IT Investment Research

No Investment Opportunity in Cloud Computing

As described in two recent year-end blog posts, personal computing is not dead, and neither is enterprise software. In fact, these two markets are where information technology (IT) investment opportunity remains for the foreseeable future, especially for companies such as Google (GOOG) and Microsoft (MSFT) with the underlying technology and overriding market power to address both markets simultaneously. No question, this involves investing in a mature market where you have to think in terms of long-term returns rather than of the sorts of tide-raises-all-boats returns experienced in the 1990s.

To a lesser extent the continuing strength in personal computing and enterprise software is also good news for IBM and Oracle (ORCL). That's because the two are primary players in two separate markets related to personal computing and enterprise software, and not just because they are secondary leaders in PC and enterprise software. IBM is strong because it provides related business and IT services to those using all kinds of enterprise software, not because it is second in the enterprise software market itself (that's purely a statistical quirk of its legacy systems business). And Oracle is strong because it provides underlying technologies to services companies that do not want to be beholden to Google and Microsoft technologies (IBM also provides such technologies as a tertiary line of business).

I wish I could tell you where HP (HPQ) fits in this reordering of the IT market structure but I don't think it knows itself.  Hopefully HP will figure that out before people stop using paper.

What this all adds up to is that the much touted cloud computing concept is not an investment opportunity.  That's true for two reasons:

• Cloud computing is a technology, not a market.  And so far, and perhaps forever, the technology is applied more privately than publicly according to Gartner.
• All of the players named above offer the technology, and IBM and Microsoft in particular are technological leaders in it.

-- Dennis Byron

(No financial interest in companies mentioned)

Warning: Odd Web Sites Probably Have a Virus

Do not open links to web sites with the headline

"Unix/Linux Enterprise Software Ecosystem to Grow As Fast as Windows."

I don't know what the scam is but this blog post of mine--which seems to be being picked up by very fishy web sites in the last month--is a year old. The reference to April 8 is to April 8, 2009.

-- Dennis Byron

OMG! WEF/INSEAD Say US OK In IT/ITC

When a press release about some newly available information-technology (IT) or enterprise-software research includes a statement like the following, I usually run for the hills.

"The report is produced by the World Economic Forum in cooperation with INSEAD... within the framework of the World Economic Forum’s Global Competitiveness Network and the Industry Partnership Programme for Information Technology and Telecommunications Industries."

The only thing missing are all kinds of acronyms in parentheses. But it could have been worse. According to Wikipedia, INSEAD stands for Institut Européen d'Administration des Affaires. Plug that into the above boilerplate and read it three times fast.

But the WEF/INSEAD report about IT and enterprise software intrigued me because it ranked the U.S. fairly high compared to over 100 nations in using IT and enterprise software as

"an enabler of a more economically, environmentally and socially sustainable world."

Here in the U.S. we don't use computers for such touchy/feely stuff and conversely, most of these UN-like reports, comparing whatever to whatever by some indeterminate metrics, usually claim the U.S. is somewhere right ahead of or right behind Uganda in its measurements.  I am thinking of those reports that say that U.S. health care and/or U.S. health care insurance suck, even while Arab sheiks check into Mass General by the 747 full and the Premier of Newfoundland, up in that health-heaven Canada, scurrys down to Miami for heart surgery so he doesn't have to "jump the line" in his home country.

Unfortunately I can't find a methodology section in the WEF/INSEAD report but it appears a bunch of people in all those groups mentioned in the first paragraph above asked a bunch of questions of a bunch of business executives. Forgetting the WEF/INSEAD index (because you can make indices say anything you want; believe me, I'm an acknowledged past master at it), the contributory data is revealing.  I don't know how different factors were weighted by WEF/INSEAD but it looks like the U.S. was marked down because

• It's relatively hard to get venture capital (try Finland, which is just up there past Newfoundland)  
• The latest technologies are not as available in the U.S. as they are in Iceland (I'm beginning to see a trend here) 
• U.S. governments are quite hard to deal with (I am assuming that's governments plural)
• U.S. taxes are high (in this category, the U.S. is behind Uganda)
• The U.S. doesn't have enough telephone lines (try Barbados)
• Competition is intense (as compared to those cold places that scored higher than the U.S.)

