For years, Red Hat sat unopposed at the top of the CIO Insight Vendor Value study. In 2008, however, Google pushed Red Hat aside with its low-cost, easy-to-use enterprise applications. This year, Red Hat has come roaring back to share the top ranking with Google.
Could this be a sign of CIOs' restive relationships with traditional vendors and an increasingly insatiable appetite for the cost and ease-of-use advantages of open source and software as a service/cloud computing?
The answer is almost certainly "Yes." It is telling that old-school vendors like IBM (ranked 20th overall), Microsoft (25th), Novell (29th), and Oracle (35th) are so far down the CIOs' list.
It is equally telling, however, that it is with these apparently less-preferred vendors that CIOs spend the vast majority of their IT budgets. Or perhaps that's the point? In other words, CIOs spend with such vendors today because they have to, but given their druthers, they're going to invest more money in Red Hat and Google going forward.
Red Hat and Google are still rounding errors in the overall IT spending picture, but CIOs seem to be signaling an appetite for more. It's not about reducing lock-in and other colorful marketing phrases, either: it's about great, easy-to-use software at a compelling price.
You know, the very thing that Microsoft used to win CIO plaudits for delivering.
From the report:
CIOs are more likely to try software as a service (than traditional, packaged software), which is better understood and simpler to use and requires no upfront investment in hardware or software.
This is the heart of the CIO uprising. And it's why low-cost, high-value companies like Intel (ranked first overall), Cisco/WebEx (ranked sixth and 11th, respectively), and Sun (sixth) are climbing the charts.
For now, however, Google and Red Hat rule the roost in the Software category of CIO Insight's annual study:
Both Red Hat and Google essentially offer the same thing: great software on a subscription basis. While this model often offers lower prices than competitors, it's important to note that "free" is not the value proposition here. (If it were, for example, Red Hat customers would be leaving in droves for Red Hat Enterprise Linux clone, CentOS. They aren't.)
No, the value proposition is customer control via the subscription model that enables less costly ways to buy into the software, and to turn off maintenance costs, if desired.
It's a winning formula, one that more vendors should consider adopting. Today IBM, Microsoft, and Oracle command the majority of IT dollars, but this survey suggests a rebellion is underway. Inertia can only support the traditional vendors for so long.
Thousands of businesses were left without access to their applications Tuesday after Salesforce.com's servers suffered a service disruption.
The problem affected all of the software-as-a-service vendor's data centers for at least 40 minutes.
According to a Salesforce.com status page, the problem occurred at 12:40 p.m. PST Tuesday when a core network device failed, stopping all data from being processed in Japan, Europe, and North America.
When the system failed to trigger a failover to redundant systems, Salesforce.com staff had to carry out a manual recovery.
Most of the services were restored in about 40 minutes, according to Salesforce.com, and all services were back online about two and a half hours later.
"While we are confident the root cause has been addressed by the work-around," the company said, "the Salesforce.com technology team will continue to work with hardware vendors to fully detail the root cause and identify if further patching or fixes will be needed."
Freeform Dynamics senior analyst Tony Lock said that "having a service interruption like this one is certainly noticeable when you have a vendor like Salesforce.com that has been delivering pretty good service over the course of the last five or six years."
Lock added that as long as software-as-a-service vendors continue to deliver good service levels and availability, the occasional interruption is acceptable since "nobody expects IT to be perfect."
"It will not have a major impact on organizations' plans for the adoption of software as a service. I think that software as a service will continue to grow as it has been doing over the course of the last few years," he said.
Tim Ferguson of Silicon.com reported from London.
Editor's note: This is part of a series of stories about the recession's effect on the tech industry.
Entrepreneur Treb Ryan remembers in vivid detail the day the Dow Jones Industrial Average plummeted nearly 700 points and dropped below 9,000 for the first time in years.
Treb Ryan, OpSource CEO
(Credit: OpSource)He was visiting a major computer maker on that day, October 9, waiting to meet with a potential investor about funding his start-up OpSource.
"I was about a half an hour early for the appointment and was sitting in the lobby, where they have a big screen TV," recalled Ryan. "Within the 30 minutes I was there, the Dow had dropped 300 points."
Ryan, OpSource's founder and CEO, still had his meeting with the prospective investor, but the discussion was initially dominated by talk of the market malaise. And two months later, the parties are still in discussions about funding his software as a service (SaaS) company.
For Ryan, the market meltdown and recession have made the task of securing a new round of venture funding far more difficult than OpSource's previous four rounds. To date, OpSource has raised a total of $45 million from investors. And the 41-year-old entrepreneur is currently seeking to raise a $20 million fifth round of funding for his Santa Clara, Calif., company.
