Those of you who have had the pleasure of encountering a photo of me will have seen an unremarkable 45-year-old with perhaps a little too much middle and not enough hair. What you would not have seen is that under the unimpressive exterior is a 23-year-old desperate to get out. But as of late, even the 23-year-old is having to acknowledge that something uncanny is going on. It’s all those little things, like when I read an email on my iPhone and then look up, there is suddenly a noticeable delay in focusing. Indeed my inner self may be forced to grow up perhaps to a 29-year-old.
At the moment it looks like a very similar set of observations about the industry are colluding to imply that we are at a change point. Some of these may seem obvious, such as the move to the cloud, the data switching from structured to unstructured, virtualisation, and what is a true mobile revolution. However, there seems to be a set of more subtle yet significant changes to the rules: software companies are suddenly buying hardware (Oracle/Sun); there seems to be a growing fear of dependencies (SAP buying Sybase); the move to crazy acquisition premia as companies pay well over the normal rates, and the HP/Dell bidding war around 3PAR.
Other unwritten rules are suddenly being torn up. Was the Apple/Adobe spat really about technical issues or was it instead about one player deciding the unwritten ‘play nicely children’ rule of the industry could be forgotten? Was it a move to consolidate victory out from one sector to another?
Perhaps all of these subtle changes show the rule book is up for grabs, but why is this redefinition of the rules happening now? The first 40 years of the industry have really been about the database app. You may recall Nicholas Carr’s paper from a few years ago, Does IT Matter? in which he argued that IT was now a commodity unable to confer competitive advantages to its customers.
The report’s major flaw was probably to mix the definition of the IT industry with the database app and forget all the new bits that were coming along. So while the IT industry is probably safe for now, the point about the power of the database was valid. The picture here is a bit like those nature programmes. A sudden drought in the Kalahari Desert and before you know it, all the biggest crocodiles are all in the last shrinking pool, and are starting to get just a little snappy with each other.
Imagine you are the CEO of a large software company that was built on the database. In between selecting the design for your new mega-yacht Setting Moon VII and deciding which trendy dark polo-neck sweater you will wear under your jacket today, you have to keep those shareholders happy. As for the database, in the golden years people who did not have enough of them were rushing to buy more and more. Growth was good. But now there are a lot of them so they generate a lot of cash, but where is the growth? The one thing investors want is growth. So what do you do? Well, use the cashflow to buy lots of apps and then break the old rules and buy hardware.
Or perhaps you were a board member of a large ERP vendor. For many years you had the customers by the throat, and they had no choice – pull out the ERP system and the customer’s company would fall over. Nice work if you can get it. However, you are now presented with that growth problem again. Being in such a strong position you have got a bit flabby and not really kept up with things. That was all fine, customers had no choice, but where’s the growth coming from and are you getting a bit out of date?
What you do is, well, swap out the CEO a few times to keep the investors happy, try to force higher maintenance rates on your captive customers and, if that fails, break your age-old rule and start using your cashflow to buy things: a bit of Business Intelligence might do nicely. Then suddenly the ‘play nicely children’ rule looks a little iffy as the other crocodiles get snappy and you realise you cannot rely on the other crocodiles’ technology and you’d better buy a replacement.
When the crocodiles get agitated and snappy, be careful not to be a bystander. It’s easy for the CIO to become collateral damage in such an environment. Products become incompatible, other vendor standards are ignored, maintenance is hiked and choice is reduced. Something to bear in mind.
It is a fool’s game to predict the demise of the biggest and baddest crocodiles or, as many of their past lunches have found out, to assume they are getting tired and slow. However it does just look like they may be a little more stressed than usual and may have to put some effort into moving into new pools. It’s a long shot, but is it just possible that some of them don’t move fast enough and end up as handbags? After all, it’s happened before.
Mike Lynch is the founder and CEO of UK software company Autonomy