On the other hand, it only takes 6 days to start a business in the U.S. vs. almost 2 years in Suriname. And the U.S. is second only to Iceland (what is it with these cold places?) in terms of secure Internet servers per 1,000,000 people. 

I bet if they had counted unsecured Internet servers the U.S. would win hands down.

-- Dennis Byron

Breakthrough Low-Power PAP Computer Debuts

The answer is the Cambridge, MA-based ecoinfotech effort announced today, "Puissance aux Personnes (PAP)*"

The question is

"How can the world overcome the crucial enviromental issue brought to light by Greenpeace recently concerning power consumption by software as a service (SaaS) providers?"

Actually the problem relates to anyone that offers cloud/on-demand/subscription-based type services, for personal computing, mobile computing, entertainment computing, and so forth. (Thank you to Sadagopan for the heads up.) For some reason. Greenpeace, according to Sadagopan, indicts companies such as Google (GOOG) and Microsoft (MSFT). Given the pulicity about cloud computing and SaaS, I would have thought that 3Tera, Amazon (AMZN), Rackspace (RAX), and salesforce.com (CRM) would be doing more harm to the environment but I guess not.

Anyways I digress. "Puissance aux Personnes" solves the problem.  According to its press release:

"The "Puissance aux Personnes" PAP X-O is a small device with a big ambition. It combines an exercycle and a personal-computer/handheld tablet/telephone. It will eliminate the need for large power plants across the world and reduce obesity. 

"The PAP X-O is designed and built especially for adults and teenagers in industrialized countries, spending most of their time in some of the most harmful environments on earth (office buildings and family rooms). 

"The PAP X-O has a built-in twisted-pair cable, which recoils into the device when not in use (which the designers believe will be the typcial use case). The cable allows the PAP X-O user to talk orally to other PAP X-O users--as well as the few other humans on earth still somewhere near a landline. The device can only reach telephone exchanges established before 1990.

"The PAP X-O runs the users' choice of Windows or Linux applcations provided they have been ported to CP/M.

"The exercycle is extremely durable, energy-efficient, and fun.

"The "Puissance aux Personnes Foundation" was funded by money provided by the American Recovery and Reinvestment Act (ARRA) of 2009, initially intended to be used for increased broadband adoption. Vice-president Joe Biden, ARRA czar, allowed the diverted use, saying "Hey, this is a big f****g deal."

[*Puissance aux Personnes, although based in Massachusetts, has named itself in French because open does not mean free in English, and people who speak English don't understand the difference.]

-- Dennis Byron

Twitter, Facebook, McAfee Called on Congressional Carpet for NOT Joining Hands

A wide ranging and confusing Congressional hearing on March 2 tackled the subject of "Global Internet Freedom." It was a tour de force of information technology (IT) and enterprise software buzzwords du jour. Cloud, ecosystem, open, hosting provider and many more not well defined terms--the most important of which is "Internet company"--were thrown around with various meanings.

What is an "Internet company?" Whatever it is, apparently some legislators want to regulate them.

Among diverse subjects such as pornography in China, an Italian court's February 2010 conviction of Google (GOOG) executives and seemingly conflating hacking and censorship, the most disturbing idea from the hearing seems to be U.S. Senator Richard Durbin's feeling that the U.S. Congress should pass a law forcing Facebook, Twitter, Skype and others to join an industry trade group called the Global Network Initiative (GNI). Microsoft (MSFT), Google and Yahoo (YHOO) are members. The other companies mentioned above don't seem to want to devote their shareholders' resources to this somewhat duplicative group despite Mr. Durbin's position. 

In fact, based on testimony from a GNI founder, Senator Durbin has sent a "threatening" (my opinion) letter to the non-joiners. McAfee (MFE) was skewered by Durbin  for not showing up at the hearing after initially saying it would testify.  The GNI founder feels you as an investor should not invest in companies such as McAfee because they don't belong to GNI. 

Another senator, former comedy writer Al Franken, who based his pre-hearing research on a Mad magazine serial known as Spy vs. Spy, also criticized Microsoft and Yahoo for not doing enough (of what is unclear) even though they belong to the GNI. Franken specifically called out Microsoft founder Bill Gates about Gates' opinion of Chinese censorship.

