ITC ‘Expectations 2010’ – Cloud, Gaming And Convergence Drives The Recovery

ITC ‘Expectations 2010’ Highlights

1. The World ITC Market Will Grow Zero Percent
2. Asia Pacific Will Lead Regional ITC Growth
3. Cloud Computing Matures To Become A Profitable Delivery Mechanism
4. New Analytic Techniques Will Emerge To Handle The Upsurge In Digital Data
5. Government ITC Spending Will Come Under Greater Pressure
6. Business And Industry Expertise – Not Logistics – Define Third Party Channels
7. The Enterprise Network War Will Intensify
8. Higher Electricity Prices – Not Legislation Or CSR – Will Drive Improvements In Data Centre Efficiency
9. Gaming Applications Will Continue To Out-Perform Other Software Areas
10. The PC Market Will Grow By 1.5%, But Device Diversity And Desktop Virtualisation Continue

On Making Predictions And Expectations

This article has been written with the help of Marcel Warmerdam, Pim Bilderbeek and Carsten Schmidt – like me all ‘Henry Fellows’  and excellent ITC market analysts. The market statistics are drawn exclusively from ITCandor’s ITC Market Model.

2010 will be an exciting industry to watch, whether you’re a CIO, end-user or industry executive. There has been a lot of restructuring during the downturn and there are clears signs of recovery. Not all sectors and regions will grow at the same rate.
Declaring ‘expectations’ is fun, but can be problematic. It’s necessary to talk about things that are not obvious to everyone and yet avoid the mistake of making the forecasts too direct. To announce that one company will buy another, for instance, would either be betraying insider knowledge or a complete ‘stab in the dark’. Therefore you won’t find anything like that in this document.

1 The World ITC Market Will Grow Zero Percent In 2010

The ITC market suffered a 10% decline in 2009 – an unprecedented fall, far worse than the downturn in 1992 or 2001. The good news is that the market is already in recovery mode, with an up-tick in sales for most categories starting in Q3 2009. It will be many years before the market size approaches the massive $6.7t it reached in 2008.
The first ‘expectation’ is that the World ITC market will show zero percent growth in 2010 – with total spending for the year remaining at $6.0t. Hardware will lead the recovery, showing 4% growth; followed by IT Service (2%). Both Telecom Service (-1%) and Software (-4%) will fall slightly against 2009 levels.
All of this is much better than 2009 when we saw all categories shrinking significantly. There is still a lot of opportunity for Telecom suppliers to save users costs through ‘dematerialisation’ and travel avoidance. In addition there will undoubtedly be new investments in infrastructure once businesses see revenue growth once more. This will see spending on implementation services, hardware and infrastructure software.

2 Asia Pacific Will Lead Regional ITC Growth In 2010

It’s difficult to be precise about regional ITC market growth, given the massive fluctuation in exchange rate between major currencies over the last few years. Whichever way we look at it Asia Pacific suffered the biggest fall in spending in 2009 (-17% in local, -14% in current $US). Japan continued in recession, while manufacturing industry in China, Taiwan and other low cost countries suffered from the failure of Western consumer and business spending.
Looking out at 2010 our second ‘expectation’ is that Asia Pacific will outgrow both the Americas and EMEA. Total ITC spending will reach $1.8t in 2010. Both consumer and business markets are substantially less saturated than those in other regions and will offer better prospects for suppliers as a result. The two largest emerging markets of India and China will drive growth, especially in the automisation of many hundreds of thousands of business. Their suppliers (typically IT Service and Software in India, Hardware and Telecoms Service in China) will also continue to grow faster than those in more saturated countries. Currently Hardware accounts for 22% of ITC spending in Asia Pacific compared to just 16% in the Americas and 15% in EMEA. In 2010 we are likely to see stronger growth in both IT Service and Software, although Hardware is likely to maintain its high share in the medium term.

3 Cloud Computing Matures In 2010 To Become A Profitable Delivery Mechanism

Cloud Computing has been notoriously difficult to define. Often those people most involved with technology have been least likely to embrace the term. However for consumers the experience of social networking and other free-to-use Internet sites is making it attractive, while for business people it holds the promise of turning Cap Ex into Op Ex where internal applications can be reasonably replaced with Cloud services.
Whether we see Cloud Computing as a new delivery model, a systems architecture, a new type of Outsourcing or just a marketing mantra, our third ‘expectation’ is that it will mature enough for suppliers to get a return on investments made in new data centres during 2009. Traditional CIOs in large organisations will continue to have difficulty (and will need guidance) in mixing legacy and Cloud applications together. For this reason we expect to see the adoption of ‘… as a Service’ applications by small and medium business to dominate the first months of the new year. We also expect a whole slew of new Service Providers and wholesalers to emerge providing ‘horizontal outsourcing’ through in depth industry sector and/or business process skills. Beyond ITC I’ve heard it say that ‘outsourcing begins with the canteen and the car parking’; similarly in 2010 we can expect many companies to outsource non-core business applications such as email and printing to a growing number of ‘… as a Service’ providers.

