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Tuesday, August 16, 2005

Romesh Wadhwani On The Future Of Software Industry

Romesh Wadhwani’s well thought out & well articulated viewpoints on the future of the software industry is a must read for all interested – Some of these points - I agree with and some of it requires definite deliberations – but overall quite thought provoking. Some key points that I liked in his original speech/article include:

Software industry is having troubles to grow as customers no longer value cutting-edge technology over business results,investors no longer value growth over profit, employees no longer value options over stability. The industry needs to make dramatic changes to reinvent itself over the next decade. Companies taking advantage along the lines outlined here may constitute the list of top 10 besides Microsoft, SAP & Oracle by 2010 says Romesh. The various points that he discusses include:

On Consolidation Mania: Most vendors need to retool, and gain expertise to acquire or be acquired at an attractive - and realistic price. Obviously this is not what they can excel at. Acquisition spree has to slow down.

The unified platform myth : SAP, MySAP has multiple code streams, CRM more, NetWeaver, another set. Through development and purchase, Oracle now has 10 to 20 enterprise platforms. Then there is the ever delayed Microsoft Longhorn. The reality is that it will be many years before an unified platform appears from any of the major providers( This may be opportunity for others – he says- looks a little far fetched to me however).

Future Of Packaged Apps: 20 percent of a software product represents 80 percent of its business value. Software is moving back to an age of semi-custom applications. The future belongs to these products which contain 80 percent of the value for common clients. Various service providers can fill in the missing 20 percent on a client-by-client basis. This will lead to a sensible revenue recognition and maintenance model that won't force the bad behavior plaguing the industry today.

On Products & Services: In software, the product has always been the focus. Services have always been "the tail on the dog." In fact, it should be the opposite. Vendors need to run both products and services businesses separately with great leaders for each and need to benchmark their performance against best-in-class providers in each category. They need to deconstruct their services business model and run it differently to achieve superior returns - or cut it out altogether.

Software Providers & SIs: Software providers could become specialty BPO companies themselves - or boutique systems integrators or Web Services integrators. The value delivered to an enterprise will be large under any of these models.

The Emergence of a "Star Alliance": Imagine a software "Star Alliance," with vendors pulled together around vertical domains or horizontal processes. The products would be held together with pre-integration, common GUIs and united go-to-market models. The alliance would enable vendors to band together in a sensible way and integrate common components. It would drive a revolution in buying behavior and possibly drive growth into the double digits again.

Reinvent or Relocate: Facing the massive market shifts, software vendors will only succeed if they reinvent their business model. Like Huwaei sniping at the heels of Cisco, the day of such competition is not far off for US based vendors. The US industry needs to make changes in business today that will prepare the industry to take on such competition. 60 to 70 percent of development and 50% of your services work offshore and reduce your R&D to 7.5 percent of sales may be the recipe for survival/success. While there are enough points be picked as being contrversial - in general an excellent perspective - this presentation would be referred to by all thinking about the future of the industry. Pl. read the full article here.

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"All views expressed are my personal views are not related in any way to my employer"