com PaaS is limited because it is built on a ‘proprietary’ language.
3. Gaining greater market penetration via access to the other party’s installed base of customers and partners is a given, but capitalizing on their respective functional capabilities and channel relationships is important.
4. Intuit is primarily seeking to make its IPP more attractive to developers by expanding the functionality it can provide its PaaS users. Adding Microsoft’s development and collaboration tools, including the Business Productivity Online Suite (BPOS) which consists of SharePoint Online, Communications Online, Exchange Online, and Office Live Meeting gives developers greater functional capabilities to satisfy their customers’ needs.
5. Microsoft is primarily interested in adding the service management capabilities embedded in Intuit’s Partner Platform (IPP) which include service provisioning and monitoring, along with pay-as-you-go billing and pricing. Adding these capabilities makes Azure more relevant to developers from a business perspective.

While this alliance is squarely focused on small businesses, it could also appeal to the regional offices or small divisions of larger enterprises. It could also attract crossover opportunities in the consumer market, especially when you consider the growing influence of consumerization in the corporate world.

But, most importantly it could open new opportunities within traditional channels and create new channel opportunities for cloud services and vendors. Salesforce.com, Google, Amazon and Facebook have not made much progress penetrating the channel and will face serious challenges gaining the trust and confidence of traditional channel organizations who feel threatened by the cloud computing phenomenon. Intuit and Microsoft can leverage their established relationships with key channel companies to overcome their concerns.

This alliance is the most recent in Microsoft’s escalating efforts to regain its dominant position in the software market which has been quickly slipping away with the accelerated growth of SaaS and broader cloud computing services. Microsoft also announced earlier this month that it is teaming with HP in a three-year, $250 million initiative to develop and deliver a new generation of cloud-based solutions.

Conspiracy theorists will also point out that Microsoft announced last June that it is discontinuing its Money software service, which leaves a convenient gap for Intuit to fill with its QuickBooks solutions.

While ‘coopetition’ is not a new idea or business practice in the tech industry, this week’s Microsoft-Intuit alliance is certainly an important new test of the concept. Whether this proves to be a win-win relationship or simply a Machiavellian maneuver by these companies remains to be seen.

It is also important to note that this isn’t a mutually exclusive alliance. Microsoft is already working with Amazon, for instance. In fact, it will probably spark additional discussions and agreements with the other players by both parties.

Back to back announcements this week have brought renewed attention to the IT service management (ITSM) market as a key battleground for Software-as-a-Service (SaaS) competition.

On January 19, BMC announced its latest Remedy ITSM Suite On Demand solution, a SaaS-based offering which promises to integrate with BMC’s Atrium Configuration Management Database (CMDB) and Business Service Management (BSM) platform.

That same day, Service-now.com announced that PepsiAmericas had selected its SaaS-based ITSM solution. In Service-now.com’s announcement, PepsiAmericas’ IT Customer Service Manager, Amy Irwin said, “Our old tool couldn’t meet our needs so we went shopping for a tool that could. We quickly determined SaaS would best fit our tool requirements.”

IT acceptance of SaaS-based solutions isn’t new. THINKstrategies first identified this trend in our 2007 customer survey in conjunction with Cutter Consortium.

However, SaaS vendor focus on this segment of the market has intensified over the past two years. Service-now.com has experienced significant growth in the mid- and large-scale enterprise market with its SaaS-based ITSM solution. The company won a Best of SaaS Showplace (BoSS) Award for the measurable business benefits its solution delivered Unitus Community Credit Union.

BMC has been dabbling in the SaaS market for a few years. THINKstrategies published a profile of BMC’s initial SaaS offerings in 2006.

Like other established independent software vendors (ISVs), BMC has been attempting to rearchitect it software application, realign its go-to-market strategies, and reorient its business operations in order to integrate its SaaS offerings into its legacy portfolio. Last November, BMC announced at Salesforce.com’s Dreamforce conference that it was developing new ITSM solutions on Salesforce.com’s Force.com Platform-as-a-Service (PaaS).

It is no coincidence that Salesforce.com has targeted this market with its Service Cloud offerings. CA also announced at Dreamforce its intent to ‘SaaSify’ its ITSM capabilities via Force.com.

HP has also been circling these waters with its cloud-oriented solutions.

Why all the attention on this segment of the SaaS marketplace?

Because this is one of the few places within an organization that touches everyone and where the IT department and business end-users directly intersect. Therefore, the SaaS solution plays a pivotal role in this area and can have a tremendous strategic impact on an organization’s day-to-day operations standpoint.

I expect activity in this segment of the SaaS market to escalate and a series of acquisitions to follow.