4 New Analytic Techniques Will Emerge To Handle The Upsurge In Digital Data In 2010

Photography, Telephony, Medical Recording, Transportation Logistics, etc. – every time an analogue process is digitised it produces a mass of new data, most of which needs to be processed and stored. The fourth ‘expectation’ is that advanced analytics (currently used in Pharmaceutical, Seismic, Investment and other specialist high performance computing areas) will begin to be applied in more general business areas to provide better business intelligence in 2010. There will also be a continued improvement in networking, storage and server technology to support these developments. Handling, storing and de-duplicating new (and often unstructured) data will become an increasing challenge, especially for those organisations unprepared for the data consequences of new digitised processes.
Don’t expect the traffic to be all one way in this area, however. Increasing concerns about privacy and security will lead to more meaningful government restrictions on holding and exploiting personal information.

5 Government ITC Spending Will Come Under Greater Pressure In 2010

During the last year the government sector has taken centre stage from a vertical market spending point of view. Our fifth ‘expectation’ is that it will come under increasing pressure in 2010, growing by just 2%. In particular:

• There will be a need to cut costs to match the lower tax collected since the beginning of the downturn
• There are more political reasons to protect employment, which will reduce the number of IT transformation projects in government departments

The reasons for it to continue to show better prospects than other areas are threefold. Firstly there are a large number of re-generation projects underway, many of which include significant ITC elements; secondly Health (which remains a strong vertical market) is part of government in many countries and looks likely to become more so in the USA in the coming year; thirdly there is a mass of citizen applications to develop in order to modernise government services. Ultimately the prospects for government ITC spending will depend on what happens when ‘stimulus’ projects give way to paying off the debt incurred to protect the financial sector in the economic crisis. This will differ strongly from country to country, but is unlikely to have a major negative effect in 2010.

6 Business And Industry Expertise – Not Logistics – Define Third Party Channels In 2010

The significant reduction in profit margin – especially for Hardware products – has made life very difficult for distributors, dealers and resellers in 2009. As in other recessions there has been a shakeout of smaller players. Retailing is now taking a bigger slice of lower priced machines, while suppliers continue to try to balance the preservation of third party operations against their own direct Internet sales.In 2010 a new role is developing for smaller resellers and dealers through the development of Software as a Service and Cloud Computing. Those with detailed knowledge of how an industries practices or business processes will find it easier than ever to deliver their services via the Internet. Our sixth ‘expectation’ is that there will be a mass of ‘… as a Service’ introductions in 2010 turning many distribution channel players into Service Providers. The growth of business process and industry sector skills as ‘value added’ criteria for third party channels is not dependent on the development of Cloud Computing, although it will be accelerated by it.

7 The Enterprise Network War Will Intensify In 2010

Poor market demand, specialised technology and a dominant market leader – all of this makes the enterprise network market exciting to watch. Our 7^th ‘expectation’ is that the war between Cisco and other players will intensify in the coming year. We will see a number of acquisition and joint venture announcements during 2010 between networking companies. In addition those systems and storage vendors with networking expertise will join the hunt for acquisition targets. It is likely that those systems vendors without networking expertise will continue to partner with Cisco and others – perhaps forming strong go-to-market approaches in a way similar to Fujitsu Technology Solutions’ recently announced ‘Tight Alliance’ with NetApp. Systems companies with a strong business in supplying technology to Cloud Computing data centres will want to beef up their networking expertise, but do not yet need to acquire companies to do so.

8 Higher Electricity Prices – Not Legislation Or CSR – Will Drive Improvements In Data Centre Efficiency In 2010

The failure of the Copenhagen Climate Change Summit to agree on legally binding emission targets or funding for emerging countries threatened by Climate events means that we can expect less legislation and taxation of organisational carbon footprints in 2010. The Berlin Summit towards the end of the year will probably bring with it more national legislation and advanced organisations will continue to address the use of resources as part of CSR strategies. However for the most part it will be the cost and restrictions on the maximum amount of electricity organisations can use that will drive data centre transformation strategies in the coming year. Our eighth ‘expectation’ therefore is that it will be the cost of electricity, rather than legislation on CSR that will drive improvements in data centre efficiency in 2010.There are a number of other trends to watch in the data centre area. In particular:

• There will be a continuous focus on consolidation and transformation. CIOs have difficulty in delivering SLAs from most existing sites. They will spend the year reducing the number and simplifying the applications they provide to their customers and organisations. Look at transformation projects such as that at the credit management company Intrum Justitia.
• Many organisations will look for new sites from which to run their operations. High costs in city centre locations will make new hosted sites attractive, especially in well designed with efficiency and connectivity (NGD’s new facility in Newport, Wales for example). Look at local and central governments developing citizen portals in this area.
• Cloud Computing will mature both from an operations and Outsourcing point of view. While it is becoming a new delivery mechanism for users, it is going to raise some fascinating challenges for the CIOs and data centres that provide associated applications and services. Look at what smaller SPs such as Datacenter Online are doing as well as Google, Amazon and the big ISVs.
• There will be significant moves to bracket the co-management of facilities and ITC together. Organisations will look to focus on how computing supports the business, funding new applications from the consolidation of older – less efficient – ones.

