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Top Ten IT Predictions for 2007

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Frank Gens is used to peering into a crystal ball. As a senior vice president at research firm IDC, Gens taps into a font of data from vendors, enterprises, and IDC’s legion of analysts. As seen on his blog, Gens takes this information and turns it into portrait of what’s to come – as much as that’s possible in the ever-changing world of IT.

Gens spoke with Datamation about IDC’s top ten IT predictions for 2007, adding his own take on developments still in the making.

1) Worldwide IT Spending: Turbulence Remains Under a “Boring” Surface

IDC forecasts a slight bump in global IT spending in ’07, moving to 6.6% from last year’s 6.3%. But this steady-as-she-goes overall growth pattern masks churning growth rates in emerging markets, the so-called BRIC countries (Brazil, Russia, India and China) and beyond.

For example, Gens forecasts a breathless 24% growth in India, and a robust 14% growth in Africa.

“Another area of turbulence is small and medium business, relative to the large enterprise,” he says, “with SMB having about 2% faster growth than the overall IT market growth.”

This fast SMB growth creates an opportunity for vendors. “The IT industry has really under-penetrated the small and medium business because of the very costly channel structure,” Gens says. Many vendors, aware of this, are using to the Internet to go direct to these smaller buyers, a development that accelerates the software as a service (SaaS) model.

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Certainly this isn’t a new concept – and Netsuite are pioneers – “but we’ll see in 2007 a much larger step forward from the big software vendors.”

2) Regional IT Outlook: Mature Markets Recover a Little, Emerging Brake a Little

Today’s IT market is truly global. The companies that will survive into the future will benefit from selling to buyers not just domestically but worldwide. The leading vendors will ride buying cycles in both mature and emerging markets, tapping budgets worldwide.

Clearly, the big boys – like IBM and SAP – are already doing this. “But I think the big question is, ‘How does a $10 million [market cap] software vendor, or a $100 million [market cap] services vendor really capture the opportunity in these emerging, hyper-growth markets?,” Gens says. “Because if they can’t answer that question, they’re stuck in the low growth end of the cycle.”

3) Growth of Contenders Aiming to “Out-BRIC” BRIC

As noted, the emerging markets are growing at a galloping pace. There are a number of good-sized IT vendors in, for example, China, notably Lenovo and Huaweh, that are reaching out for a bigger piece of the global pie.

The most positive effect of these emerging markets (for vendors) is that they have become not just places to outsource labor to, but they are now buyers. “These are almost green field markets,” Gens says. “Granted, they’re small. [But] if you think about Pakistan, and Thailand, and Vietnam, and Indonesia, and the Philippines, collectively there’s a lot of growth there.” In Latin America, he points to Argentina as a high growth market.

“Basically it’s an expanding pool of new customers and new budgets.”

4) “SMB Long Tail” Will Drive New Models, Attract New Disrupters

In 2007, large IT vendors, attempting to penetrate the still-growing SMB market, will start rolling out “scaled down” versions of their enterprise products to cater to smaller buyers.

But these mega-cap IT vendors will need to shift more than the size of the products; to reach SMBs they’ll need to transform their corporate culture.

“The business model for those [big] companies traditionally is a relatively small number of very big deals,” Gens says. “And to now change your approach, and your operations, and your strategies, is quite a culture shift and a business shift. We’ll see how they do.”

“History has shown that it’s much easier for the small guys to scale up than for the large guys to scale down.”

5) The Battle for “Information Platform” Leadership Will Shift Into High Gear

Companies, Gens notes, consistently identify “rapid access to relevant information” among the top two business requirements for IT. To meet this demand, vendors like IBM, Oracle, SAP, Microsoft and SAP continue to put together information retrieval platforms – most notably SOA. But access to information still isn’t where it needs to be.

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The movement toward SOA echoes the way that many other new technologies have swept through the industry, Gens says. Typically, this process happens in two waves. The first wave is about the IT industry itself, as it transforms its packaged offerings to adopt the new architecture.

“And that’s kind of where we’ve been with SOA,” he says. “All of the major software vendors are just really coming through the process now of turning their own package applications into Service Oriented Architecture.”

The second wave takes place when SOA is embedded inside package offerings, “and customers may or may not know they’re SOA.” He points, for instance, to SAP’s new generation ERP packages, which are built on a SOA architecture. This enables applications to be installed faster, upgraded faster, integrate quicker, all at a lower cost.

“Where we are with SOA is: now the IT industry is starting to deliver solutions that are ‘SOA inside.’”