As the new year and decade get underway, here are a few of the areas of the cloud computing market which I think will be important competitive battlefields for established and emerging players:

1. Collaboration Wars: Collaboration is the ‘killer app’ in the Software-as-a-Service (SaaS) segment of the cloud computing market. The rapid adoption of Google Apps has demonstrated the latent demand for these web-based solutions. Now, IBM is promoting the enterprise-class qualities of its LotusLive offering to win a share of the market. Cisco Systems is also intensifying its efforts to promote its collaboration solutions built around WebEx and Telepresence. I also think Microsoft will accept a greater level of cannibalization of its Office products to win a bigger share of the collaboration market with OfficeLive.
2. Business-Oriented Social Networks: These are closely linked to collaboration and have gained a tremendous amount of attention because of the explosive growth of Facebook and Twitter. Although many corporate executives are still uncertain about how to harness social networks, Salesforce.com’s introduction of Chatter at Dreamforce clearly shows that offering an enterprise-class solution can create a competitive advantage.
3. Platforms-as-a-Service Wars: Salesforce.com will continue to push its Force.com PaaS capabilities hard. And, Google App Engine will continue to be a popular development environment with start-ups and tech heads. But, I think Microsoft Azure will experience surprising success in 2010 because the company has a better understanding of how to work with third-party developers and is less likely to create channel conflicts because it would prefer not to develop and deliver its own SaaS solutions. There are also plenty of niche PaaS vendors who will be acquisition candidates in 2010.
4. Cloud Governance: HP, IBM and an assortment of niche players are capitalizing on the lack of unified management systems for cloud computing services. While price competition threatens to commoditize raw Infrastructure-as-a-Service (IaaS) offerings, management vendors that can help the IaaS providers and their customers monitor and control their cloud resources will gain a competitive advantage. HP and IBM are realigning their legacy management portfolios to address these needs. A proliferation of niche players are also seeking to win a share of the market, especially focused on single sign-on and access control.
5. IT and Service Management: IT professionals are learning about how SaaS-based management solutions can help them do their day-to-day jobs more cost-effectively. In response, a plethora of new web-based players are emerging and established players, such as BMC and CA, are shifting their attention toward SaaS-based solutions. Salesforce.com has also helped to bring greater attention to the ’service cloud’, where other SaaS companies like RightNow and Service-now.com are experiencing rising demand.
6. Communications-as-a-Service (CaaS): HP and Cisco Systems are on a collision course to compete for unified communications enablement opportunities among service providers and end-user organizations, large and small. Unified communications has been an ideal for over a decade, and now cost-effective, web-based solutions are becoming a reality. CaaS can also be a key enabler of end-to-end enterprise collaboration solutions.
7. eHealth and Energy Management: With the Obama administration promising to plow billions of dollars into modernizing healthcare systems and everyone trying to reduce the cost of their ‘carbon footprint’, these segments of the market are ripe for SaaSification. Brand-name corporations, as well as a new generation of web-based ventures, will ratchet up their efforts to win mindshare as well as marketshare offering cloud-oriented services to address these important issues.
8. Millennials and Generation Z: Companies positioning themselves for the longhaul are already trying to win the hearts and minds of our children. Apple has converted years of cultivation work within the classroom into a new generation of corporate workers who prefer Macs over PCs. Google is attempting to do the same by encouraging public school systems and universities to use its Apps. Although many kids use Microsoft’s Xbox, few have any allegiance to Microsoft Office and are adopting Google Apps. Other vendors will try to follow Apple and Google’s lead into the classroom.

Escalating cloud computing battles in these areas will also fuel additional acquisitions by established players seeking to accelerate the rollout of new services and penetration of new markets. Oracle and Cisco have been active acquirers for years. Salesforce.com will likely make additional acquisitions and continue to be a target of acquisition speculation as well.

I also think SAP will make a substantive SaaS/cloud acquisition in 2010, in an attempt to overcome some of the internal obstacles which have prevented it from successfully rolling out its BusinessByDesign solution. An acquisition could also offset the growing success NetSuite has had nimbling away at the SAP customer base.

Let me know if there are other important competitive battlefields I missed.

I’ve been suggesting for years that PC vendors could be great channel partners for Software-as-a-Service (SaaS) vendors, and Dell now has an opportunity to prove me right.

Today, Dell and saleforce.com announced that Dell will offer salesforce.com’s SaaS solutions to its small- and mid-size business (SMB) customers via its website.

This is a natural combination. Dell has been a prominent customer of salesforce.com’s on-demand CRM solutions. Salesforce.com uses Dell’s computers in its data centers. This week, the companies’ CEOs will be on stage together at Oracle’s Open World conference.

Selling software to its customers isn’t new for Dell. It has been offering Microsoft Office, Symantec Anti-Virus and other applications for a while. Adding salesforce.com’s on-demand solutions enables Dell to position itself as a fuller, ‘one-stop shop’ for SMBs.

This gives salesforce.com a strong new channel to market and builds on Dell’s core competency as a direct sales company, offsetting some of the challenges which will arise from Dell’s recent decision to acquire Perot Systems.

This is another example of the aggressive efforts SaaS vendors are making to broaden their channels to market and hardware vendors’ efforts to add SaaS to their portfolios, including NetSuite’s previous partnership with HP and Cisco’s acquisition of WebEx.