9 Gaming Applications Will Continue To Out-Perform Other Software Areas In 2010

Consumers have taken a bigger slice of the ITC market in the last year. While they have spent less on devices, they have enhanced their experiences by buying more software and broadband connectivity. Our ninth ‘expectation’ is that gaming applications will out-perform other software areas in 2010. This software will not be restricted to PCs and gaming consoles, but will be increasingly bought for use on mobile phones, set top boxes and advanced televisions. 2010 will also be a year in which the electronic book comes of age. The advantages of electronic ink for reading – in particular its passive image – will make these devices better replacements for the print on paper.Suppliers such as Apple, Sony and Microsoft will enhance their gaming activities over the next year to meet the needs of customers in this area. The digitising of the music industry will be followed in 2010 by similar activities in the book publishing area and content services (including gaming) will out-grow other IT Services in 2010.

10 The PC Market Will Grow By 1.5% In 2010, But Device Diversity And Desktop Virtualisation Continue

PCs make up the largest single element of the ITC market. The $289b spent in this area in 2009 equates to approximately 5% of the total hardware market and yet the fall of 14% in the year made this one of the main casualties of the downturn. Units continued to grow due to the success of cheaper Netbook form factors based on Intel chips. Towards the end of the year the introduction of new processors from AMD and Intel and the launch of Microsoft’s Windows 7 re-energised the area. While it will take many years (if ever) for market spending to return to the $377b in 2008, there are positive signs for the coming year. Our tenth and last ‘expectation’ is that the PC market will see growth of 1.5% worldwide in 2010, despite the continued diversity if client types and a growing trend towards desktop virtualisation. The increasing distribution of laptop PCs as part of mobile phone contracts underlines the desire of Telecoms companies for ‘customer stickiness’. It also demonstrates the continuous convergence of IT and Communications.
Technology improvements in mobile phones (by far the largest category of client devices), gaming consoles, set top boxes and advanced televisions will limit the spending on PCs. There will be a stronger trend towards desktop virtualisation, the most advanced of which will only present the image of the application executed remotely. However desktop virtualisation will not be the enemy of the PC market, since desktop and laptop computers will still provide the best platform for office-based workers and/or applications which require a wide screen.

Some Conclusions – A Realistic Forecast For ITC Market Recovery 

There’s has been a natural reticence among suppliers and analyst firms to identify and talk about how bad this last 18 months has been and therefore it’s also hard for them to be particularly optimistic about the up-tick, recovery and eventual return to growth. On the other hand ITCandor forecasts, which started at the depth of the downturn, have been designed to be realistic of market growth. Their current optimism is based on strong financial analysis of quarterly results.It’s possible that the forecast of zero percent growth in 2010 – that the market spending will be identical to 2009 – is overly optimistic. In particular there could be natural disasters, new wars and/or diseases that could delay the recovery, or even throw the ITC market into a new spiral of decline. If and when such events occur we will all have to make new provisions and forecasts.In the meantime we’re optimistic for the year ahead – for the successful application of ITC by CIOs and end-users and associated financial improvement for smart vendors. Whatever your role in our industry, we wish you the best of luck for 2010.
We’re interested in your feedback and any requests for more detailed information about the data and ideas I’ve posted here. As always please do so by commenting on this report.

Vodafone Leads 2009 ITCandor Vendor Rankings

ITCandor 2009 Vendor Ranking Highlights

I’m pleased to announce that Vodafone was the top performing ITC vendor in view of ITCandor’s Vendor Ranking activities for 2009, based on an assessment of its financial performance, size and a number of other criteria.

• Vodafone tops the list with a score of 64.3 thanks largely to its management of large profits, strong profitability and good profit per employee
• AT&T came in joint second with a score of 63.6 – its best scores were in the massive size of its revenues, profits and headcount
• Apple was the highest ranked IT company in the top 10 – coming in equal second with a score of 63.6. It scored well on revenue/employee, absolute profitability and impressively in revenue growth
• Microsoft came in fourth position in the list, toping the rankings for absolute profit and scoring highly in profitability and profit per employee
• Google was in fifth position punching above its size in terms of employees (just 20k) and delivering strong profitability, revenue per employee and profit per employee
• HP headed up the full range suppliers with a score of 60.1 putting it in sixth position, doing well in terms of its absolute size, but less than the leaders in terms of revenue and profit growth
• As in other markets IBM came just one position below HP in 7^th with a score of 59.6. It has the largest headcount of all vendors and also does well in profits; however it didn’t score well in revenue per employee
• Telefonica came in 8^th with a score of 58.6, due largely to absolute size in terms of revenues, profits and headcount
• Oracle was in ninth position due to high profits, profitability and profit per employee. These might have been even higher if it hadn’t continued to acquire other suppliers throughout the year
• Ericsson came in 10^th position thanks again to its high profits, profitability and profits per employee

How Were The Rankings Calculated?

I now track 80 of the world’s largest ITC vendors as part of my quarterly market assessment. As it’s that time of the year when other publications are giving their ‘Top 10’’ lists, I thought I’d do the same. My rankings are done purely from research findings – I have not assessed the way in which strategies and portfolios affect the success or opportunities of the vendors I track in these figures.

