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Wednesday, Apr 21, 2004

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Track the TRIO

Krishnan Thiagarajan

Three recent developments in the IT and telecom landscape deserve closer scrutiny for they capture the changing dynamics of the scene and could throw light on the shape of things to come.

THE global information technology and telecom industry is being forced to wake up to new business realities. The traumatic years of the economic slowdown in the US may be over, but the huge overinvestment made in IT by the end-user industries in the bubble years is leading a fundamental change in the industry dynamics. Symbolising this dramatic shift in business strategy are three recent events — Sun Microsystems' historic pact with Microsoft, Oracle's proposed takeover battle for Peoplesoft and Nokia's decision to acquire a majority equity stake in Symbian.

Each one of these events has been dictated by some key developments in the IT and telecom landscape:

  • Flexibility in computing needs: Over the past year-and-a-half, IBM has been championing a $10-billion bet called `On-demand computing.' The core belief behind this IBM strategy is that customers should pay only for those IT resources that they use, rather than invest in proprietary data farms that remain largely unutilised or underutilised in most cases. Not only is this a fundamental shift in strategic thinking, but, in a single stroke, it is also capable of converting IT into a `utility' business like electricity. Clearly, companies that have attempted to lock in customers through selling proprietary hardware or software may be in for a tough time. This trend will gather more momentum as more customers taste the freedom of `openness,' in everything, from hardware, data storage to software.

  • Riding on the open source movement: This vision of IBM is riding on Linux, the open-source operating system created by Linus Torvalds, which is slowly becoming a global movement. Using Linux, IBM is posing stiff competition to Microsoft in the sale of hardware and software to enterprise customers. Recent surveys by leading research outfits such as Forrester or Yankee group show that Global 1000 companies are beginning to experiment with Linux or have plans to do so in the near future. This is a movement that is catching on, with Oracle, Intel, BEA Systems also supporting its growth.

    But the open source movement can cut both ways. IBM or Oracle — the major database players — are beginning to sense a new threat at the lower end of the database market from MySQL, a low-cost, open source, database program. Players like SAP, which has a big stranglehold over the enterprise application software market which run on a database, are recommending MySQL to some of their customers. The database market, which is already highly competitive and getting commoditised at a rapid pace, is facing this needless pressure on account of this trend. Seen in this backdrop, the latest attempts by Oracle to take over Peoplesoft and get a foothold in the mushrooming business-software market (with higher margins) makes a lot of commercial sense.

  • Morphing into service providers: The balance of power in the IT and telecom industry is steadily shifting from the vendors to the customers. First of all, the overinvestment in the go-go years has contributed to a surfeit of investment in shrink-wrapped products and databases. This has led to slackening demand for these products for software firms and loss of `pricing power' even if these markets stage a recovery. Making these products, enterprise software packages, database and other elements talk to each other has been the focus of most customers who have invested heavily in them. Clearly, package implementation, which has become a multi-billion dollar opportunity, is practically a service-oriented function. Secondly, the power shift to the customers (say, in banking, financial services, insurance or manufacturing) is also being accompanied by demands for more complex business solutions and services in specific domains rather than pure software needs.

  • Convergence of IT and telecom: Inevitably, the industry is moving towards a point where PCs, cell-phones and set-top boxes will begin to talk to each other. As the individual IT and telecom market begin to shrink, convergence alone will help widen and deepen these markets. More so, as the software that helps power these three segments is leveraged from one sector to the other. The Finland-based cell-phone major Nokia feels that the next productivity wave among corporates will emerge from smartphone devices. That explains its recent attempt to enhance its equity stake in Symbian by buying out Psion Plc of Britain. Through Symbian and other strategies, it may be in a better position to align itself with Cisco, IBM or Oracle and deliver a wider range of enterprise applications to corporations across the globe.

    Picture by P.V. Sivakumar


    (The first part of this article, titled Customer's cash calls the shots appeared in eWorld dated April 14, 2004.)

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