Another highlight of the hearing was that I learned that Youtube was banned in Turkey, which means I guess that they don't know about the overweight woman in Barnstable who keeps popping up on my screen because she lost 45 pounds by eating cherries.

I have written in the past that software has no nationality.  Either does the Internet (depending on how you think about the facts that it was invented under contract to the U.S Department of Defense, made more open up by a scientist at the Swiss research facility CERN, and made more intuitive by work at NSCA at Urbana).

(NOTE: An Iranian dissident on the panel said a couple of times that Yahoo was not a member of GNI but according to the GNI web site Yahoo is a member.)

-- Dennis Byron

How Free and Open is U.S. Federal Government Data?

Aneesh Chopra, the Obama administration’s Chief Technology Officer, and its CIO Vivek Kundra unveiled on February 9 what the pair call Version 1.0 of the “Open Government Dashboard". This announcement is a follow-on to the December 9, 2009 “Open Government Directive,” which—if I followed the manifesto trail and timeline correctly—is being worked on by a committee called the “Open Government Working Group” formed on January 22, 2010 and which is trying to adhere to the “Memorandum on Transparency and Open Government,” issued a year earlier when President Obama was inaugurated. 

This is not a red/yellow/green-light dashboard as I understand the term (that is, it is not an applet that I could put on my desktop and that constantly updates itself as the U.S. executive-branch bureaucracy becomes more open or more closed).  Instead it is a website where I can go to see how the administration is doing against its open-government goals. 

What does the dashboard/website say? Amazingly, the federal executive-branch bureaucracy is doing incredibly well in being open. Implicit in all the year-long hoopla was the idea that the federal bureacracy was not open in the past. But in fact openness has been the law for a half century.  What this is really all about is getting existing law reflected on the web.

In fact, based on the dashboard, I would almost say the administration has nowhere to go but down. It’s one brokered backroom deal away from losing ground. At this point, none of the more than two dozen groups being monitored is failing to meet expectations. Except for the Nuclear Regulatory Commission, the Office of Personnel Management, the Council on Environmental Quality, and the Office of the Trade Representative, all “lights” are green. The major “flashing yellow” for the watch-list four is that they do not yet provide at least three high-value data sets.  (I’m not sure I want the Nuclear Regulatory Committee to meet that standard anyways.)

Aside: Just to be clear to readers from outside the U.S, we have three branches of government in the U.S. federal government and the only group that the executive branch of the U.S. federal government can control is its  third. In addition we have over 50 independent states, territories and Commonwealths and from scores to hundreds of separate jurisdictions within each. All of the states and territories also have three branches as do many of the local jurisdictions. So everywhere it says “government” in anything you read about "open government" from the Obama administration, substitute “executive branch of the U.S. federal government” 

This sidelight is especially important because here in the Commonwelath of Massachusetts we also have three branches of government, yet when one small group within one part of one branch of that government allegedly illegally tried to impose Sun's ODF on its users a few years ago, the IT blogosphere incorrectly reported that "Massachusetts chose ODF."

-- Dennis Byron

An Enterprise Software Tsunami: Oracle/Citrix, Lawson in Healthcare, Open Source Education, and More

The lot of the information technology (IT) opiner is sometimes overwhelming.  Catching up on news that has varying effects on IT investment research as the first week of January 2010 ends I read that:

• Lawson (LAWS) is putting Quovadx out of its misery. But will Lawson simply catch Quovadx's ailments? I need to get a hold of Terry Blake at Lawson to find out if the emphasis on Quovadx Healthvision in the Lawson press release means it is not picking up (in alphabetical order) the former CareScience/Confer/Healthcare.com/ HCI/HIE/Hublink/Integrated Media/MPower/Noblenet/Outlaw/Pixel/Riley Dike Dosher/Rouge Wave/Xcare.net. Or maybe all those pieces became Healthvision? It's all a little too Oracle (ORCL)-ish for me and Lawson is not Oracle in terms of being able to handle that melange. (But Lawson CEO Harry Debes is experienced at it; he came to Lawson from Geac by way of J.D. Edwards.)

• Speaking of Oracle, it acquired Silver Creek and more importantly is rumored to be after Citrix (CTRX). If you follow this blog you know I don't think highly of government anti-competition bureaucracies but now I think I've found a deal they should object to.