The rankings are for a number of criteria (specifically Revenues, Profits, Headcount, Profitability, Revenue Growth, Profit Growth, Revenue/Employee and Profit/Employee). In every case I’ve made the assumption that big is best (even in the case of employee numbers). I gave equal weight to each of the criteria, adding them up and dividing by 8 (for the number of categories). The maximum score is 80 and lowest achievable 1.

The averages for all ITC vendors against the various criteria are as follows:

• Revenue: $23,742m
• Net Profit: $1,260m
• Headcount: 76,089
• Profitability: 5.3%
• Revenue Growth: -10.5%
• Profit Growth: -24.0%
• Revenue/Employee: $3,120k
• Profit/Employee: $166k

In all cases I’ve included annual figures up to the end of September 2009 and all values wer recaculated to current $US.

Do you want to know where your own company or supplier came in the ranking? Contact me and I’ll let you know.

Martin On Datacenterdynamics

I’ve been asked to contribute to Focus Magazine, which is part of Datacentredynamics. I’ll be writing about the application of ITC in data centres. I’m looking forward to discussing trends with readers here as well. So welcome. Regular readers of my blog may be interesting in the coverage of facilities management there as well of course.

Enterprise Network War Update – Market Will Decline By 16% In 2009

Enterprise Network Highlights

• Cisco’s market leadership, poor market growth during the downturn and specialisation makes this a key battleground
• Cisco launching UCS products in 2009 sees it playing in the systems market
• Major acquisition activity will continue in 2010, especially among network suppliers
• Systems suppliers are unlikely to become network vendors unless they already have technical expertise
• Switches are unlikely to be ‘commoditised’ in the way PBX were with software on standard x86 servers
• Convergence between switches, systems and storage will continue apace
• Cloud Computing developments will place a stronger emphasis on enterprise networks

When I had published my last article on the networking market I received some very interesting market observations from Pim Bilderbeek. Pim (like me a Henry Fellow) is a renowned expert on the subject and so I’m very pleased to have used his guidance in shoring up my market coverage and ideas in this post. For me it’s important to study and report on networking and telecoms – it puts the ‘C’ in ‘ITC’.

Cisco’s Dominance, The ITC Downturn And Specialisation Makes Enterprise Networking A Battleground

I take Enterprise Networking to be the provision of networking products (gateways, routers, VoIP equipment, etc.) to end-user organisations (as opposed to equipment for Telecoms companies). It is a highly specialised part of the ITC industry from both a technical development and marketing point of view. Although there is a large market for this equipment, it has not been an easy ride for some of the major players over the last few years. In fact I believe we’re in the middle of a network war. It’s been caused by a number of factors. In particular:

• Cisco has a significant lead in the equipment market (48.3% on a worldwide basis according to my estimates for 2009) – especially for core switches. As usual the recession has increased competitive activities. Cisco introduction of its Unified Computing System (UCS) in March was seen as a direct attack on server suppliers, who are trying to hit back by launching their own network equipment strategies.
• The ITC down turn has badly affected all hardware. We seen a major decline in the networking area, especially as these devices are sold to business and enterprise customers. My forecast for the equipment market is that it will drop by 16% to $49b worldwide in 2009 (see Figure 1).
• Because most players are very small in comparison with the market leader they have been acquisition targets for the systems suppliers. HP’s proposed acquisition of 3Com is perhaps just the first of a number of similar moves by systems companies looking to expand in this area.

 

Historically high revenue growth rates in the network area have made it even harder for suppliers to adjust to declining sales in the last year. I’ve shown the quarterly growth rates for the leading suppliers in Figure 2. Chinese suppliers ZTE and Huawei have managed to outperform other suppliers, reinforcing HP’s move to acquire 3Com, whose long-term joint venture with Huawei gives it good access to this fast growing region. Of the smaller vendors Brocade has also managed growth this year. Unlike the PC market there has not been much of an up-tick in revenues in Q3 2009, with the market falling by 16% versus the 17% drop in Q2.

Enterprise Network Suppliers Increase Acquisition, Competitive And Alliance Activities

Enterprise networks are important they provide essential components for the development of modern data centres and help form a necessary backbone for Cloud Computing, telecommuting and other key areas. From a vendor perspective there have been interesting recent developments. In particular:

