Bill Gates and Microsoft chief software architect Ray Ozzie saw it coming in late 2005. “The next sea change is upon us,” Gates trumpeted in a now-famous company memo entitled ‘Internet Software Services’.
“The broad and rich foundation of the Internet will unleash a ‘service wave’ of applications… Services designed to scale to tens or hundreds of millions [of users] will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses.” The wave, he warned, would be “very disruptive”.
As Nicholas Carr, the former executive editor of the Harvard Business Review, astutely observes in his new book, The Big Switch, that call to arms at Microsoft came just a few months after Google had made a watershed, top-secret purchase. The world’s largest web presence had closed a deal to buy a site for a huge data centre complex – just a couple of hundred miles south of Microsoft’s
The Google move is not to be confused with any kind of traditional outsourcing, whereby a third party might offer to run an organisation’s IT systems, write its software or host its applications. This is the use of a vast, bullet-proof utility infrastructure designed to deliver all kinds of IT services, thereby enabling organisations to end their requirement for the ownership, generation and management of much of their IT – in much the same way as electricity generation plants took over from private generation as the source of industrial power in the first few decades of the 20th century.
As Ray Ozzie said in that 2005 memo: “Computing and communications technologies have dramatically and progressively improved to enable the viability of the service-based model. [People are] increasingly considering what service-based economies of scale might do to help them reduce infrastructure costs or deploy solutions as needed.”
One of the most interesting aspects of this tectonic shift is that it is not the big enterprises who are likely to adopt the new model first – they have sunk too much into their own IT infrastructures and have business processes that are too dependent on their own bespoke systems. Rather, the opportunity will be most enthusiastically embraced by small and mid-sized businesses (SMBs) – those who may have struggled to justify big investments in IT infrastructure and IT people in the past but who now feel the imperative to embrace ERP, CRM, ecommerce and other joined-up business applications.
Fundamental change
“If all you need is the milk, why buy the cow?” Steve Mills, the head of IBM’s $20 billion software business, is contemplating the role of technology in the modern SMBs. While many such organisations now have IT requirements that are just as sophisticated as their large enterprise counterparts, they have no desire to match the huge investments in IT infrastructure typically associated with the operations of high-end companies.
The viability of applications and systems capabilities delivered over high-bandwidth Internet connections has already enabled mid-sized business to go after the same business outcome that might be expected from a high-end SAP or Oracle implementation. But by running these over the web – without the maintenance, the installation, the licensing issues, the scaling issues of ramping up and down user numbers – they can get to that outcome without the upfront costs. In short, they can punch above their weight.
In the past, that option applied only to relatively simple applications such as email and sales force automation, but it is now being extended to major services, allowing companies to operate with a very lean IT skill base – often with no IT manager or director.
“We are seeing [that] happening in smaller business, businesses [where it is] hard for them to maintain the skill sets necessary to operate IT on their own,” says IBM’s Mills.
The technologies and services brought together to enable this today – server and storage hosting, remote infrastructure management, automated updates, software-as-a-service and other bandwidth-enabled offerings – have reached a level of maturity that makes them reliable and widely applicable. In many cases, organisations are signing up with multiple service providers that deliver the application structures they need to run their businesses from remote systems. But even when the organisation wants to keep systems in-house, they can find plenty of IT infrastructure management partners who will set them up for remote management. “They will tell you what to touch and what not to touch. So you have your own server, your own data locally, but you [need] very minimal in-house knowledge of how to manage and maintain that,” says Mills.
“There is more and more automation arriving to make it possible for someone to remotely help you manage and control that server without literally having to push it off site,” he adds.
Of course, these options have been with us for years, Mills adds. It is just now that standards and high bandwidth are making them ever more possible and cost effective.
Mid-market focus
That is a core point of Nicholas Carr’s The Big Switch. Carr observes that it is only in the past few years that the main barrier to delivering all kinds of applications services over the web – at the speed of a local network – has collapsed. “Thanks to all the fibre-optic cable laid by communications companies during the dot-com boom, Internet bandwidth has become not only abundant but also abundantly cheap. It doesn’t matter whether the server running your program is in the data centre down the hall or in somebody else’s data centre on the other side of the country, all the machines are now connected and shared.”
And he continues: “The fibre-optic Internet makes the location of the equipment unimportant to the user. By providing a universal medium for data transmission and translation, the Internet is spurring the creation of centralised computing plants that can serve thousands or millions of customers simultaneously. What companies used to have no choice but to supply themselves, they can now purchase as a service for a simple fee.”
