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IDC Predictions 2010 Webcast Q&A

Posted by Frank Gens on December 9th, 2009

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On Thursday’s IDC Predictions 2010 webcast, our line to the On24 service dropped just a few questions into the Q&A session. We captured all the questions, and – as promised – we are posting answers to them here on IDC eXchange.  Many thanks to my IDC colleagues who contributed to these Q&A responses.

Q. Do you expect any growing of PC demand because of cloud computing?

A. [from Frank Gens]…  ”There’s no question that as  more services move into the cloud, and new services emerge in the cloud, the demand for devices that provide access to them will grow dramatically.  We’ve already seen this: the popularization of the Internet, from the mid-90s, has been a big factor expanding PC demand.  The obvious point in this year’s IDC predictions is that non-PC mobile devices will increasingly compete with PCs for those access device dollars.”

[Bob O'Donnell adds another angle, referencing the emergence of "clients in the cloud"]… “We believe moving to virtualized clients in the cloud could open some new growth opportunities for client computing devices overall because of the flexibility of being able to access your from multiple devices. Some of this will come via additional PC sales, but some will also come from increased smart phone sales.”

Q. How do you see WiMAX fitting in? Is this the 4G infrastructure you refer to? How do you see the growth of Wimax infrastructure build out worldwide and Wimax services?

A. [from Godfrey Chua]… “Yes, WiMAX is included in the 4G infrastructure we refer to.  It is particularly applicable to developing countries with underdeveloped broadband infrastructure. The technology will play an important role in helping to bridge the global broadband divide. In the more developed markets, WiMAX stands to compete with both LTE and landline solutions (DSL and Cable). The network execution and go to market strategies of WiMAX service providers will be the key determinants of WiMAX’s success in this type of market.  Longer term, we anticipate LTE will be a bigger market than WiMAX beginning in 2012 and onwards.  No doubt, the positioning of WiMAX vs. LTE will be discussed once again in IDC’s upcoming LTE telebriefing, scheduled for the 3rd week of January.”

Q. What is the opportunity for vendors who offer a hybrid approach (mix of Cloud [including SaaS] and On-Premise) in 2010 than vendors who only offer SaaS or On-Premise options?

A. [from Robert Mahowald]…  ”‘Hybrid’ applies equally to vendors being able to offer application delivery via SaaS or CD, and also being able to support customer implementations in multiple locations with both on-premises, hosted (dedicated) and public cloud (including SaaS) services.  Most larger vendors have either announced a hybrid solution or are working on one.  Buyers increasingly want the option of SaaS delivery either for quick new access to code, fast implementation (”time to value”), or to buy new modules or functionality at their own pace.  Recently we’ve found several cases where customers are using leverage to force key vendors to adopt a hybrid strategy.  For example, last year Epicor found that its ERP customers were unhappy with maintenance, and like many larger ERP vendors, they saw the threat of customer defection to viable SaaS ERP solutions.  So a few months ago Epicor rolled out a new product which is sold and supported either as traditional packaged or delivered as SaaS.   So the opportunity for vendors that have done the hard work and changed their application operations and their business operations to build and sell hybrid, and have a fully-baked hybrid strategy is that they can offer customers choice, retain customers, monetize via new operational models, and potentially displace other, slower vendors in their markets.”

Q. Which vendors do you see become the big “private cloud providers” in 2010 and beyond?

A. [from Frank Gens]…  ”‘Private clouds’ are a natural next step in the evolution of data centers over the last ten years, toward consolidated, virtualized and automated IT service delivery environments.  So I would expect the big IT “platform” suppliers who have been part of that evolution – including IBM, HP and Microsoft – to be major players in private clouds.  But they won’t be alone.  Their systems/service management software competitors – like VMware, CA, BMC, Symantec and Novell  – also have their sites on the private cloud market.  We also expect every major enterprise application supplier – including Oracle and SAP – to offer private cloud versions of their solutions (including as “appliances”).  Also look for Dell, which is coming from a heritage of systems/hardware, to expand into full-fledged private cloud offerings (including appliances), in partnership with key software/solution vendors.  And the newest systems player, Cisco – in partnership with EMC, and without a legacy of traditional systems to protect – is targeting private clouds as a prime opportunity.  It will be interesting to see how long its takes public cloud leaders, like Google and Salesforce.com, to make strong bids in the private cloud market; as we noted in IDC’s predictions for 2010, we suspect not very long.”

SAP is in a tough position because it is overly dependent on its on-premise ERP application software for large enterprises.  This is shown in the drop in license revenue this year of 35% — SAP has maintained its margins through growth in maintenance revenue and cost controls.  Major competitors such as Oracle and Microsoft are far more diversified.
From an innovation perspective, SAP is banking heavily on the use of in-memory technology for accelerated data access — which has value for some types of BI applications (improving dramatically on the slow performance of building cubes in traditional OLAP), but is not positioned in and of itself to solve SAP’s revenue shortfall.   SAP also showed innovative interfaces to its back end business suite via mobile devices at its analyst summit this week.   There are also multiple initiatives to build in analytics within business processes (process extensions) that represent innovation.  SAP is also likely to continue a path of smaller acquisitions of complementary technology, such as for compliance, sustainability, teleco billing, and other areas.  The point is that SAP intends to address the revenue shortfall via a variety of initiatives of SAP products and hybrid SAP-partner products (see, for example, offerings with OpenText that interface content, e.g. scanned invoices, with SAP back end financials and many other such hybrid initiatives).
Bottom line: SAP needs to sell more to its large enterprise base (products in adjacent areas) while increasing its sales to small and medium enterprises.   It also needs a major offering in the on demand space with BusinessByDesign still not on the market for general (and volume) availability.  A positive note here is that the product is now multi-tenanted and, according to SAP, will be ready for volume delivery next year.   It’s critical that SAP is able to execute here with a volume selling program — as it has done for its BI products, especially the Crystal family.
SAP’s ability to diversify its revenue mix via successful execution of these innovation initiatives (a critical factor for revenue improvement) impacts whether a merger enters the realm of possibility within the next 1-3 years.