• Cisco’s launch of its UCS products in March was a shot over the bows of the system vendors. It demonstrated the company’s intention to compete for the first time in the server market and has made most decide to update their approach to networking – an area previously de-emphasised. It has also decided to partner with EMC and its subsidiary VMWare to form Acadia, which will help in the development of data centre Virtualisation.
• HP enhanced its Procurve offerings by buying Colubris Networks in August 2008. It has also recently announced its intention to acquire 3Com, which managed positive net profits in the last 5 quarters following years of losses. More important than opening up China, 3Com produces core network devices, allowing HP to compete more effectively with Cisco.
• IBM has reacted by firming up its network offerings, which it provides through partnership. It has OEM agreements with Brocade and Juniper networks and a reseller partnership with Cisco. There are no signs yet that it wants to design and manufacture its own switches, although I wouldn’t be surprised if it decided to in the future.
• Nortel filed for Chapter 11 bankruptcy in January this year, following significant losses over the last 3. While it has sold some of its Telecom businesses to Ericsson (specifically its CDMA and LTE Access businesses along with 2,500 employees), it has just announced the acquisition of its Enterprise Solutions business to Avaya for $475m along with 6,000 staff.
• Private equity firms TPG Capital and Silver Lake Partners acquired Avaya for $8.2b in October 2007. Frustratingly for me (and probably its competitors) its revenues and profits can now only be estimated.
• Siemens enterprise networks is now owned by private equity investors, while Nokia Siemens Networks continues to be reported in Nokia’s financial results.

 The Enterprise Network Squeeze – Headcount Increases, Profit Per Head Goes Down

The specialisation of the technology in the enterprise network area is demonstrated by the changes in profitability and headcount over time. While the total headcount of suppliers has increased to reach a plateau of around 135,000, net profit per employee has declined from around $85k in 2004 to around $55k per head in 2009.

Cisco has a larger market share of profits in the enterprise network area than it has in revenues, demonstrating the significant advantages of a market leader. Unless the market picks up dramatically it looks as if winners and losers in this sector will be decided by competitive actions for the foreseeable future.

Some Conclusions – Bilderbeek On The Convergence Between Networking And Systems

Pim reminds me that the networking area is still about convergence. There are a number of ways in which this will affect the enterprise network wars. In particular:

• Microsoft is claiming its stake in the Unified Comms market with OCS and other products. As a result of its activities network companies have seen their PBX hardware revenues erode, with traditional products replaced by software solutions running on standard x86 servers. He thinks it’s unlikely that we’ll see the same trend happening with routers and switches, but it is a sign of continued convergence.
• He does believe that we’ll see further integration of switching with server and storage and this is likely to be where systems vendors react. By and large he believes the current trends are being driven more by Cisco’s desire to gain IT revenues than by companies such as IBM wanting to get back into networking.

Poor market demand, specialised technology and a dominant market leader – all of this makes the enterprise network market exciting to watch. I expect a whole number of acquisition announcements during 2010 between networking companies. In addition those systems and storage vendors with networking expertise will join the hunt for acquisition targets. It is likely that those systems vendors without networking expertise will continue to partner with Cisco and others – perhaps forming strong go-to-market approaches in a way similar to Fujitsu Technology Solutions’ recently announced ‘Tight Alliance’ with NetApp. Systems companies with a strong business in supplying technology to Cloud Computing data centres will want to beef up their networking expertise, but do not yet need to acquire companies to do so.

Do you – like Pim – have observations on the enterprise network market? Please let me know by commenting on this article.

Happy Xmas One And All

 

Dear All

I wish everyone the best Seasons Greetings and thank all my readers and contributors for helping out this year.

Best Wishes for a prosperous New Year

Martin

Copenhagen Summit Fails – CSR (Not Legislation) Will Drive ITC Industry Behaviour For Now

ITCandor Opinion

So the Copenhagen Summit failed – the governments of the world could reach no legal agreement on limiting carbon emissions, although they did adopt the aim of keeping the increase in global warming to below 2^oC degrees. For now it’s as if someone put up a ‘don’t walk on the grass’ sign on a public lawn, but employed no one to stop us from doing so.

There will now be less thought about the consequences of globalisation – in particular about the actual destruction of local environments through changes in climate conditions or the shifting of manufacturing to lower cost economies and the consequential increases in carbon emissions.

I believe that the format of the Summit has proved old-fashioned and ineffective. Whether or not the Chinese veto was responsible for the failure, it doesn’t seem right that such an important agreement should be dependent on a last minute ‘all or nothing’ agreement. It’ll be interesting to see if effective changes can be introduced for the 2010 meeting in Mexico.

In the absence of legislation our behaviour as individuals and organisations – in relation to the environment – becomes more important as a result. For ITC suppliers developing successful Green CSR strategies to appeal to consumers and businesses will be harder, but potentially more rewarding, than regulatory compliance. For CIOs monitoring, metering and controlling energy is still necessary to improve energy efficiency and reduce costs, especially given the ever-increasing costs of electricity.

ITC Suppliers Need To Put A Stronger Emphasis On Climate Change In CSR Strategies

When talking to the UN earlier in the year I discovered a couple of general trends. In particular:

• Much public money promised in overseas aid was not being delivered and
• Private organisations (in this case HP) are taking over from governments as investors in development projects

Last week the summit announced funding by developed countries to poorer countries ‘approaching’ $30b to help address the impact of climate change in the 2010-2012 timeframe. It also announced the ‘goal of mobilising’ $100b a year by 2020 to support developing countries. Without a legally binding agreement it will be left to the developed countries to make up their own minds on how much (if anything) to provide, whether this is in addition to the sums already announced (if not already delivered) and whether or not they actually deliver the new sums committed. I expect large commercial organisations will take a bigger role as a result of these wishy-washy government commitments.

