It is the season once again when IT analysts across the land succumb to an irresistible urge to predict what the year ahead will bring their clients. Blame it on a genetic defect, fluctuations in the earth's magnetic field, or a disturbance in the Force. Whatever it is, yours truly falls prey to it along with his counterparts. That said, here are my predictions for 2007.
By the way, if you're thinking of skipping this article because you've already read 20 others like it in the last week, think again. I have tucked a stunning piece of news about the future of the System i into this article that you will not want to miss. Do I have your attention now? Then let's proceed.
Prediction #1: Emerging economies become the next catalyst that convinces IT vendors to focus on the mid-market. Historically, big IT vendors have ignored small and medium-sized companies in emerging economies because the cost of creating solutions for such firms was greater than what those firms could pay for them. Today, however, globalization is bringing billions of dollars in business to thousands of firms in emerging economies. These firms now have enough money and technical expertise to be attractive to large IT vendors. Look for 2007 to be the year when IBM, Microsoft, Oracle, SAP, and other big players move aggressively to create solutions for such companies. The nice thing about these solutions will be that many of them will also benefit mid-market firms in mature economies.
Prediction #2: Software as a Service (SaaS) will break out of the customer relationship management space to become a cross-category delivery method. One of the main ways that software vendors will reach firms in emerging economies is by packaging their solutions as hosted services. The reason they will do so is simple: It is a long, difficult, and costly process to enter an emerging market with on-premises software. You have to build and train a network of local solution providers to install and support your products. By contrast, delivering software as an Internet service is quick and simple. This is one big reason that SAP will—as I mentioned in an article last month—deliver a broad portfolio of hosted vertical industry applications this year. I also expect that Microsoft will deliver its Dynamics CRM Live offering in 2007 and announce SaaS versions of its other business applications. As these and other large vendors go the SaaS route, smaller players will have to follow suit or lose billions in net new business.
Prediction #3: Service-oriented architectures (SOAs) will ride into mid-market companies on the backs of SaaS solutions. While many companies in emerging economies will embrace SaaS, their mid-market counterparts in developed countries will do so as well. Indeed, according to a recent study by AMI-Partners, spending on SaaS offerings in Britain, France, Germany, and the United States will increase by 23% during 2007.
As more companies deploy SaaS offerings, they will come to realize that they have unwittingly adopted SOAs in the process. That is because many of the new SaaS offerings are designed as bodies of loosely coupled Web services that can work with services from other vendors or those of their users. The neat thing about many of these offerings is that they will automatically connect with growing repositories of Web services that the SaaS vendors create for their users. The best example of such a repository is Salesforce.com's AppExchange, a body of services that can plug into the vendor's SaaS offerings "on demand."
In 2007, look for other vendors, including IBM, to launch their own Web services repositories that act as back-ends to their SaaS offerings in much the same way as Salesforce.com. These repository-backed SaaS platforms will become powerful instruments for spurring SOA adoption among small and mid-market companies over the next several years.
Prediction #4: Mid-market software vendors will focus less on acquisitions and more on competing with the "Big Three." Over the last several years, mid-market software vendors have spent much of their time dealing with seemingly endless rounds of industry consolidation. Now, a handful of vendors are emerging from their mergers with the size and expertise to hold their own against SAP, Oracle, and Microsoft. Look for Infor, Lawson, and (to a lesser extent) QAD to refocus their efforts on competing with the Big Three for mid-market accounts. Indeed, it is likely that Infor will make a significant SOA product announcement by the end of this month and lay out its broader SOA strategy.
This change of focus for the mid-market vendors is coming just in time. That is because 2007 will be the year when their larger rivals hit them with a slew of on-premises and hosted offerings that are tailored to the needs of smaller firms. Many of the hosted offerings will follow the "repository-enabled SaaS" model that I described earlier. Such offerings may initially lack the deep vertical industry functionality that mid-market incumbents have built into their on-premises products. However, they will be easy to deploy and will come with low up-front costs. That will make them tough competition for any new deployments.
Prediction #5: Industry consolidation shifts to new battlefronts. While there will be less consolidation among core business system vendors in 2007 than in the past, acquisition activity will heat up in other IT sectors. In their rush to create SaaS platforms backed by repositories, software vendors will buy up SaaS "pure play" companies for their offerings and customer bases. It is even possible that someone will make an offer for the biggest SaaS pure play of them all, Salesforce.com.
I also expect more acquisitions in the business intelligence (BI) and the broader information management space. The main driver for this activity will be the growing belief among vendors that there is money to be made in finding and integrating all of the information scattered about enterprises. Big vendors such as IBM, Microsoft, and Oracle have come to realize that only they have a real shot at creating comprehensive solutions to this problem. They have also become increasingly willing to buy up data management vendors to complete their information integration platforms. Look for many small acquisitions in this space during 2007 as well as at least one buyout of a sizable vendor such as Business Objects or Cognos.
Prediction #6: Virtualization gains mainstream acceptance in the mid-market. While medium-sized companies have dabbled with server and storage virtualization for years, they have never fully embraced it because of the management complexity. However, that complexity is being whittled away by technology developments, including IBM's work to create a unified management console for virtual servers across all of its product lines. As such, 2007 will be the year when mid-market firms—including System i users—decide that the rewards of virtualization are greater than its risks. I anticipate a substantial uptick in virtual server and storage deployments as these firms seek to increase hardware utilization rates and reduce costs.
Prediction #7: Spending on IT will moderate in some industries and regions but remain strong in others. The coming year will be a patchy one for IT spending. Overall, I expect spending will moderate from the 7% pace of 2006 to a 5–6% level for 2007. That estimate finds support from a recent CIO Magazine Tech Poll in which IT chiefs said their spending would increase 5.8% over the next 12 months. I predict that reductions in growth rates will be the heaviest among companies in the consumer cyclical and housing sectors located in developed countries. By contrast, spending growth rates will remain steady in most developing countries and among companies that export products to these countries.
Prediction #8: IBM will announce a System i that runs on its BladeCenter platform. And you thought I forgot my promise to give you a stunner of a System i story! So here it is: During the second half of this year, IBM plans to ship servers running POWER6 processors. Among the first servers to run on POWER6 will be blades designed for IBM's BladeCenter chassis. Once these blades ship, IBM will be able to run i5/OS on BladeCenter, and that is precisely what sources inside the company have told me they intend to do.
My guess is that the company will announce i5/OS blades near the end of this year. It is not yet clear how the company will package the offering, though it is almost certain to include DB2 and the usual development tools that support the operating environment. Depending on its packaging, an i5/OS blade could have enormous potential in several markets. For one thing, an i5/OS blade could be an ideal platform for the VOIP solution that IBM is selling with 3COM. It could also be highly popular with SaaS solution providers, as it would run side by side with other blades in their hosting centers. IBM could also position an i5/OS blade as an "application appliance" that customers could incorporate into any BladeCenter chassis with little or no knowledge of the underlying operating system.
I realize that for some purists, the idea of running i5/OS on a blade server may be somewhat disturbing. They may feel as if such packaging could diminish the status of the System i. I would encourage them not to worry, as IBM will continue to market the System i as a standalone server. (Indeed, POWER6-based System i models are in plan and will likely be announced near the end of this year as well.) At the same time, an i5/OS blade could bring the operating environment—and just as importantly, i5/OS applications—to a wider audience. That would only work in favor of the platform that our community has loved and supported for years.
With that thought in mind, I propose a New Year's toast to the changes ahead. May we embrace the potential that they offer and let go of old ways of doing things that no longer serve us. I wish each of you the best as you seek to serve your companies and customers.