From BOPS to FAANG to The Magnificent Seven

Larry Dignan of Constellation Insights summarized the state of enterprise GenAI in a recent column

“We're in the pick-and-shovel phase of the AI buildout and that means Nvidia, server makers and that's about it.” And “The recent earnings parade from enterprise software companies highlights the big hurry up and wait approach when it comes to AI.”

Almost exactly six months ago, he and I had discussed LLMs, GPUs, value of data streams in this Burning Platform episode about the economics of enterprise AI.

He also quotes Tom Siebel of C3.ai, which has a broader AI portfolio than other vendors and had a better quarter

“Silicon will get commoditized. It always gets commoditized. Infrastructure will get commoditized. It always gets commoditized. What doesn't get commoditized in the long run are the applications and that's where C3 AI plays.”

Tom is a brilliant executive who has successfully navigated previous architectural transitions (and his execs, Ed Abbo and Bruce Cleveland have presented their perspectives in our video channel) but I think this enterprise transition looks and feels very different than previous ones.

I say that as I simultaneously work on two books (yeah, call me crazy). My writing style requires a lot of research and that also helps my industry analysis. The one to be released in 2025 is SAP Nation 5.0 - about the post-Hasso Plattner SAP. It is a world of RISE and hyperscalers, of their co-pilot, Joule and their platform, BTP, of more automated migrations from ECC. Not your Dad’s SAP or enterprise sector by any means. The other one my co-author and I hope to release in 2024 is fiction – a thriller involving a Silicon Valley AI and Automation billionaire CEO who disappears. And an industry analyst, Patrick Brennan, who worked at the company and now covers it, helps the FBI with suspects and motives. It has required analysis on the verticalization of AI, robotics, drones etc, customer data breaches and many more topics.

And as a result, I am seeing 10 enterprise trends – many contradictory

“The Magnificent Seven”

When I was at Gartner in the mid-90s we coined BOPS for Baan, Oracle, Peoplesoft and SAP as the hottest technology vendors. 15 years later, Wall Street had seen consumer tech budgets and innovation skyrocket and Facebook, Apple. Amazon, Netflix and Google (FAANG) were the new darlings. Now the hottest stocks are the Magnificent Seven - Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. During the decade ending December 2023, their cumulative market capitalization increased more than tenfold.   They chase each other in the “four comma” club – those with individual valuations over $1 trillion. Close on market valuation are TSMC and Broadcom. Oracle, SAP, Salesforce, Accenture, even telcos like Verizon are far behind. It reflects Wall Street views that hyperscalers, GPUs and other silicon are massively reshaping data centers. That the hyperscaler AI use case of developer productivity is, at least in the short term, more promising than those being offered to the enterprise C suite. Each one of these players has invested massive CapEx, and has been unafraid to spread wings in new verticals and countries. In contrast, most software and services firms have played it safe with little CapEx investment and stuck to market categories like ERP and CRM which we defined at Gartner in the 90s.

We are seeing a different breed of IT infrastructure vendor

The IBMs and HPs of old – and even today – sold “speeds and feeds”.  They are addicted to high margins – from printer ink to enterprise storage. The modern infrastructure vendor is much more business model savvy. Look at NVIDIA’s DGX Cloud – an AI factory in the cloud on a pay as you go model. They will commoditize themselves before someone else does. These vendors are as comfortable with consumer as with enterprise markets – look at Microsoft, or NVIDIA in gaming or Amazon in retail. They have been willing to enter and reshape markets. Look at how hyperscalers have enabled DevOps capabilities across many emerging countries. How Meta with WhatsApp has commoditized mobile calling and texting in many countries.

Software alone cannot eat the world

Enterprise Software vendors have taken Marc Andreessen too literally. Software by itself cannot eat the world but combined with satellites, sensors, robotics it has a much better shot. As a character in the fiction asks “You think Apple would be able to make money off apps, Apple Care, Apple Card, and countless other services if it had not invested in developing the hardware for the iPhone? Or Tesla would be able to sell its full- self- driving software or its insurance without first building its electric vehicles?”

Digital, industrial services dwarf white collar, labor based services

Systems Integrators and outsourcers continue to milk IT and BPO labor arbitrage models which have only evolved slightly over decades. They still don't leverage factory concepts or automation which can learn from tens of thousands of previous projects. The much more contemporary services are coming out of capital intensive sectors. Monitoring, maintenance, refurbishing of aviation, mining, shipping, industrial equipment and other sectors. They leverage new forms of CPQ to package hardware, spare parts, services, financing and other components. They have digital twins to mimic expensive assets. They have tons of IoT data to train their machines on. Their techs have augmented reality, navigation and other technology. They are pushing new business models – outcome based, as a service. These are next-gen services markets but the IT service vendors have not invested in domain expertise or the broader range of STEM skills needed for these new services.

