Big Software: Finally Dead

By Deborah Gage  |  Posted 10-08-2009

Big Software: Finally Dead

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."

Cautions

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 naïve 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."

Long-Term Opportunities

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."

Opening Up to SaaS

Opening Up

As the second global CIO in the history of Dana Holding Corp., which is more than 100 years old, Doug Tracy has a big job ahead of him.

The auto parts supplier has struggled in the economic downturn, so a priority is cutting costs. But Tracy, who joined Dana in April, also has to build for the future, and he thinks demand in the auto industry has finally bottomed out.

"The challenges make it someplace where you can have an impact," he says. "Also, when I look at what we have, it's in-house for IT. We've not mortgaged the home to a big outsourcing vendor, so that gives me the flexibility to shape the organization. I saw that as a great opportunity as well."

After years of acquiring companies with the idea of diversifying its holdings, Dana is now trying to centralize and standardize, and that includes IT.

Tracy has been holding "very pointed discussions" with technology vendors, he said, telling them that in order to get or keep Dana's business, they need to look past what they'll get from Dana next quarter.

"It's like walking into the emergency room and lying on the floor complaining of chest pains," he says. "There are people who will treat you, and then there are people who want to see if you have your insurance card before they decide to do anything."

He is also trying to find lower cost alternatives to the big vendors--companies and technologies that may not be included in Gartner's famous "magic quadrant." One such technology is software as a service (SaaS), which is appealing, he says, because you pay as you go without requiring a big purchase of hardware and software.

But Tracy is also wary of SaaS because there might be problems integrating SaaS projects into the rest of Dana's systems. "[Some SaaS vendors] will continue to do their own patching and upgrading, and they're not set up to do custom interfaces to your system," he says. "You have to be cognizant. There might be data you want out of that system that doesn't come through that interface."

So he will treat SaaS as good for filling a "point need"--something that's not critical to the company's operations.

Another technology he's been considering is open source. Nearly all companies use it in some way, he says--like running clusters of Linux and keeping Web environments on Apache servers--but he's been disappointed so far at the dearth of vendors making open-source infrastructure tools, nor is he impressed with what he's heard about open-source office products.

Tracy would buy open-source infrastructure tools--something that does infrastructure monitoring, for instance, or capacity management--because they'd save him money. But if the tools didn't work, Dana's customers would still be protected. "If they fall over, we keep the mess in-house," he says.

Open-source office, on the other hand, would have to work very well before he'd consider using it. He's heard from a colleague at another company that its open-source office project wasn't going very well. "If you're CIO, and you're answering the phone on why a spreadsheet doesn't work, that takes the conversation to a whole different level than you'd like to have," he says. "When it touches a lot of people, my risk tolerance is pretty low."

Ultimately, Tracy figures he can't let the bad economy dictate his strategy. In certain areas, Dana is hiring and expanding, and those areas will also be a focus for IT.

Shedding the Desktop

Shedding the Desktop

If you'd said even a year ago at Sunoco that you were dropping the expensive corporate e-mail system for a free Web-based service like Gmail, everyone would have been aghast, says Sunoco CIO Peter Whatnell.

But times have changed. The tough economic climate is causing many corporate managers to re-examine their capacity for risk--to ask what it would take to get them to agree to fewer assurances about how a service would operate in exchange for saving money.

At oil giant Sunoco, Web-based services would save several hundreds of thousands of dollars per year. "Previously it was a case of 'This is what I want--how much will it cost?'" Whatnell says. "Now it's, 'How much can I save and what are the consequences?'"

Whatnell is also president of the Society for Information Management, and he finds his fellow members thinking along these same lines. A service like Gmail is still not considered mainstream, he says, but it's growing in popularity: "It's a question of when, not if."

So Whatnell's staff is evaluating several Web-based e-mail services--Gmail, Microsoft Live, Yahoo! Mail--partly because many employees already use them at home and understand how they work, which would save on training costs. Most people use only a small number of features in software anyway, he says.

The IT staff's time is one consideration--Web-based e-mail services are so generic, they don't require much customization and would be easy to set up.

Another consideration is the sensitivity of the information these services would convey. Unlike individuals, corporations have to guard their intellectual property, comply with industry regulations and be prepared to make information available if they're subpoenaed in a lawsuit.

