For decades, there’s been a view that a one-stop IT shop or full-service vendor was the best approach. Now it seems like nobody wants to be that any more. IBM, once the vendor with the largest strategic influence of any vendor, has seen its product line and customer base shrink. Dell and HPE seem to be getting out of the service and software business in favor of servers and platform software. What kind of IT market are we facing now, anyway? There are a number of basic truths that I think answer the “why” and “what’s coming” questions.
Truth number one is there are only 500 companies in the Fortune 500. OK, I guess you think that’s obvious, but what I’m getting at is that very large enterprises aren’t getting more numerous. The success of technology hasn’t come by making the big companies spend more, but by getting smaller companies to spend something. That’s a whole different kind of market than the one that created Big Blue (IBM, for those who don’t recognize the old reference!)
With big customers, you can count on internal technical planning and support. Your goal as a vendor is to secure account control, meaning that you have a strong ability to influence buyers’ technology planning processes. You have an account team dedicated to these giant buyers and your team spends a lot of time buying drinks and kissing babies. They can afford to because they’ll make their quota and your numbers from their single customer.
Down-market, the situation is the opposite. The buyers don’t even do technology planning, and they can’t provide internal technical support for what they buy. If you give them a hand, you’re holding them up—often spending days on a deal that might earn you a tenth of your sales quota if the deal is done. You have a dozen or more of these accounts and you have to spend time with them all, doing little tiny deals that don’t justify much support. You can’t sell down-market, you have to market to these buyers and that was something new to IBM and to other IT giants.
Which brings up truth number two: you can sell solutions, but not market them. If the small buyer doesn’t do technology planning, then they don’t know what they want unless they can somehow connect goals and needs to products. If you try to help them in this by “solution selling” you end up spending days or weeks on the account for little gain in the end—because they are small companies, they buy IT on a small scale.
Software, particularly business software, is a solution sell. Imagine trying to take out an ad in a small-business rag to promote analytics. How many calls do you think it would generate, and how long would it take to turn a “suspect” into a customer? Too long. Thus, the down-market trend in tech tends to make software a more difficult sell than hardware. Another problem is that new applications that demand new hardware pose the classic sales problem of helping the other guy win. A big project budget is usually about 70% equipment and 30% software and services, and the software company has to do the heavy lifting. That’s a tough pill to swallow.
Trying to sell both doesn’t help either. If you try to push a solution that includes both software and hardware, or even if you just have software in your portfolio, you end up doing that endless hand-holding and the software decision holds up hardware realization. Your management thinks “Hey, why not wait till these guys decide they want analytics and then sell them what it runs on?” Why not, indeed.
The solution seems to be to either sell hardware or sell software. In the first case you rely on the market for orderly compute capacity growth or on new applications that software players spawn. You assume competition rather than account control. In the software case, you focus on selling something that’s differentiable and you make hardware-only vendors into partners.
The third truth is that there is only a finite number of IT professionals and most of them are looking for vendor jobs, not end-user jobs. Nike and Reebok make sneakers, not servers or software. An IT professional has a better career path in a technical company, so it’s hard to keep great performers in end-user organizations. The very qualities that a company needs to plan for the best IT isn’t likely to stay with the company if they go there in the first place. That makes it much harder to promote complex solutions or propose significant changes.
I’ve told the story of the bank executive who interrupted a discussion I was having with the comment “Tom, you have to understand my position. I don’t want decision support. I want to be told what to do!” Every expansion in consumer IT, every new startup, every vendor hiring spree, reduces the labor pool for the very people on whom business IT depends. Those left behind want to be told what to do.
This problem could have been mitigated. There was a time when vendors spent a lot on technical material to help buyers learn and use their stuff. There is no similar level/quality of material available today, in large part because vendors who produce it would simply be educating their competition—most product areas are open and competitive. There was a time when you could read good, objective, comments on products and strategies. No more; those days were the days of subscription publications, and we’re living in an ad-sponsored world.
This brings us to where we are, which is that the trend to maximize profits in the coming quarter at the expense of the more distant future is alive and well. None of these moves by the IT giants are smart in the long run. Spending on business IT can improve only if new applications realize new benefits, and that really takes a company with some skin in the game across the board—hardware, software, and services. But taking the long view means getting punished in quarterly earnings calls in the short term at best, and at worst having some “vulture capitalist” take a stake in your company to jump off on a hostile takeover.
But what about the future. Nature, they say, abhors a vacuum and that’s true in information terms or in terms of driving change. Software innovation happens under the current myopic conditions, but not nearly as fast as it should. As the potential for a revolution builds, it tends to create revolutionaries. In some cases (NFV is a good example), we have a wave of enthusiasm that outruns any chance of realization and we fall short. In others we have enough functional mass to actually do what people get excited about.
For business IT this is hopeful but not decisive. You can’t easily create business revolution as a startup, and decades of tripping over our own feet because we’re afraid of looking forward hasn’t created an environment where even enthusiasm will be enough. What I think is about to happen is a fundamental shift in power among IT firms, away from those who shed the broad opportunities by shedding critical elements, and toward those who keep some key stuff. All of our IT kingpins could still be in that latter category, but by cutting a lot of things out they make it critically important to exploit what they retain. Will they? That’s what we’ll have to watch for.
Where, though, could we see a real opportunity to exploit something, given the stripping down that’s happening? The answer, I think, lies in architecture, a fundamental relationship between hardware and applications that’s set by a software platform. Nobody who sells hardware can avoid selling platform software, and there are already big platform-software players with little (Oracle) or no (Microsoft, Red Hat) position in hardware. Microsoft just announced a deal with GE Digital to host its Predix IoT platform on Azure. The PR around the deal has been week on all sides, but it’s a sign that architecture plays are already emerging to link critical new applications (and IoT is an application not a network) with…you guessed it…platforms.
IoT, or mobility, or contextual productivity support, or even NFV, could be approached architecturally, and the result could lead to a new wave of dominance. Almost certainly one of these drivers will succeed, and almost certainly it will anoint some player, perhaps a new one. When that happens it will likely end our cost-management doldrums and announcements of slimming down. I lived through three waves of IT growth and I’m looking forward to number four.