The globe is spinning much faster

The software industry was only starting to internationalize software at the turn of the century. Vendors would proudly talk about supporting right to left scripts and double byte characters. Today that is table stakes as over 20 billion devices, thanks to Unicode standards, can handle 150,000 characters across most languages and nearly 4,000 emojis which have become a common international language.

Now, the software focus needs to be on deep localization  –  compliance with new statutory reporting formats, e-invoicing, direct and other taxes, payment protocols, labor and compensation matters, customs, sustainability initiatives and other business to government interaction.

US vendors are particularly challenged. They prefer to focus on English speaking markets in developed countries. They are used to selling through expensive direct and partner channels. Emerging markets are growing much quicker than Western countries. But they need local business practice support, new pricing models, new channels. Time for fresh thinking.

Verticals are becoming more granular

More inspiration from Polestar, the fictitious automation company whose CEO disappears. It treats each of the nearly 900 occupations the Bureau of Labor Statistics tracks as a potential vertical. “They have solutions not just for firemen, but also for pilots, nurses, farmers, shop- floor technicians, insurance claims adjusters, wealth advisers, garbage collectors, warehouse pickers and packers – no job was too petty pedestrian or lofty. They would think about how robotic limbs, conveyor belts, machine vision, artificial intelligence, forklifts, autonomous vehicles, light, heat and sound sensors and countless other technologies could improve human performance.” Most software vendors covet larger horizontal addressable markets. And there they would rather sell platforms where customers can custom develop. The problem is horizontal markets have been saturated over the decades.

Customers are back to custom development with a vengeance

I love reading Jamie Dimon’s annual shareholder letter at JPMorgan Chase. He is one of the most tech savvy CEOs. “We’re one of the world’s biggest technology-driven companies. We spend $15 billion in technology, at unparalleled global scale and speed.” While they may spend only a fraction of what the NYC bank spends, many other companies have gone through massive digital transformations over the last decade. They are comfortable custom building systems and in that sense we are “back to the future” at the dawn of data processing when packaged software was a novelty.  Now they spend plenty on software and services but are impatient with the pace at which those vendors are verticalizing and globalizing. They are willing to custom build or explore creative collaboration with other companies with similar needs.

Customers have way more unique operational and top line data than do vendors

Partly because of their custom development and ring fencing core packages with specialist cloud solutions, customers have way better operational and top line data. They can train their machines for  high value AI use cases because they also have much more domain expertise. Many are increasingly looking to monetize these unique data streams. And this is leading to vendor envy. In the fiction book, there is a thread around “who put OUR oil under THEIR sand?”  

Many customers are content to stay with legacy systems

On the flip side, it is interesting to see how few customers have moved to Oracle Fusion, or Infor or IFS or Unit4’s cloud solutions.  SAP is one of the few vendors which is seeing traction and there because of a 2027 “wall” where the previous ECC product is at support end of life. Customers complain the migrations are too labor intensive, expensive and prone to project failures. Many are waiting for more automation in migrations. Others are moving to third party support for legacy versions at lower costs and with extended end of life scenarios.

There is a new group of influencers

It is not my former colleagues at Gartner or IDC or Forrester. It is not in today’s boutiques or bloggers. In the 80s, strategy firms like Nolan Norton and Index and the Big 8 accounting firms were influential in technology decisions. Today firms like McKinsey, BCG and Bain have become much more influential as they helped clients with ambitious digital transformations. Now they are helping clients with high value AI projects and data monetization. VC firms have led the way defining new operational metrics for startups and defining new market categories much more so than market watchers. A new genre of geopolitical advisers, vertical energy, fintech, healthcare and other advisers are maturing. Those analysts are under a lot of pressure to support woke political positions and to not piss off ruthless dictators around the globe. But many take unpopular positions.  IT market analysts, in contrast, are afraid to offend far less powerful vendor executives or bureaucrats.  

Back to the Magnificent Seven. While Wall Street loves them, they only account for a quarter of the enterprise and consumer spend on technology. There are plenty of niches – and money - for innovative solutions. But it requires getting off the beaten path and traversing the ten trends I described.

A new enterprise technology market is emerging. Its still early days but research for my two very different books is starting to show some of the shifting sands. It’s going to be a thrilling and scary ride. Like riding the SandWorm in Dune 2.

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