At the moment, IBM is putting its energies into promoting its LotusLive SaaS capabilities. It will be interesting to see how it responds to these competitive moves and positions itself as a channel to market for third-party SaaS vendors as well.

Dell’s acquisition of Perot Systems clearly demonstrates that Dell is in the midst of abandoning its historic advantage as the most efficient direct marketing company in the tech industry, in favor of following the increasingly failed outsourcing models of its bigger hardware rivals.

By buying Perot Systems, Dell is following in the footsteps of HP’s acquisition of EDS in an attempt to match the IT outsourcing (ITO) and services capabilities of IBM.

The only problem is that an increasing number of large-scale enterprises have become disillusioned with tradition ITO because these asset transfer deals have generally failed to achieve their business objectives. Even traditional IT consulting engagements frustrate many IT and business decision-makers because they tend to be too long and expensive.

Blending a labor-intensive business, like Perot Systems, with a product-centric company, like Dell, is also a formula for trouble. These are two very different business models and corporate cultures. Just ask IBMers who have witnessed the constant tug-of-war between its hardware, software and services divisions.

It is for these reasons that I originally criticized HP’s acquisition of EDS. That deal may have fortified HP’s outsourcing business, but it also caused a lot of corporate infighting and hasn’t moved HP any closer to becoming a player in the increasingly cloud computing arena, where the real action will be for years to come.

I always felt that it was unfortunate timing when Dell decided to expand its channels to market at the same time it was acquiring a number of Software-as-a-Service (SaaS) companies to develop greater remote service capabilities. These acquisitions could have given Dell an opportunity to redefine how IT services are built and delivered, and in turn could have further differentiated Dell in the commodity PC business.

Instead, Dell decided to push its products through a broader array of  resellers, many of whom had built up a deep-seated hatred for Dell because of its direct sales tactics of the past. In order to placate these anomosities, Dell has slowed the development of its ‘on-demand’ services as it tries to determine how to position these offerings so they won’t further offend Dell’s potential partners.

Ironically, the Perot purchase will set off far more alarms among third-party service providers, including value-added resellers and integrators, who were just getting comfortable with Dell. Now, they will have to be convinced that Dell isn’t trying to compete with them in the IT services market.

As I said at the time of the HP-EDS deal, this transaction may make sense on paper but it misses the real market opportunity. The world is moving to the ‘cloud’ and Perot has very little to offer in this brave new world.

It may have data center expertise and hosting capabilities, but Perot Systems is not a recognized player in the cloud computing arena. Instead, its people and processes are more likely to reduce the innovation and agility which Dell desperately needs at this time to clearly set itself apart from its competition rather than just imitate them.

Despite the specific problems with this transaction, it doesn’t diminish my view that there is an important role for professional services, consulting and value-added resellers (VARs) in the SaaS and cloud computing market. However, it will take more future-minded IT service providers and tech companies to capitalize on this opportunity.

HP unveiled a new Cloud Assure program this week, in conjunction with SaaScon, which responds to the growing concerns among enterprise decision-makers about the availability, security and performance of today’s rapidly evolving cloud computing services.

I think HP’s announcement is timely because enterprise IT/business decision-makers are interested in taking advantage of the burgeoning cloud computing opportunities, but apprehensive re: the reliability, accessibility and security (RAS) of these services. As a result, they’re looking for cloud computing services which give them a greater level of manageability, visibility and control.

HP is betting that it can capitalize on its the web monitoring services and skills it acquired in its Mercury Interactive deal, and its corporate brand equity as a network/system management (NSM) vendor to establish a strong position in the cloud computing management market.

HP’s biggest obstacle to success is that it isn’t considered a leading cloud computing vendor and doesn’t have a lot of obvious experience in this market. In fact, HP isn’t even seen as a player in the Software-as-a-Service (SaaS) and managed services markets which are often viewed as stepping stones to cloud computing.

Instead, HP is seen by many as a legacy software and services company who has made a big bet on the past ideas of traditional IT outsourcing with its acquisition of EDS rather than offering a comprehensive portfolio of services and solutions aimed at the new world of web-based services.

For instance, the Cloud Assure offering only utilizes the Mercury Interactive capabilities and doesn’t include its broader OpenView capabilities. Part of the problem is that HP is still trying to breakdown its internal silos to permit a more comprehensive set of solutions and services to emerge.

Until then, the company can be expected to announce a series of ‘point’ programs aimed at addressing various aspects of the cloud computing elephant.

The good news is that the growing involvement of established players, like HP, in the cloud computing market will give conservative enterprise decision-makers greater confidence that it is Ok to consider cloud computing alternatives.

The question is whether HP’s efforts to assert itself in the cloud computing management arena poses a threat to the rapid innovations which are being driven by others in the market, just like the potential threat posed by IBM’s Open Cloud standards initiative.