ITC suppliers in particular should shore up their CSR strategies to address the environment as a stakeholder, not least because there are a huge number of existing and potential customers and share-holders who will now realise that it is their behaviour – and not legislation – which will mark their impact on trying to address climate change in coming years.

CIOs Now Have Longer To Think About Carbon Taxes

Without legally binding agreements on carbon emissions from the Summit, the introduction of carbon audits and associated taxes will take a back seat in most government legislation for now. I believe that those taxes already imposed by the UK in advance of a global agreement will now need to be mollified if British industry is not to suffer in the absence of similar laws in other countries. It’s not that such taxes will not become important over time, it’s just that the result of the Summit demonstrate that overcoming the recession is more important for now.

I expect all CIOs to continue to address energy efficiency and associated cost savings through pursuing data centre consolidation, modernisation and virtualisation strategies where they can – but for their own sakes and CSR strategies, rather than in advance of imminent taxation. I expect the more advanced 10% of end-users will continue to investigate alternative energy, advanced cooling and similar approaches. As an industry I believe it is now more important than ever to look into how these activities can help ITC reduce its own impact on carbon emissions and help in their reduction in other areas.

Some Conclusions – The Recession Takes Precedent For Now

In the last 18 moths most governments have had immediate concerns about the banking sector, inflation and employment – forcing them to put the issues of Climate Change on the ‘back burner’. Many have introduced re-generation projects, which may have some positive effects on the environment, even if primarily designed to provide economic stimuli at a time of slump.

I’m surprised that very few scientists have mentioned the positive effect the recession is having in reducing carbon emissions – just think about the suspension of car production by many of the largest car producers last year. In fact Manufacturing and Distribution have been the worst affected sectors in terms of ITC spending – even worse than Finance, pointing to the devastating effect the downturn has had on production.

Over all I’m disappointed in the failure of the Summit. I suspect that in the past long-term objectives were signed up for by politicians whose own political careers would be over before the need to introduce unpopular legislation to control energy usage. I expect the issues will become more important once the worst of the recession is over. Perhaps when they do we will be able to focus more short-term activities which can be measured more effectively.

CIOs Need To Watch Copenhagen Results

I’m not very Green. The downturn has made me think of much more urgent issues about building my own business, given the fact I had to leave the company I’d been working in happily as a very senior researcher for 23 years. I share with many deep concerns about employment and survival of many of the people, companies and organisations and the way technology can help. I’m surprised that telecommuting and travel avoidance haven’t become more important issues over the last year, but am pleased that Cloud Computing is a vibrant subject which is bringing with it a new kind of outsourcing.

I’m not even sure that a global agreement on carbon emissions will help us avoid potential climate disasters, such as the melting of the ice caps or the ending of the Atlantic conveyor. However, I’m certain that we (CIOs, industry analysts and managers) need to learn not ‘to walk on the grass’, to improve the energy efficiency of our systems and improve our CSR strategies. I’m also pleased that it looks as if there will be positive results today for Africa and other emerging regions in terms of social and economic development. In addition I know that ITC holds an important key in supporting the environmental aspiations of the majority of the world’s population. Even if you’re not at all Green, you’ll need to adjust your ITC strategy in coming months.

So my fingers are crossed, as I hope many of yous are as well.

I’ve written about many of these subjects and encourage you to investigate my thoughts and those of the people and companies who have contributed to this site. Look through the ‘Research as a Service’ tag at the top of this page to learn more. I’ll also analyse the technical consequences of today’s agreement for CIOs later. Please let me have your own thoughts by commenting on this article.

Cloud Computing – An Essential Subject For CIOs In 2010

Cloud Computing Highlights

• CIOs are understandably slow to address Private Cloud development
• Cloud Services – ‘… as a Service’ – to consumers and small businesses are growing strongly
• The definition of Cloud Computing differs depending on the audience
• The enthusiasm for Cloud Computing by large organisations differs by role
• Most CIOs will need to address Cloud Computing in 2010
• ITCandor offers a free Cloud Computing evaluation service for advice

I’ve been writing about Cloud Computing since I started this site. I wanted to give you an update on my evolving taxonomy in the hope that it will help clarify a very complex and potentially confusing subject.

Cloud Computing – A Developing, If Problematic, Definition

There have been a number of early attempts to describe and define the subject. For instance:

• It ‘enables the delivery of personal and business services from remote, centralized servers (the “cloud”) that share computing resources and bandwidth – to any device, anywhere’ (IBM)
• It’s ‘the delivery of IT as a service to companies or end-users over the Internet’ (HP)
• ‘The delivery of a service over the Internet’ (Datascape Online)
• It’s ‘moving the Web forward as a platform for scalable applications’ (Google AppEngine)
• It’s ‘a web service that provides resizable compute capacity in the cloud. It is designed to make web-scale computing easier for developers’ (Amazon EC²)
• It’s ‘Software Plus Services’ (Microsoft)
• ‘When you use any app that runs in the cloud, you just log in, customize it, and start using it’ (Salesforce.com)

Since these early beginnings Cloud Computing has become on of the key marketing messages (akin to ‘NT in the Enterprise’ in the early 1990s). The definition is still problematic – it means many things to different audiences. However I’m convinced that it will increase in importance over coming quarters. In fact its very ‘slippy-ness’ as a term makes it attractive, as it can be sequestered for use in most ITC marketing strategies.