• CDC wants to buy Chordiant (CHRD). I thought maybe that meant CDC wanted to get into customer relationship management (CRM) to complement its past acquisitions of Ross, Catalyst and other ERP/supply chain management (SCM) players. But old friend and CRM guru Mary Wardley of IDC says "Where have you been?" Turns out CDC has slowly been building up its CRM bonafides for some time. I guess this means that the second-tier non-SaaS CRM players will start to get bought up by the Infors of the world.

The Mellon Foundation is pulling grant money from the open source education software world. That news led me to a short discussion yesterday with Patrick Burns, "CIO" of Colorado State University (CSU), which has recently retired a decades-old mainframe-based FRS installation in favor of the open source Kuali educational-financial-management software developed with Mellon grant money. Kuali was developed under an interesting concept that a group of universities calls "community source" instead of open source. CSU is also using Banner for student admin and Oracle HR, a real mix of the old and new. More to come on this bullet because I think there is a strong relation to the next one.

Michael Krigsman continues his rant about trillions of dollars being wasted in IT. I figure best case (I guess I should say "worst case") that IT departments are only "wasting" a half a trillion or so, "only" 16% of spend and a much smaller percentage of total IT expense. Interviewing more than 1000 "CIOs" and writing up about 500 of the interviews in case studies and the like in the last 20 years tells me there is no problem here. I doubt if such "waste," and it's never really all wasted, is any different than in any other human activity. In addition, Michael seems to think it all relates to the possible demise or preferable demise of the enterprise software market as we all know it. So it makes for a good discussion for us IT market opiners.

Apparently not all IT market analysts can handle the flood of events.

Speaking of Quovadx and FRS and CDC and the gobbling up of second-tier enterprise software name brands, congratulations to Bruce Richardson of AMR, one of the few IT analysts who can say he has been doing this stuff longer than I have. Apparently overwhelmed by the tsunami of enterprise software news this week, Bruce has gone back to work in the mines, as Chief Strategy Officer of Infor. Infor is the poster child for enterprise software brands lost in the mists of time and that only Richardson and I could recall.

Infor includes the hall of fame of last century ERP and SCM, including the former Agilisys/D&B/Geac/JBA/Marcam/Mapics/Nxtrend/SSA and more than two dozen other enterprise software nameplates. I have suggested Oracle sell the J.D. Edwards line to Infor so that all the former AS/400 guys could get some comfort level under one roof.

My guess is that Richardson just could not stand to see the word Gartner on his business card after 30 years of competing against it.

 -- Dennis Byron

In Enterprise Software, How Do You Stack up Against the Guy Down the Street?

McKinsey is out this week with a periodic survey of its McKinsey Quarterly readers called the Enterprise Software Customer Survey 2008.

Surveys are always interesting to users as a way to see how you stack up against your peers. They are always interesting to your IT suppliers because it helps determine what they concentrate on. So always be careful how you answer surveys; you might not get what you really need.

In 2008, you or your peers said the most important enterprise-software technology trends “impacting your business” were

1. software as a service (SaaS)
2. Web services/service oriented architecture (SOA)
3. offshoring/globalization
4. open source
5. software industry consolidation
6. “other”

(ranked in that order)

The changes from the last time that question was asked in 2006 were at the bottom of that list. Significantly fewer (assuming a normal +/-5 percent significance factor) of you are concerned about consolidation and significantly more are concerned about “other” issues. The rankings and percentages of the top four trends were unchanged in two years.

Two-thirds of all enterprise software budget dollars are still spent via traditional license/support contracts but SaaS is nearing 20 percent of the total. That total varies from 11 percent to 26 percent by size of company, as you would expect.

Give the report a quick read. It’s always fun to see how you stack up. And if these trends aren’t important to you, make sure your enterprise software suppliers know it.

-- Dennis Byron

Open source blogosphere needs to get the Linux/OSS numbers straight

The open source blogosphere is all a twitter April 17 about the Standish Group International statistics released on April 16, which I mentioned here. 

I'm sure these bloggers are good PHP programmers and know the Apache HTTP server inside out. But they are totally misreading the numbers and conflating them with the Linux-Foundation-sponsored IDC white paper released previously. Not surprisingly some enterprising journalists are reporting on the blogospherists' opinions rather than going back to the source and checking with Standish. Apparently stroking the open source software (OSS) community "sells more papers" than getting the facts straight.