"Where is my data? Who's got it? How do I know it's properly protected?" Whatnell says. "Depending on the industry you're in and the sorts of data you're talking about, you might have a certain standard of what you can bear."

Whatnell's team has other money-saving plans. It is moving 60 of the company's smaller sites off the private telecommunications network and connecting them to Sunoco through the Internet over a virtual private network.

The staff has also considered adopting a Web-based office suite--Google Apps, Microsoft's upcoming Web-based version of Office or some other service. However, they are less serious about that than they are about the e-mail because office suite technology is not very mature. "It would have to be a substantive cost difference," Whatnell says.

Still, one of his ultimate goals for Sunoco is a virtualized desktop, which would eliminate desktop operating systems and applications and all the support and licensing and operating costs that go with them.

If an employee has a problem and called the help desk, "You don't send a technician who charges 72 bucks an hour," he says. "You send a guy from the mailroom with a new PC."

Virtualization on the desktop is also an immature technology, even though the promise of alternative desktops has been around for years. (Sun Microsystems with its JavaStation and Oracle with its Network Computer both tried to tackle the problem in the 1990s.)

For now, Whatnell's staff is evaluating how many applications are written in a way that they could perform well on a virtualized desktop. Even if it turns out that the company could drop only 80 percent of its conventional desktop applications and maintain the rest, he says, the trade-off might be worthwhile.

Old Insurance, New Technology

Old Insurance, New Technology

Last April, Nationwide--a company started in 1925 to provide auto insurance to Ohio farmers--became the first insurance company ever to launch an application for the iPhone. Its advantage didn't last long, however--State Farm launched a similar iPhone app less than two months later.

"Nobody was even talking about [an iPhone app] a couple of years ago, but now you can't live without it," says Srini Koushik, Nationwide's CTO. "Every insurance company has got to have something on the iPhone."

Nationwide's app, called Nationwide Mobile, allows its customers to start a claim immediately after an accident, while they're still at the scene. They can take and store pictures and other details, find an insurance agent, and call a tow truck or emergency services. If light is needed, Nationwide Mobile turns the iPhone into a flashlight. Several of the app's features are also available to people who are not Nationwide customers.

Koushik said he didn't expect the app to be as popular as it's been: In the first six weeks, with no marketing from Nationwide, it was downloaded around 30,000 times. It's had about 45,000 more since.

But mobile software can also place heavy demands on a company's IT staff, especially if they're not used to managing it. How widely an application will be used once it becomes public is hard to predict, and the infrastructure required to support mobile software is different from what's needed to support, say, a mainframe database that nobody outside the company will see.

iPhone apps are also trendy--they can spread or be dumped in favor of the next hot app, all within a matter of days. Nationwide wanted to move fast with Nationwide Mobile--once the marketing department had spotted the opportunity, the app was posted in Apple's iTunes store within 60 days.

That would have made a tight schedule for the IT staff, though, and Nationwide managers didn't want to guess too much about how the market for mobile applications will develop. So the insurer partnered to develop the iPhone app with a company that Koushik declines to name. The partnership allowed Nationwide's staff to focus on integrating insurance claims that are filed over iPhones into Nationwide's core IT systems, he said, and also on understanding the iPhone's software development kit.

The staff won't go much farther, though, until winners in the market emerge.

"Will Apple stay with AT&T? Will they be limited in how far they can reach?" he asks. "BlackBerry is there, and we're also seeing Windows Mobile coming in. I wanted to wait to see how many devices there are going to be."

A former Distinguished Engineer at IBM, Koushik has spent years trying to push new Web-based technologies. One of the top challenges companies will face, he believes, is training IT staffs for this new world.

That's because devices like the iPhone not only change how software is sold, delivered and used--they also change the nature of IT jobs. IT workers are no longer master craftsmen who build every service a company offers--they are people who tend to assemble services built by others, and they need to understand how the business side of the company works.

And while the Internet has made technology easier to use, it's also made more work for IT because it adds new layers of complexity--distributed networks with multiple servers, databases and so on. "We're treading water, all of us, but we're not winning," Koushik says.

Still, Nationwide is planning more mobile applications. The company is looking at other markets where mobile software could be useful while continuing to add more features to Nationwide Mobile.