Nonetheless, Ryan exudes optimism. "OpSource is not going away. SaaS is not going away. I know OpSource will survive and I look forward to the day when the markets pick up...I believe we will come out of this. I'm an optimist. That's why I'm an entrepreneur."
Ryan has reason to be optimistic. He's had some lucky breaks as an entrepreneur. In 1999, Ryan founded SiteSmith, a provider of managed Internet services. A year later, he sold it for $1.4 billion to Metromedia Fiber Network. It was one of the last billion-dollar mergers of the dot-com boom.
OpSource, by comparison, is nearly seven years old. The company, which Ryan notes has had interest from prospective buyers, is a SaaS company that manages virtually all aspects of running and hosting businesses online. OpSource has 200 customers, of which 40 percent are traditional companies, such as Adobe, that are doing some SaaS with their business. The bulk, about 60 percent, are dedicated SaaS companies, such as on-demand human resources company Taleo, that are using OpSource to provide the virtual behind-the-scenes plumbing.
Ryan isn't the only entrepreneur working overtime to land more funding. In the third quarter, venture funding of U.S.-backed companies fell 20 percent to $2.73 billion over the same time last year and dropped to levels not seen since late 2006, according to Dow Jones VentureSource.
"Back in April 2007, we thought the public markets would be more open a year from now and we would be able to do an IPO," Ryan recalled. "But by this summer, with the market at 11,000, it was clear we wouldn't be able to do an IPO until the end of 2009. And now we're thinking maybe 2010."
As a result, Ryan said a decision was made to seek a late-stage funding round, with the goal of including strategic investors, as well. Meanwhile, the initial summer plans to raise a $25 million to $30 million round were scaled back in September to $20 million. Making it trickier: venture capitalists are placing much lower valuations on companies that are returning for additional funding.
"Valuations have been cut in half from where we expected in the summertime," Ryan said. "And that's pretty consistent with what we're seeing in the public markets (with where stocks are trading for public companies)."
With venture funding looking tight, OpSource has tightened its belt, as well. OpSource employs less than 200 employees, of which about 25 percent are in India. While OpSource has not had layoffs, it has reduced spending on sales and marketing.
OpSource has also gone back to its vendors and had success getting them to agree to lower their contract terms by double digits, but it came at the price of offering to extend the length of the contract.
Ryan has also applied some of this belt-tightening to his personal life. When Apple's new MacBook Pro debuted this fall, Ryan was tempted to snatch up the new laptop. But the CEO instead opted to install the latest Mac OS X version onto his old MacBook and squeeze another year of use out of the computer.
"I told everyone that if I have to do this at home, we can do this at work," Ryan joked. The married father of three added he's also sleeping easier at nights, now that OpSource began generating cash this month.
"Companies that stick to their knitting," he said, "are the companies that will stick around."
Coming up Friday: When times get tough, drop the satellite TV
Back in the late 1970s, communications provider MCI was on the verge of bankruptcy when suddenly it received a visit from Lady Luck. First, MCI won the right to provide long-distance services in opposition to AT&T and the Federal Communications Commission. In March 1980, MCI then became the first company to compete with AT&T in the residential long-distance market. By 1981, MCI had pulled a complete turnaround. Rather than teetering on the financial precipice, MCI sales approach $1 billion.
The MCI story has many components, but the company's early success went beyond litigation, legislation, and timing. Early on, MCI built a number of flexible internal systems for order entry, sales, and customer billing. As a result of these systems, the company was able to craft loads of specific marketing programs for different types of customers. Alternatively, AT&T was hamstrung by monolithic inflexible internal systems that took months to customize for each program. MCI knew it didn't have the network or resources to outdo AT&T, so it excelled in an area where it could build an advantage--customer-focused IT.
Fast-forward to today and the lessons learned in the MCI example are still applicable. Lots of services vendors understand this, but I'm impressed with the way Symantec is actually executing here. Symantec is not a new comer to software as a service (SaaS), cloud-based services, or whatever the term du jour it is that we analysts use for managed services. Symantec acquired Riptech in 2002 and has been a leader in managed security services since. This experience was crucial for Symantec as it learned how to provide integrated services management capabilities to large and discerning customers.
Symantec is in the process of extending its footprint with its Symantec Protection Network, a portfolio of services for services and storage. All new and future services are built on top of an extended integrated services platform, providing customers with a single management console for ordering, billing, monitoring, and reporting on all Symantec services. Developing this infrastructure probably delayed the introduction of individual services, but when it's completed, Symantec will have the flexibility to add services, create bundles, customize offerings, and integrate third-party services to capitalize on dynamic market opportunities. At the beginning of this month, Symantec acquired MessageLabs, a leading provider of secure messaging services. Today, MessageLabs stands alone, but as Symantec integrates the MessageLabs services into its customer-centric business platform, it will be able to offer attractive new services bundles to a base of 19,000 customers at the click of a mouse. Talk about reducing your cost of sales!