Q. What is the level of interest in cloud outside of the US? who will adopt next?

A. [from Frank Gens]…  ”We’re in the midst of developing our regional forecast for public IT cloud services, so we don’t have a definitive quantitative answer.  But, for guidance, I’d recommend you look at IDC’s SaaS forecasts, since SaaS offerings make up a large majority of the public cloud market.  The simple answer is that cloud today is very U.S-centric, with the U.S. making up about 70% of worldwide SaaS spending.  In developing markets, cloud should eventually be a very, very popular model, for obvious reasons (cost, skills, etc.) – but the gating factor is availability of affordable, dependable broadband.  On the private cloud side, we expect adoption to be more evenly distributed – much closer to traditional IT spending distribution.”

Q.  Is SAP a “lost leader” from an innovation perspective? Will it look for a merger in 2010 beyond to avoid extinction?

A. [from Henry Morris]…  ”SAP is in a tough position because it is overly dependent on its on-premise ERP application software for large enterprises.  This is shown in the drop in license revenue this year of 35% — SAP has maintained its margins through growth in maintenance revenue and cost controls.  Major competitors such as Oracle and Microsoft are far more diversified.

“From an innovation perspective, SAP is banking heavily on the use of in-memory technology for accelerated data access — which has value for some types of BI applications (improving dramatically on the slow performance of building cubes in traditional OLAP), but is not positioned in and of itself to solve SAP’s revenue shortfall.   SAP also showed innovative interfaces to its back end business suite via mobile devices at its analyst summit this week.   There are also multiple initiatives to build in analytics within business processes (process extensions) that represent innovation.  SAP is also likely to continue a path of smaller acquisitions of complementary technology, such as for compliance, sustainability, teleco billing, and other areas.  The point is that SAP intends to address the revenue shortfall via a variety of initiatives of SAP products and hybrid SAP-partner products (see, for example, offerings with OpenText that interface content, e.g. scanned invoices, with SAP back end financials and many other such hybrid initiatives).

“Bottom line: SAP needs to sell more to its large enterprise base (products in adjacent areas) while increasing its sales to small and medium enterprises.   It also needs a major offering in the on demand space with BusinessByDesign still not on the market for general (and volume) availability.  A positive note here is that the product is now multi-tenanted and, according to SAP, will be ready for volume delivery next year.   It’s critical that SAP is able to execute here with a volume selling program — as it has done for its BI products, especially the Crystal family.

“SAP’s ability to diversify its revenue mix via successful execution of these innovation initiatives (a critical factor for revenue improvement) impacts whether a merger enters the realm of possibility within the next 1-3 years.”

Q. What’s the exact meaning of “new distribution model”?

A. [from Frank Gens]…  ”I mentioned “new distribution model” twice in Predictions this year.  The first was in reference to Cloud Services APIs, which allow other cloud solutions developers and providers to leverage your cloud services within their offerings (under agreed-upon contractual terms, of course) – in effect, becoming an OEM/partner channel for your cloud offerings.  The second distribution model reference was to wireless telecom providers striking more and more wholesale deals with mobile device and/or online/cloud services providers, like Amazon’s private-labeling of Sprint, and now AT&T, wireless services, as Amazon WhisperNet.  The Cloud API and mobile virtual network operator (MVNO) models are very similar, in that they open up new distribution opportunities for providers; but both also represent a cultural challenge to many providers, who are uncomfortable with their brand being subordinated (or even rendered invisible) by their partners’ brands.  We spoke about the emerging strategic opportunity – and challenge – of embedding of IT offerings (and brands) within well-known consumer and business services brands four years ago in IDC Prediction 2006.”

Q. What do you mean by “design point” particularly in the SMB market?

A. [from Frank Gens]…  ”I was referring to fact that, increasingly, we are seeing enterprise IT vendors create offerings designed, from the beginning, with the ability to scale down and out (in performance, pricing, distribution, etc.) to reach small and medium-sized enterprises, in order to bring those high-growth segments within their addressable market.  Further, many are doing so with the requirements of emerging markets in mind, given the spending growth multiple in those markets.  Some – including me – would argue that for many offerings, it’s becoming more important to scale out further: to compete in the consumer market.  Indeed, it is consumer-oriented cloud players like Google who are creating the greatest competitive stress in the IT market today.  And, obviously, this requirement has already manifested in the PC and mobile devices markets.  This need to conceive an offering with one of the first questions addressed being: “Can this offering reach consumers and SMBs – even in emerging markets?” is in sharp contrast to the IT market of twenty years ago, which was dominated, and driven, by large enterprise spending and requirements.”

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4 Responses to “IDC Predictions 2010 Webcast Q&A”

[...] Home IDC eXchange Home « IDC’s New IT Cloud Services Forecast: 2009-2013 IDC Predictions 2010 Webcast Q&A [...]

[...] 30, 2009 It is that time of year again – when analysts and writers of all stripes put their bets on coming trends for the new year. There’s some [...]

[...] IDC Webcast by Frank Gens, Robert Mahowald and Henry Morris. It has a link to the video which is worth watching, but the theme begins here with the discussion of the Cloud.  I’m glad they consider the Hybrid model. [...]

[...] IDC eXchange [...]

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