I’m still reeling from the meltdown in the banking sector, and there are certain to be implications for other sectors although the full effect has yet to be determined. One thing is for sure: the CIO will be told by the CFO – or perhaps the COO, who most CIOs report to – to reduce costs wherever possible.
That mandate will certainly mean that CIOs will take a careful look at outsourcing and offshoring – and they will have to be very careful about what they outsource and offshore. Outsourcing does not make problems go away and a creaking infrastructure will not be helped by outsourcing it. With offshoring you have to be careful about key applications and certainly web applications. If you’re looking at a £20m-£50m revenue stream from a website it’s OK to outsource, but if it’s £200m-£300m you need to build your own team and keep your intellectual property close to your chest.
Offshoring only works if you put in the controls and the structures to make it work. India is fantastic and my company has staff there as well as in eastern Europe, but if you ask the programmers there to build something and your plan is wrong then they will do a brilliant job of fulfilling your plans but it will still be wrong. People say ‘Hey, I can get developers in India for £100 a day’ but if you save 30 to 40 per cent net you will have done a very good job. If it’s a complex application and you don’t take all the steps necessary to manage the project and mitigate risk, you can very easily end up with egg on your face.
The problems caused by the state of the economy will be exacerbated by the fact that in the UK there are a lot of companies warming up for large infrastructure upgrades. The cost of running Lotus Notes is killing a lot of companies. Companies like Virgin Atlantic are still going ahead with Notes-to-Exchange migrations because it’s seen as worthwhile. Also, there are still a lot of doubts over Windows Vista. Corporates are still very wary because of the desktop footprint, retraining and so on and I can’t see large Vista deployments coming in this climate.
On the other hand, I still think virtualisation will be very big because it allows you to spin up new systems very quickly and provide other kinds of flexibility that also enable better utilisation, consolidation and therefore cost savings. Also, projects in unified communications, once it is better understood by the business, will press ahead. IP communications generally will be a huge investment too because where a few years ago everybody thought about voice-over-IP as a separate investment, now IP is the protocol and the transport for everything.
There’s still an appetite for investment in the web channel. There’s a fear about print advertising but media and retail companies want to invest online, in self-service and so on to streamline costs. Despite the economy, there are still some big bets – witness the way MySpace Music has shaken up the digital content arena.
There will still be companies that have investment funding from when the going was good and that will be spent, but generally it’s going to be a difficult time. Some people think videoconferencing, and in particular immersive telepresence rooms, will take off as firms seek to cut travel budgets and replace face-to-face meetings with something similar but remote. I’m not too sure about that. People have said videoconferencing would take off in past downturns but it hasn’t happened. Also, telepresence is expensive and I’m not sure it’s as good as some supporters make out.
I think a lot of companies will take a close look at cheaper alternatives to infrastructure components. This could be a challenging time for firms like Microsoft, and Google could do well with products like Docs or Apps that offer to do something similar to Office and Exchange but at lower cost.
It could also be a good time for makers of open-source software and JBoss is very often becoming the application server or middleware component of choice among many companies. I don’t think this is Red Hat doing anything spectacularly well with it but many enterprises have just come around to accepting that open-source can do a job in that space. It has just been a question of time and people getting used to accepting something new and that maybe they don’t need an expensive, classic enterprise choice like an IBM WebSphere or a BEA WebLogic.
Finally, it might be a good time for some of the lower-cost, often Asian, hardware firms who can come in and squeeze premium-priced brands in the same way that Dell did in the early 1990s. As ever, some of the options that emerge could be very powerful. But do not doubt that this is a very significant time of change and a very difficult one too.
About the author
Mike Altendorf is founder and joint MD of Conchango, a consultancy that recently agreed a £42m sale to EMC