Innovation Still MattersBy Eric Nee | Posted 01-05-2005
There is a line of thinking in the technology business that goes something like this: The enterprise software industry is rapidly maturing; all of the major business tasks have either been automated or outsourced; the need for innovation is diminishing; and all that is left to do is for the big guys to gobble up the remaining players.
The most vocal proponent of this view is Oracle CEO Larry Ellison. For the last year or two, he has been telling everyone that the game is all but over, and that Oracle is one of the winners. That is the rationale behind Oracle's acquisition of PeopleSoft. After all, if the goal is consolidation, not innovation, then the best approach is to buy a direct competitor that offers pretty much the same products as your own. Then consolidate the product lines, lay off employees, cut operating and development costs and make more money.
Buying PeopleSoft may provide financial benefits to Oracle shareholders. But consolidation of old-line ERP vendors does little or nothing to help CIOs solve many of the emerging problems they face as their organizations continue to evolve. CIOs still need helpthe kind of help that only new technology can offer.
There are currently hundreds of start-ups trying to tackle new areas of pain. Here are three that CIOs should take note of: diCarta, a maker of contract management software that helps businesses develop effective outsourcing relationships; AmberPoint, a provider of Web services management software that allows organizations to integrate and manage disparate Web-based applications; and Good Technology, a provider of wireless messaging and data access software that helps CIOs manage wireless devices.
It is impossible to predict whether any of these start-ups will survive. After all, the technology industry landscape is littered with the remains of once promising start-ups. But each of these companies has many of the essential ingredients for successthe backing of top venture capitalists, a strong board of directors, an experienced team of executives, and a rapidly growing list of major corporate customers. But perhaps most important, these are companies that have seen a need in the marketplacea growing business problemand have developed innovative software that aims to address that need.
Not so long ago, many large companies were vertically integrated, and managing business contracts was not an essential part of the business. "Today business is built on a network of partnerships and relationships, and contracts are at the center of it all," says Gartner Research Vice President and Fellow Andy Kyte. "Businesses cannot enter the next decade with contracts sitting in file cabinets and cardboard boxes." Contract management software helps companies automate many aspects of writing up, monitoring and enforcing contracts. "Price review dates and service renewal updates can come and go without anyone realizing it," says Kyte. "Simple automation can return enormous benefits."
Sales for the San Carlos, Calif-based diCarta were slow at first, but today the company has more than 40 customers, "three quarters of which have jumped on board in the last 18 months," says diCarta CEO Mike Kaul. These include NBC, Kraft Foods and Kohler, the conglomerate best known for kitchen faucets.
DiCarta is one of a number of start-ups offering this kind of software. Others include Determine Software, in San Francisco, and Contract Management Solutions, in Winter Park, Fla. "The large ERP companies have been slow to react to this market," says Kyte. "This creates a phenomenal opportunity for start-ups, and diCarta is definitely one of the leaders."
Another market that was ignored by large software companies until recently is Web services management. Every major organization now offers an array of Web services, from online product sales and tech support, to employee self- service HR applications and online procurement. Web services have become an integral part of doing business, but managing them all centrally has become a difficult task. Web management software helps CIOs regain some control, by applying uniform business rules across various Web services, monitoring their performance, and providing security, among other things.
Motorola, for example, uses Oakland, Calif.-based AmberPoint's Web services management software to help manage the more than 100 Web services that Motorola offers across multiple lines of business and in numerous countries. AmberPoint has about 50 customers, including Samsung, Best Buy and British Telecommunications. Because Web services are developed using a variety of software development tools, and on varied software platforms, AmberPoint has developed software that works with the major operating environments, including BEA, Sun, IBM and Microsoft. IBM resells AmberPoint software, and Microsoft distributes it with Visual Studio .NET.
The Web services management software market is becoming hotly competitive. "The start-ups pioneered the market, but the big guys are coming in," said Randy Heffner, an analyst with Forrester Research. Already, two Web services management software start-ups have been bought, one by Hewlett-Packard and the other by Computer Associates. There are also acquisitions going on among the start-ups themselves. In October, Web services management company Actional acquired Westbridge Technology, a purveyor of XML security software.
Finding ways to effectively monitor and control Web services isn't the only software management problem CIOs face. They are also confronted with the challenge of managing the growing use of mobile wireless devices. Airport lounges, hotel lobbies and even office meeting rooms are filled with people thumbing away on their BlackBerrys and Treos. Sending and receiving e-mail over these devices is pretty straightforward, but more and more companies want to provide their employees with secure wireless access to corporate data and applications, and that's where the management challenge really begins.
Good Technology, a Santa Clara, Calif.-based firm, is addressing that challenge by providing software that helps CIOs manage wireless messaging and applications. Good's software connects handheld devices to corporate servers, allowing users to interact with applications running on Microsoft Exchange Server, for example. Good supports a variety of mobile operating systems, including those from Symbian, Microsoft and PalmSource, and it recently signed deals with Nokia, to offer Good software on the company's smart phones, and with palmOne, to offer Good software on the Treo.
Good introduced its first software products in 2002, and now has more than 3,500 customers, among them Liz Claiborne, Visa, Dell and Starbucks. The company has raised $141 million to help it compete with RIM and others.
Incidentally, one of the hottest enterprise software start-ups around is MySQL, the open-source database management software company that received its first round of venture funding in 2001. The company gives rudimentary versions of MySQL's database away for free, while charging money for support and for commercial versions of the product.
MySQL's database is enjoying a surprisingly high adoption rate, and while one might be hard pressed to find an example of a business swapping out Oracle for MySQL, there are plenty of examples of organizations developing new applications on MySQL, including Cox Communications, Google and the State of Rhode Island. Ironically, it's a start-up going right after Ellison's core business. If he's not careful, Ellison might find out the hard way that innovation is still alive and well in Silicon Valley.
Eric Nee, a longtime observer of Silicon Valley, has served in a variety of editorial positions at Forbes, Fortune and Upside magazines. His next column will appear in March.