Notes from IDC 2008 Software Predictions

I had the opportunity to sit in on a presentation in Silicon Valley today from the software team at IDC and what they see for 2008. It was interesting to note that they began the presentation with a discussion on macro-economic trends (not too good) and then went into the predictions without given much thought into how the current economic *challenges* might affect the year and beyond. A little bit of acknowledgement that since a vast majority of enterprise software investment still occurs in the Developed Economies, that a slow down could hurt software investment. Think back to 2002, any IT project that wasn’t essential, didn’t have a very short term ROI, and could be avoided was – yes, it was avoided! So, “if” we do cave economically, hold on to your seat belt, because IT spending is going to see a tightened belt. That said, tighter budgets play well into either applications that help generate revenue or reduce costs, and for models that don’t require a big upfront investment (like SaaS/on-demand).

On to the key trends. At an overall level IDC feels that three key trends are top of mind for 2008: Consolidation, Focus on mid-market, and Virtualization. Clearly the consolidation wave continues (bye, bye BEA) and this will begin to play out increasingly in niches as most of the major footprint areas have already succumbed. Mid-market shouldn’t be a surprise (after all there are only 500 companies in the Fortune 500), and most of the major vendors have declared this to be a key focus (except Oracle who doesn’t seem to see enough $$’s here, evidenced by abandoning Agile Advantage in mid-market PLM). Virtualization is interesting, clearly everyone is enamored with VMWare’s IPO, but the real impacts are now starting to ripple through the landscape. Software vendors with per/CPU models are going to have to completely rethink pricing and the big guys are all trying to figure out their strategies in a virtual world.

Diving in a level deeper they spoke about some key trends in the application space. A few I thought were interesting. They spoke about how the social networking space will make it’s way into the enterprise, with over 20% of enterprises using or piloting these applications already. Most people think about Linked-In as the “cross-over” between theses two worlds (I’m not ready for Facebook meets Linked-In), but they see this going beyond this into partner networks, customer networks, etc. To some degree this is the promise of PLM and other collaborative applications, but it could go beyond this into horizontal communities that don’t have natural forums.

They declared 2008 as the year SaaS goes mainstream. Well, I thought it was already there with Salesforce at 38,100 customers, Netsuite and SuccessFactors’ blockbuster IPO’s, Duffield coming back with Workday and SAP’s Business byDesign. With the big guys jumping in over the past few years it looks like “safe water” for everyone to jump in the pool. Although I must admit that I was surprised when they said that of all the software sold only 3% (yes, that’s THREE Percent) is SaaS/on-demand software. Even though I think this understates SaaS (you really need to multiple the SaaS figures by 3-5x to put them on comparable footing with perpetual license models), it still shows the huge opportunity still in front of the model. I did find it humorous that they (the IDC folks) expressed concern of the big guys all fighting over the 3%, I guess they can’t imagine that everyone shifting some element of their model to SaaS might actual GROW the penetration of SaaS.

Of note, something they mentioned that is worth considering. They spoke of the potential for appliances to compete with the SaaS model. It’s an interesting thought where a customer could buy an application appliance install it behind their firewall (or theoretically in the cloud if they wanted) and receive the continual updates / patches/ etc. without maintenance on their side. It could be a simpler way for some companies to offer some of the same/similar value propositions as on-demand without have to jump all the way in, and alleviates some of the concern companies have about “losing control” of their data. It’s an approach I haven’t seen with much real traction yet (Cast Iron is making some inroads), but one I’m going to spend a little more time exploring.