Cloud Computing Means Different Things To Consumer, Supplier And CIO Audiences

I believe the amount of work needed to address Cloud Computing differs dramatically by participant, which in turn affects both the need for and depth of definition. For instance:

• For Consumers and small businesses its use is often ‘business as usual’, since many applications are already provided via the Web involve little or no local processing. Users of Google, Web based email (Gmail, Yahoo, etc.) and social networking (Facebook, MySpace, Twitter, etc.) may be surprised that their applications can mostly be defined in the category.
• IT Software and Service Suppliers such as hosting companies, Independent Software Vendors (ISVs) and Service Providers tend to see Cloud Computing as a delivery mechanism requiring an internal adjustment of their data centre techniques. It typically involves the provision of a single (or highly restricted number) of applications to a wide group of end-users. For software suppliers it usually involves adjusting billing systems for pay-as-you go usage.
• For CIOs, data centre managers and enterprise systems suppliers (IBM, HP, Fujitsu, Sun and others) it’s typically the adjustment of the IT architecture to accommodate the delivery of self-service applications. Activities involve data centre consolidation, modernisation, simplification, virtualisation and the like. CIOs also need to address the mixing of private and public Cloud applications and the consequences for their Service Level Agreements (SLAs) with internal users.

 Large User Enterprise Cloud Computing Participants

As with most issues of internal IT I expect the interest in Cloud Computing to develop according to the roles of employees in large organisations (see Figure 1). For instance:

• CIOs – Cloud Computing is a major headache for many of the managers supplying computer services to their end-users, not least because internal IT is very complex and the number of applications supported tends to be high. While CIOs in a select number of Web companies have the advantage of having to support only a small number of ‘services’, governments and major businesses either have to modernise their data centres first before considering providing Cloud applications, or have to deal with the difficulties of balancing the mix of internal ‘legacy’ and external Cloud services for their end-users. Hardly surprisingly therefore many conventional CIOs are relatively soft supporters of the subject.
• Financial Directors – Most organisations have made significant reductions in their Cap Ex budgets over the last 18 months. As Cloud services allow IT to be paid for on a pay-per-use basis many Financial Directors are in favour of it. However they are less keen or able to find budgets for data centre modernisation and the development of internal Clouds. While there is a strong rationale for IT consolidation as a cost saving activity it still needs up-front investment. In addition the Return On Investment (ROI) is reduced if the final result includes a major shift in the nature of the application support.
• Software Developers – there are definitely two different groups of developers. Those working for software companies or developing internal applications for major user organisations already know the advantages of new techniques and tend to embrace the idea of Cloud Computing as a delivery mechanism. However there are still hundreds of thousands (if not millions) of ‘legacy’ software developers who will need better tools if their output is to be included in ‘… as a Service’ offerings. Cloud development tools are available from companies such as Citrix, Symantec and Quest Software and there are also Open Source developments such Xen’s which can help.
• End-Users – these are probably the biggest supporters of the concept of Cloud Computing, even if many are still only vaguely aware of the term. Many organisations are active in attacking the use of company PCs for social networking applications either through restrictive policies (banning the use of Facebook at work, for instance) or automation (such as ‘Skype removal’ software). Ideally many would like to see their IT applications in terms of a self-service menu and be able to mix corporate applications with external ones approved and paid for by their departments and those allowed by organisational policy.

I’ve tried to capture some of the generic issues for each of these groups in Figure 2.

Cloud Computing Services – What Suppliers Are Providing

As the year has rolled on so ITC supplier offerings have become more standardised. I’ve tried to capture the major components in Figure 2. Here I think it’s useful to split developments into two sides. In particular:

• Private Cloud Offerings – those to support the conversion of data centre computing into a platform (often referred to as a Private Cloud) from which an organisation can provide its own services. Many of these can be classified as Implementation services such as modernisation, consolidation, implementation and virtualisation. However providing the extra support for converting applications for Cloud provision has to be tempered by the number and nature of the existing applications supported. Transaction processing in banks, for instance, is harder to accommodate for security reasons. It is unlikely that a large user organisation will be able to provide internal Cloud applications without a well designed and managed Enterprise Service Bus. For some the search for an appropriate data centre location (such as those offered by NGD) is necessary to side-step the difficulty of retro-fitting new designs into crowded facilities. 
• Public Cloud Service – There have been many introductions of Cloud services by a number of major and/or innovative IT and business service companies this year (read my articles about Datascape Online or FNZ for instance). These offerings tend to be named ‘… as a Service’ and have the advantage of being priced on a pay-as-you go basis, thereby being Op Ex rather than Cap Ex spending. Many of these services are being offered as extensions to existing free Internet services (such as email, data protection and recovery or anti-virus security software) for consumers and small businesses or as alternatives to ‘analogue’ process for small companies. It is taking longer for Cloud services to be offered to large and medium companies due to the complexities mentioned in the bullet above. However where it is, it can be seen as a whole new type of outsourcing. In addition to the technical issues of mixing Private and Public Cloud applications there are also the usual sticky topics of addressing corporate governance, data protection legislation and security. The difficulty and complexity of such issues grow exponentially with the size of company as always. 

