Can there be too much innovation? This week as I wrote a column on innovation for sandhill.com and as I read this Phil Wainewright post about CIO skepticism about SaaS, I had that sinking feeling that we may have too much technology innovation chasing too few available dollars and too few attention cycles.
Web 2.0, Office 2.0, SaaS, SOA, Open Source, Third Party Maintenance, systems management innovations - just in the software space so many new products and vendors are screaming from CIO attention. Then there are mobility, sensor, VoIP, blades, utility computing, global delivery, BPO, project based outsourcing innovations...
All these children - how do we pamper them all? And when we do not give them attention, will they not pout and complain about how the parents just don't get it or are playing favorites? Is this the tech version of the remake of "Cheaper by the Dozen" with food fights and sibling rivalries?
The reality is with total IT budgets only growing 2 to 3% budgets and compliance budgets expanding rapidly in the last couple of years, funding for innovation has to come from squeezing utility spend (KTLO - keep the lights on)on incumbent outsourcing, software maintenance, hardware leases, telecom contracts etc.
So younger companies - do not just look at your peers as competition. Your biggest competition is the established vendors and their baked in budgets. IBM, HP, Verizon, ATT, Microsoft, EDS, Accenture, Oracle - just those 8 vendors soak up over $ 400 billion in annual technology spend And other younger players from other categories are your competitors too - both for the dollars, and in this day and age, attention....
Food foght time. Not in fun - but to feed the ever growing table.
Phil Wainewright reports on Tim Chou's presentation at SaaScon. Tim led Oracle's application hosting division — originally called
Business OnLine, now Oracle OnDemand. He also authored The End of Software, and now lectures at Stanford University on SaaS.
Some of Tim's comments:
"On the vendor side, out of every dollar a
customer pays, about 15c typically goes towards research and
development. But how much of that is writing new software?Probably only 3c goes on new development. The rest of it is testing, back-porting releases, bug fixes, etc.
at the rest of that dollar, 25c goes on support. 40c is spent on sales
and marketing. And most of that money is spent, says Chou, because
vendors are "fundamentally disconnected from their customers." The
challenge for vendors is to "collapse the supply and support chain."
"Customers are now asking, "What's the best method of compensating my
sales people?" Not "What is the best platform to run your software on?"
or "Should I go .Net or Java?"
""Development communities and networks that allow people to build new
software are just on the horizon. I like to say to people today,
software is free."There are 15 million programmers in the world, and
their numbers are growing, especially in Asia,"
Mention China, and usually a political debate starts. But a debate amongst business people?
BusinessWeek (sub required) writes about the growing rift in the National Association of Manufacturers. A variety of small and mid-size manfacturers want the government to pressure China on the under-valued yuan. Larger companies like Caterpillar, GE which benefit from low China manufacturing costs disagree.
As interest rates rise, the cost of supposed "free banking" grows higher - usually because they pay close to zero interest on balances. But what's with all the incremental fees?
I recently moved most of my kids balances from Bank of America to another bank so they could earn more than a few pennies each month. I asked the BofA bank associate what was the minimum I needed to keep in each account to not get hit for a monthly fee. She told me $ 250. So that's what I left.
Sure enough, I get hit for a $ 5 charge the very first month. I email customer service. I get a response - did not meet minimum balance of $ 300. I protest that the associate told me it was $ 250, but that I had transferred another $ 50 and to ensure they did not hit me for another monthly fee. I get another email, saying the minimum is $ 500, unless I can provide my daughter's birth date. In less than 60 days - 3 associates have given me three different answers.
Over the course of the last few months I have noticed a pattern of interesting other fees show up. ATM fees for withdrawals overseas (and not great currency conversions), wire transfer fees inbound and outbound at $ 25 a pop, overdraft finance fees even when the balance is never negative .
When I think of checking, savings, brokerage, mortgage accounts and combinations of balances, maximum number of transactions etc. and the "if it is Tuesday and you are wearing green socks" exceptions, the pricing is out of control. I cannot begin to imagine how much time their customer service people spend arguing about fees.
And somewhere along the way BofA has forgotten they are already making more with rising interest rates on our balances. Their pricing could use angioplasty.
David Berlind makes the point and Nicholas Carr jumps in. But blanket statements like that are dangerous. The range of SMBs varies so widely. And their application and infrastructure portfolios are as wide as their industries and geographies.
My recommendation - only consider selective outsourcing Certain segments of
the market like mail hosting are mature and at competitive pricing. Others like managed security or hosted enterprise applications still do not.
Andrew, a Carr reader makes s similar point
"As the CTO of an SMB, I've spent months working with various "IT
Utility" companies. The goal is to research the viability of
outsourcing all non-essential IT functions. The reality is that these
companies, even after negotiated discounts, are still 50% more
expensive than the current situation. I think what the EMC CTO really
means is, "our disk sales are stagnating, so we need to come up with a
new annuity stream". I've worked with some pretty scrappy companies
only to be shocked by the monthly bill. It adds up to more than the
costs of the functions to be outsourced. Please, IT Utility is a pipe
dream for the next 5 years. It's a wet dream for VARs."
"EDS has over 100,000 employees. The average Fortune 500
CIO has 500 IT employees (and the average SMB has even less. Infosys has delivered over 18,000 projects
using its GDM.
The average CIO has done fewer than 10. ... Yet vendors cannot price their
products or deliver performance on a utility scale model? How much more scale do they need?"
By all means outsource, but only if buy versus build makes sense.
Dennis McDonald takes my 10 justifier framework I had written a decade ago at Gartner and makes it contemporary. I feel like Rip Van Winkle - so much has changed, and yet so much remains the same when it comes to the elusive IT payback.