6) Major Apps Vendors Will Radically Up-Shift Their SaaS, SMB Initiatives

IDC predicts that in 2007, “shifting and expanding SOA application ecosystems onto SaaS delivery platforms will become a key strategy for reaching the SMB market.”

But this prediction creates a question: would the customization that’s so important to SOA be limited by a SaaS delivery model?

“With today’s model, yes,” Gens says. “But that model is changing.” He notes that the very idea of ‘customization’ can be defined any number of ways.

As more and more business applications are available online, buyers have the ability to create “mash-ups” of existing apps, mixing and matching to create a “new” program that meets their specific needs. In this scenario, “A customized application is in effect a combination of widely available, off-the-shelf services, whether it’s software application or business services or consumer services.”

Currently, we tend to view software apps as static, almost monolithic (think Microsoft Office). “Whereas in the future, the ‘application’ is going to be a combination of different services,” Gens says. The economics of this “mash-up” style of app creation will be far cheaper than the old customization model of “one customer, one version.”

On a separate note, IDC forecasts two “out on a limb” predictions. First: IBM will create an online hub to allow SMB’s to acquire, on demand, apps from IBM’s WebSphere/SOA partners. Second: will be acquired.

As online delivery of software becomes ever more important, is a juicy target. “The question is, ‘Who would buy them?’ The usual suspects – IBM, SAP, Oracle, Microsoft – I don’t rate them with a high likelihood.” Instead, Gens sees Internet players like Google or Yahoo, or other companies trying to court SMBs, as more likely buyers.

7) Virtualization 2.0 Will Reshape Infrastructure Landscape

Virtualization software, of course, decreases the number of servers that companies need to buy. IDC predicts that in 2007, more than 10% of all physical server deployments will be virtual machine hosts, supporting more than 3.6 million virtual servers – a whopping 52% increase over 2006.

This certainly doesn’t mean that server manufacturers are dying. We’ll always need hardware. Still, “There’s no question that the major hardware vendors are all working to strengthen their software and services portfolios,” Gens says. “They’re trying to go up the stack.”

One company that hasn’t done much to move up the stack is Dell, he notes, because of their partnership with Microsoft. “2007 is certainly going to be crossroads year for Dell: how do they leverage their strong hardware position for greater growth and profit opportunities?”

8) Services/Software Fusion Picks Up Speed

The expanding ambition of offshore services vendors, and the upward trajectory of SaaS, will continue to radically transform the services industry, IDC forecasts.

The growing strength of the offshore vendors is a case of “all upside disrupters,” Gens says. Meaning they are companies that have nothing to lose by tipping over the existing apple cart.

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“If you look at the IBMs, or the Accentures, their heritage is billable hours – the way you make money is you grow billable hours in the services business.”

But in SaaS, the idea is to build leverage around intellectual property by delivering it through software as much as possible. “It’s a challenge for traditional services vendors, because they think software is somebody else’s business, not theirs,” he say. But these old school vendors are starting to see value in new delivery systems, so the line between software and services is getting blurrier by the year.

9) “2-Minute Drill”: IP Hygiene, Channel Mash-Up, Pricing Shift, Nets + SOA = IT

This prediction, Gens concedes, lumps a number of trends into one (because, after all, there’s no such thing as “the top 14 predictions”).

This forecast comprises four key trends. 1) The greater importance of mining intellectual property for dollars (IP Hygiene); 2) The increased use of a number of delivery channels, like online/managed service providers, and the greater tendency of major vendors to deliver products as a service (Channel Mash-Ups); 3) A trend toward pricing based on business metrics, that is, pricing based on business results rather than a flat fee (Pricing Shifts); 4) A move by network/communications vendors like Cisco and Avaya to expand their SOA-ready offerings (Nets + SOA = IT).

“The channel mash-up is the one that gets me excited,” Gens says. “It ties very much to the future of IT being based upon these online hubs, where you’ve got online delivery of IT and business and consumer services.”

10) Consumer Market: Convergence, Competition and Creativity

This forecast includes a grab bag of consumer tech predictions, like “gaming will skyrocket” (no surprise) and that “Internet video will meet television” (again, a continuation of an already building trend).

Interestingly, the effect of the merging of TV and the Internet won’t be limited to the consumer world, Gens says.

“There’s no question that the video aspect will certainly have a big impact on the enterprise,” he says, because consumer video technology – easy creation, playback and storage – will become more commonly used in corporate cubicles across the U.S. (and the world). Multimedia in all its glory will permeate the enterprise.

“I’ve talked to storage vendors who talk about Silicon Valley start-ups who are in the YouTube-type business. They’re buying more storage than some of the largest financial institutions on the planet – and they’re six-month-old companies.”

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