Ever since the mid-1990s, when the Internet became indispensable, someone has been predicting the death of big enterprise software, with its high costs and daunting complexity. It certainly has come to pass that some of the biggest software vendors are now under pressure, which they attribute to the worldwide recession. Microsoft, SAP, Oracle, IBM and several others have all struggled this year. Yet others--including Google and Salesforce.com, whose products are licensed and run over the Web--seem to have weathered the recession pretty well.
What's going on? Is this downturn in the fortunes of the big-software companies a blip or a revolution? Are the buying habits of their customers--the notoriously conservative corporate CIOs--finally, and permanently, starting to change?
Many experts think that's exactly what's happening. "It feels like the PC revolution all over again," says John Sviolka, vice chairman of Diamond Technology and Management Consultants and a former professor at Harvard Business School. "Innovation was happening in the consumer space, and IT folks were on the receiving end. The same thing is happening now with smartphones and Web applications."
Driven by the need to cut costs, some CIOs say they are no longer able to tolerate $50 million ERP projects that might take years to install, let alone deliver a payback. "This is a challenging time for those of us in the auto industry," says Doug Tracy, the CIO of Dana Holding Corp. "If [vendors] can't work with us, we'll go with somebody more flexible."
CIOs, including Tracy, are looking at technologies they might not have considered a year ago: open-source software, software as a service (SaaS), social networking and even cloud computing.
Oil giant Sunoco is looking at dumping its corporate e-mail system for free, Web-based e-mail. Nationwide Mutual Insurance has set up internal corporate microblogs for its employees through Yammer, and is working on outsourcing parts of its operation, including human resources, through various other Web-based applications. "The recession helped accelerate some of the things we had in place, but the industry in general is moving this way anyway," says Nationwide CTO Srini Koushik.
However, all of the executives who talked to CIO Insight said they are proceeding with caution. They cited unresolved issues with Web applications, ranging from data security and integration to legal issues. The fact is, regardless of how untried a technology may be, users expect it to work. "The bar has been raised all over computing," Tracy says. "For a global company, it doesn't go down."
No technology is more hyped than cloud computing, which has inspired conferences, vendor coalitions and an endless series of press releases. Many vendors claim to have offerings in this area, though most CIOs believe the technology is still several years from maturity.
"I'm a keen believer that cloud computing will be a big player. But I'm not so naÃ¯ve that I'm going to switch everything I have to it right now," says Peter Whatnell, CIO of Sunoco. "I think it's worth exploring." Whatnell says his team is looking at using Amazon's cloud service to build test and development environments to get a better understanding of how clouds work.
Koushik at Nationwide has gone farther with cloud computing, although he calls it a "buzzword" at this point. Nationwide has provisioned storage space on its network for insurance agencies that need to store images. Nationwide uses virtualization for the provisioning and a Web-based application similar to Mozy to allow access to the network, Koushik said. Agencies are billed based on how much capacity they use.
CIOs are more likely to try software as a service, which is better understood and simpler to use and requires no upfront investment in hardware or software.
The most popular applications this year are sales-force automation, human capital management, customer service and support, collaboration, blogs and wikis, and marketing automation, according to a survey of North American and European IT executives by Forrester Research.
SaaS applications can be especially appealing to small or new companies that don't have established ways of doing things or tons of accumulated data, says Stephen Lipka, the principal of consultancy Avatar Strategic Partners. One of his clients, a real estate startup, is trying to figure out how to integrate QuickBooks accounting software with off-the-shelf real estate management applications.
But Lipka warns that SaaS, like cloud computing, is not as simple as it appears. Look into the legalities of who owns the data, he says. What if you abandon your contract--is your data destroyed? In case you have to comply with Sarbanes-Oxley, where is your data backed up? If you choose to leave the SaaS vendor, how do you get your data out?
Some companies simply aren't ready for SaaS or cloud computing, he says, because their systems are too untidy or their business processes too complex. Another of Lipka's clients decided on a SaaS application for customer relationship management but needed extra features--and argued about which ones.
"We built it, and they didn't use 80 percent of the features they thought they would have to have," Lipka says. "Probably 60 to 70 percent of the development expense went to features they never used."
As long as CIOs can steer their companies through the recession, though, carefully chosen new technologies are one good way to build for the future, several insiders say.
It's a good time for CIOs to experiment with technologies that can help lower their energy costs or run their businesses more efficiently or help attract new customers--as Nationwide did this spring, when it launched an iPhone app (see page 22)--by studying changes in customers behavior, Diamond's Sviolka says.
He looks at the cloud as a way to test new ideas. "Markets are super-concentrated and super-fast, but the cost of entering the game is low," he said. "You need to lower the minimum cost of a trial and then sit back and figure out how to pop something out of that great, gray mass into a smaller number of things that would hit. Once you start to see something take off, the cloud supports that."