My favorite from the day was a gratuitous discussion of Second Life. They said this year will be a year of experimentation for Second Life in the enterprise, but it won’t really lift off this year. Ok, maybe I’m an old curmudgeon, but I honestly don’t see Second Life as the answer to every (or any) B2B marketer’s needs or for collaboration in the enterprise. Maybe I need to get an avatar and check it out …

SaaS is a future of software

Or was I supposed to say THE future of software? Even though I’ve been at it for the last seven years, I’m not ready to declare a world where all software is delivered over the internet. At least not in time horizon’s that make sense for most of us. I’m a true believer in the power of on-demand / software as a service / SaaS / cloud computing / “enter your own marketing name here” software. Without question it is a much better way to buy most software – unless you happen to like installing your own software, maintaining bug fixes, responding to middle of the night emergencies, etc.

However, there are many reasons to not buy your software as a service. If you absolutely need offline access to your applications, you have big huge data files (like a CAD drawing in native geometry), you’re under some sort of strict government controls for data management (e.g. ITAR), or you feel the need to mold the software to meet the exact business process you want to implement – then you better be looking at classic client/server based software. Just be prepared for a lot of extra work, and a likely 5-10x upfront investment in software, hardware and a dramatic professional services engagement to get what you want. For large Fortune 2000 companies who are seeking competitive advantage with the business process under consideration, this might be the right answer.

For everyone else, SaaS is probably the right way to go for most applications. And it should get to be even more “right” as time goes on. Watch how the SaaS vendors embrace platform approaches (e.g. Salesforce.com) to enable customization of applications, as providers build out better API’s/SOA approaches to enable access to data and workflows, and the applications grow in their breadth. Then your decision to go SaaS will look even better. I think the most exciting wave of developments in SaaS are still on the horizon, as data moves more seamlessly between applications and business processes span organizational boundaries (see how PLM is used in an outsourced manufacturing model) the power of an internet delivered application will grow even higher.

Where to look for this innovation? Well, don’t look at the traditional large players. They have too much entrenched in their existing architectures and more importantly in their existing sales and marketing models to really adopt a new way of doing business. When they’ve tried, they’ve failed. Siebel killed not one, but two on-demand attempts. And Oracle is in the process of killing off Agile’s half attempt at on-demand PLM. What will happen as SAP tries to wade into these waters? Good question. Can’t wait to see how that movie turns out.

So, I do believe SaaS is a future of software, one that will find an ever growing community of happy users.

Does PLM have a future?

As someone that's been involved with PLM for quite a while it seems to be an odd question. Of course I believe PLM has a future, it's just turning out differently than we all imagined. In the boom times of the last century, it seemed that PLM had a tremendous opportunity ahead of it. There was Agile and MatrixOne going public, UGS going private, Arena coming on as the upstart (BOM.com in those days) and analysts all over proclaiming it as the next great space (since CRM and ERP became household acronyms). So where are they now?

Well, it's hard to find MONE as they got absorbed (assimilated into the borg?) by Dassault. UGS became part of the automation division at Siemens, and Agile has gotten scooped up in Larry Ellison's shopping basket over at Oracle. Arena keeps chugging along in it's eighth year as a start-up -- perhaps with Oracle abandoning the mid-market with the elimination of their Advantage Line (quietly done at Oracle World this fall), the mid-market will open up at last.

So who’s the PLM leader today? PTC? Arena? Oracle? Dassault? Microsoft? Yep, without question Microsoft still leads the race. What, you’re unfamiliar with their PLM suite? Look there on your desktop, with the familiar little X, yes Excel still “wins” the PLM race. By my estimate they probably have greater than 90% share of the BOM’s under management among engineering and manufacturing teams out their today. Still using excel for project planning your NPI? Sharing your BOM with your manufacturing outsourcing partner? You’re in great company, so is just about everyone else.

So, what does the future hold? My view, the majority of the market will eventually get to the fully networked BOM – how remains to be seen. It needs to offer distributed teams a way to get together, it needs to manage the simple processes in elegant ways, and it needs to be approachable by mere mortals – there aren’t enough PLM genius’ to make it happen, just great engineers trying to get products to market.

So yes, I think PLM has a future. And a pretty good one at that. What it will be, stay tuned and we shall see …