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Software companies had better get with the program, or get hurt.
The coming of the utility computing infrastructure is shaping up in much the same way that the coming of the Ice Age developed for the dinosaurs: While the effect was gradual, the long-term result was a disaster.
To apply a different analogy, try imagining everyone driving "shared" cars or riding mass transit instead of buying their own personal transportation. The future for companies such as General Motors Corp., Ford Motor Co., Toyota Motor Co., and DaimlerChrysler Corp. would be pretty bleak. Software, computer hardware and networking-systems companies have got to be worried about what this new paradigm is likely to do to their sales over the long haul. "When you change to pay-as-you-go, you don't have the ability to soak the buyer annually, the way software companies have traditionally done," says Saugatuck's West. Even so, he adds, "Large vendors are starting to position themselves for this because they see a very different business model around the corner." In other words, nobody wants to be delivering coal in a world where homes are heated with natural gas that comes through a pipe.
Among the leaders in the nascent utility-computing market are IBM, Hewlett-Packard, Sun Microsystems Inc. and hosted-applications provider Salesforce.com Inc., which West terms "a pure utility play." Salesforce.com has more than 9,500 customers, most of them small or midsize, that tie into its Web-based system to manage their customers and prospects. But applications hosting, though it's an important piece of the utility-computing pie, has its shortcomings. One downside is a lack of customization and, often, limited integration with other business systems. For one thing, hosted-software firms usually don't offer much in the way of customization to its customers.
IBM's Stouffer thinks that will change. "I don't believe utility computing limits customization," he says. "It's the other way around: You need decent flexibility to upgrade to the latest stuff. The vendor should provide customization as required. The nature of competition is going to drive IT providers to provide flexibility greater than the common denominator."
Clever IT organizations can begin preparing for this shift, AMR's Travis suggests, by moving now to concentrate their efforts on harnessing IT to support and improve critical business processes that enable the company to excel in its market. "IT organizations should be thinking of how they can transform themselves from suppliers of information to strategic thinkers on how to use that information for competitive advantage," he says. "All companies have business information," he adds. "It's what you do with that information that gives you a competitive advantage."
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Doug Bartholomew is a longtime business and technology journalist.