For some reason that I cannot fathom the journalists also seem to think that Microsoft (MSFT) might have sponsored the Standish research.  This, of course moves the journalists from just hip shooters into the blogospherist category of Microbasher (which I define as someone that attacks the person who wrote the blog rather than the words in it, says the person is paid off by Microsoft, picks some absurd opinion such as "Microsoft software is expensive" and states it as if it came down from Sinai, and then parrots some IBM (IBM)/Sun (JAVA)/Google (GOOG)/Red Hat (RHAT) propaganda against Microsoft).

Let's cut through the blogobull.  Here are how the numbers line up:

In 2007, I estimate that there was about $2.5 billion of software and software-related (mainly subscription maintenance) revenue "sold" with OSS terms and conditions. My estimate is based on a June 2007 IDC press release concerning OSS revenue in 2006. This includes all OSS, not just Linux, and is probably mostly middleware-related OSS subscriptions.

On April 8, 2008, the Linux Foundation released a white paper it sponsored with IDC that says the size of the Linux-related software market in 2007 was $10 billion out of a total of $242 billion (4%). By comparison, Windows-related software totalled 53% of the market in 2007 according to IDC. The Linux-related software market includes some of the estimated $2.5 billion of OSS software mentioned above, if it runs on Linux, but it is mostly non-OSS software running on Linux (e.g., the Oracle database or SAP R/3). This does not include any Solaris-related OSS revenue (but that revenue is included in the $2.5 billion; anyone want a Venn diagram?).

The Linux-Foundation-sponsored IDC whitepaper also estimated what IDC called "the Linux ecosystem," which includes software (including non-OSS software), hardware and professional services. This $21 billion is part of an overall total over a trillion according to other publicly released IDC data. (Standish uses the same overall IT market estimate but I do not know what source Standish used.) This number does not relate to the rows about and below it in the chart.

Based on reading the Standish press release (I did not talk to Jim Johnson about this), Standish feels the 2007 software market would have been larger if not for IT departments using OSS without subscribing to maintenance (and possibly other software-related services).

The factoid that is gaining all the attention: Standish estimates that by some point in the future, the delta between reality and what might have been will be $60 billion.  I don't see that happening to that degree (that would be 20% of the market in 2012) but some such fall off is very likely (and Standish has a good track record of seeing such trends). 

Yesterday I attended a webinar at which Casey Coleman, CIO of the U.S. GSA, spoke.  She mentioned that a particular OSS knowledge management package she used was so stable (and her department's use of it was so stable) that the GSA has stopped subscribing to maintenance. This is not money taken away from Microsoft (and if it were, why would Microsoft sponsor Standish's report?)

Drip by drip, that's where the $60 billion would come from.

Ok?  There'll be a test at noon.

New open source statistics might raise a warning for IBM, Sun and others

Last week we heard from IDC that the Linux-based software market (including both the open source and proprietary products within it) would more than double over the next few years. That was good news for those IT suppliers that have crossed over from a dependence on legacy and Unix-based solutions. That company list includes IBM (IBM), Sun (JAVA) and others.

This week, we see an indication of the flip side of the ongoing transition from Unix/legacy software ecosystems to open-source-based ecosystems. The Standish Group says:

"... while it is only 6% of estimated trillion dollars IT budgeted annually, it (open source) represents a real loss of $60 billion in annual revenues to software companies."

The software companies so affected are all on that same list.

As I indicated on ebizQ in January, I have not seen signs from the supply side of that kind of fall off in software-related services revenues. But the Standish Group has been doing its sort of user-based research for almost 25 years so I don't discount it. In fact, as I said back in January:

"In IT market research, it is important to understand if true free-as-in-air OSS is displacing traditional subscription maintenance or SaaS revenue streams, and thereby decreasing overall software market size. From current ebizQ research, there is no indication that such displacement is happening but the market will never get a truly accurate picture unless a census includes all software, not just software licensed under one set of terms and conditions or another. "

It's just coincidence that on April 16, OpenLogic formally kicked off the census project it had announced in October 2007. It promises to make the aggregate census data publicly available so sometime sooner rather than later we can begin to see if what the Standish Group is seeing plays out in the market. I'd rather have a total census but the OpenLogic effort is a good start.

-- Dennis Byron