To telecom veterans, discussions around billing and operational support systems are an old story dating back to the 1970s and MCI. Unfortunately, with all the tech industry ga-ga over SaaS and cloud-based services, many would-be service providers are bound to rush willy-nilly into services without the proper back-office foundation. Over the long-term, this strategy will always result in failure.
It's nice to see that some companies like Symantec have learned valuable lessons from the past.
Software-as-a-service technology is "several years away" from being enterprise-ready, but companies should begin experimenting with the technology, according to a Citrix executive.
Martin Duursma, chair of the Citrix CTO office and vice president of advanced products, said it is "early days" for the cloud computing scene. "We are on the steepest portion of the hype cycle curve," he said, and advised against fully handing over an enterprise to the "cloud" just yet.
He raised the example of online photo sharing site, SmugMug, which relies on Amazon.com's utility Web storage service. When Amazon's cloud went down earlier this year, many sites hosted on it were crippled alongside.
In SmugMug's case, the photos it stored on Amazon's servers were at the core of its business; "companies should not place mission-critical aspects of their business on the cloud", said Duursma, speaking at the IDC CIO Summit 2008 held in Singapore on Tuesday.
However, he noted that much potential lies in the SaaS scene that companies should be adapted for, once the cloud computing industry reaches maturity.
"Eventually, it will not make sense for companies to be their own services and data center 'experts'," where they can benefit from the economies of scale that larger cloud vendors can provide, he added.
Companies that need quick "boosts" to functions such as storage or computing power, can also rely on the cloud. Comparatively, the traditional processes of procuring hardware and building a data center expansion are far slower, said Duursma.
Patrick Chan, IDC Asia-Pacific's chief technology adviser of its emerging technology council, said during an earlier session: "CIOs today must understand the implications of emerging technologies so as to leverage them for the blueprint of improving tomorrow's business.
"The pace of execution for both business and IT has accelerated at an amazing rate and CIOs with their enterprises must keep up," he said.
According to IDC, companies in the Asia-Pacific region are expected to spend $154 billion on IT this year. Technology such as cloud computing may emerge as a tool to help combat growing expenses, said Duursma.
Victoria Ho of ZDNet Asia reported from Singapore.
Cisco Systems announced Wednesday plans to acquire e-mail and calendaring software maker PostPath in a $215 million deal.
The acquisition, which is scheduled to close by the end of October, is designed to bolster Cisco's collaboration portfolio by including PostPath's Linux-based e-mail and calendaring software with Cisco's "software as a service" platform.
Cisco's collaborative platform includes instant messaging, voice, video, data, document management, and Web 2.0 applications. PostPath will be folded into Cisco's Collaboration Software Group.
"The acquisition of PostPath complements our strategy to develop an integrated collaboration platform designed for how we work today and into the future, providing real productivity gains and a more satisfying user experience," Doug Dennerline, Cisco's Collaboration Software Group senior vice president, said in a statement.
Over the past two years, Cisco has focused on the collaboration market, with CEO John Chambers touting it as the next wave of innovation in the technology arena.
A major piece of that effort has been Cisco's last year. PostPath's technology will be used to enhance the current e-mail and calendaring capabilities of the WebEx Connect collaboration platform.
Salesforce.com is again expanding beyond its customer-relationship management roots with an acquisition designed to broaden its service and platform.
The company has acquired InStranet, a Chicago-based maker of call center software, for approximately $31.5 million. The buy gives Salesforce.com technology that it will use both for its internal customer service purposes, and for a new software-as-a-service offering expected to launch within 18 months, the company said.
InStranet makes so-called knowledge base management software, which can improve companies self-service support functions by making it easier for customers to find answers to common support questions.
Salesforce.com plans to integrate the software--which is not currently delivered as an online service--into its software-as-a-service platform. InStranet's 44 employees, based in Chicago and Paris, will join Salesforce.com. Alex Dayon, InStranet's CEO, will become a vice president of product management at Salesforce.com, according to company representative Bruce Francis.
InStranet, founded in 1999, brings some big name customers to Salesforce.com, including U.K.-based telecommunications provider Orange, T-Mobile, Comcast, and other companies. Salesforce.com expects that its new SaaS offering, to be called Salesforce.com Knowledge Base, will give it a technological edge over competitive offerings from Oracle and SAP, the company's main rivals.
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