Many of the largest IT suppliers (IBM and HP in recent analyst briefings) have appeared to me softer than others on the issues of Cloud Computing, especially within those departments supplying design and implementation services. This is because the extra investment is difficult to propose at a time when the techniques are still immature and the economy is weak. On the other side the Hosting companies (usually Telecoms suppliers), ISVs and Service Suppliers have been much more active in 2009. I’m particularly encouraged to see a number of new service providers from the wholesale business process area entering the ITC market for the first time by proposing ‘… as a Service’ offerings.

The Future – How ITCandor Can Help CIOs Get Ready For Cloud Computing

There are many issues in confronting the introduction of Cloud Computing whichever type of participant you are. The main aim of my research is to provide practical support, either in addressing the subject for the first time or in making choices. To help you I’m offering a free evaluation service. By reviewing your existing data centre, application and service offerings I’ll be pleased to give you some initial guidance in to how to build a successful strategy. ITCandor contact details are:

Martin_Hingley@yahoo.co.uk Office: +441235202125 Mobile: +447791104555

Alternatively let me know by commenting on this article.

Copenhagen Climate Change Summit And ITC

So the Climate Change Summit has started. As always we don’t know whether there’ll be an agreement to limit carbon emissions, whether the big players will turn up. As usual it’s more to do with national politics and trade than trying to prevent major catastrophes. My take on it all is that the change in the weather is most probably due to human activity (anthropogenic to give it a more formal term). In any case it’s best for us to assume it is and ‘not walk on the grass’, to make an analogy with moral philosophy.

In case you haven’t seen them I wanted to point you out two reports I’ve published on the issues concerning the Summit. In particular:

• I’ve written more about the wider issues and why we should consider limiting our carbon producing activities.
• I’ve also written more specifically about the things CIOs can (and are) doing to improve efficiency, reduce electricity costs and contribute as part of a Corporate and Social Responsibility strategy.

I’ll write more about the technology consequences once the meeting has concluded. In the meantime I’m very interested in your own views on the issue. Please do so by writing comments on this post.

Network Suppliers Battle As The Recession Bites

There’s no question in my mind that we’re in the middle of a network war. It’s been caused by a number of factors. In particular:

• Cisco has a significant lead in the equipment market – especially for core switches. As the recession has made all suppliers more competitive Cisco launched its Unified Computing System (UCS) to attack the server suppliers. They reacted by investing in stronger network equipment strategies.
• The ITC down turn has badly affected all hardware. We seen a major decline in the networking area, especially as these devices are sold to business and enterprise customers. I estimate that the equipment market was down 11% for the year to the end of September in comparison with the previous year (see Figure 1).
• Because most players are very small in comparison with the market leader they have been acquisition targets for the systems suppliers. HP’s proposed acquisition of 3Com is perhaps just the first of a number of similar moves by systems companies looking to expand in this area.

Historically high revenue growth rates in the network area have made it even harder for suppliers to adjust to declining sales in the last year. I’ve shown the quarterly growth rates for a number of suppliers in Figure 2. The two companies beating the market are Brocade (which is very small) and Huawei, which interestingly is based in China. HP indicates that the joint venture between Huawei and 3Com will give them better access to this relatively immature market.

What Are They Key Network Armies Doing?

I’m going to write more about a number of these players over time – mainly because networking is an essential component of the development of modern data centres and is a necessary backbone for Cloud Computing. They have been some interesting developments. In particular:

• Cisco’s launch of its UCS products in March was a shot over the bows of the system vendors. It demonstrated the company’s intention to compete for the first time in the server market and has made most decide to update their approach to networking – an area previously de-emphasised. It has also decided to partner with EMC and its subsidiary VMWare to form Acadia, which will help in the development of data centre Virtualisation.
• HP enhanced its Procurve offerings by buying Colubris Networks in August 2008. However its network devices mainly are for edge applications; it currently lacks core networking equipment. As a result almost all large HP server sites use Cisco products. These include HP Enterprise Services (ex-EDS), which must be one of Cisco’s largest customers. Hardly surprising, therefore, that HP has decided to buy 3Com, which has core switches.
• IBM has reacted by firming up its network offerings, which it provides through partnership. It has OEM agreements with Brocade and Juniper networks and a reseller partnership with Cisco. There are no signs yet that it wants to design and manufacture its own switches, although I wouldn’t be surprised if it decided to in the future.
• Fujitsu (like IBM) has a strategic alliance with Cisco and will (no doubt) add it to its ‘Tight Alliance’ plans to join NetApp (se my recent coverage).

Other server vendors are no doubt deciding whether to join the battle or continue in a co-existence strategy. Whatever they decide, it looks as if the networking area is going to be very interesting to watch for the foreseeable future.