“It is now becoming much more accepted to move to a hosted solution; people are much more confident in it,” says Robert Epstein, head of small business sales and marketing at Microsoft
The desire to service the requirements of mid-range companies more effectively manifests itself in equally fundamental areas. Software vendors have long acknowledged that the requirements of mid-sized companies are different from high-end and smaller companies, although they have not always been quick to address that.
For David Pinches, head of the software group at Sage’s mid-market business, there are some major shifts under way here: “What we are starting to see in the mid-sized market for business software today – and it is a marked change from the past – is that companies want a lot of what the big boys have already got. Our research shows that more than half of our customers and prospects are now looking for more of a software infrastructure – a software infrastructure that shares relevant data, that enables business process to flow from one part of the business to another and, indeed, needs to be accessible across wide area networks as well as local area networks, out to remote usage and out to mobile usage.”
Of course, what they are not prepared to do is pay the same amount of money as large corporations who have been implementing such infrastructure for the past decade – or recruit the staff levels to implement and look after that, he adds.
What vendors have to do for mid-sized companies is provide integration, configuration remote management, patch and update management, security and much more – right out of the box.
But alongside that has been a parallel development. The reseller community has increasingly acted as the outsourced IT department, says Epstein. Their levels of service delivery have vastly improved as the emphasis has shifted at many resellers away from hardware margins.
In many cases, this enables SMBs to get a better service and dispense with their IT manager or director. Take the example of the Recruitment and Employment Confederation, the 80-person organisation which represents UK-based recruitment companies. It had an IT manager handling the systems behind its membership database, website, training operations, accounting and office functions. But reliability issues with the systems and network software prompted a strategic rethink. In December 2006, finance director David Vallance, who holds overall responsibility for IT, led a revamp of the infrastructure around centralised servers, thin-client computing and industry-standard applications based on Microsoft software, while passing support to three service providers – for IT, telecoms and backup. That resulted in a marked increase in systems stability, a much lower systems management burden and, ultimately, lower overall costs – it has also seen the demise of the permanent IT management position.
That organisation is not alone by any means. Jo Dalby, head of finance at Busy Bees Childcare Vouchers, has dispensed with the requirement for an IT director, accepting that the level of service she can obtain from partners has reached a level of maturity such that her organisation is going to be better served from outside.
Denmaur Papers, where the finance director, David Manning, also handles IT, is another case in point. In just one example of the company’s pragmatic but effective employment of IT, Denmaur has moved to a server-based computing environment using Citrix thin-client technology. That, along with other initiatives, has obviated the need for a senior IT role.
Today, such executives bear no resemblance to their computer-illiterate predecessors. Says Sage’s Pinches: “Over time, the maturity and knowledge levels within the mid-sized company in terms of what IT can and can’t deliver has largely been elevated in that these companies are now on their third or fourth generation of what may be a network infrastructure or business applications suite, and they know what they want. They know not to be bamboozled by the buzzwords of the moment. These guys are savvy; they may not have the title of IT director, but in a way they are actually more savvy because they are knowledgeable not just in IT but in IT within the business construct”.
Into the cloud
But this is just the beginning. There are developments and structural changes under way now within the industry – both in terms of technologies and services – that will further reduce the need for a direct senior IT management role at many organisations, or at least alleviate some of the pressure on those shouldering that responsibility.
“Historically, enterprise IT has had a big price tag attached to it and has required a significant investment in resources both within and outside the company,” says Robert Whiteside, Google’s head of enterprise for the
Google Apps Premier Edition, released in February 2007, uses a ‘cloud computing’ delivery model to provide capabilities such as mail, calendar, collaboration tools and web page creation. Each user for Google Apps costs a straight £25 a year.
“Because all of the IT management and the infrastructure is taken care of by Google, there’s no real need to have a dedicated IT resource within the organisation to take care of those tools,” says Whiteside.
But how far will Google push this model into the business? “We don’t know what will be in the applications suite over time. Google focuses very much on developing tools that address a wide audience. I don’t know if Google brings anything to the party in terms of, say, our understanding of CRM or financial systems, so it may not be appropriate for us to do that. But this is an emerging market and we’ll see how things develop.”
Since the launch of Google Apps, half a million companies have signed up, and a further 2,000 new companies (or at least separate domains) are joining every day.
“The world is becoming more online. We feel we have some particular knowledge of how to deliver web-based applications to take advantage of that. There are lots of companies providing more traditional modes of IT – client/server or PC-based solutions. We are looking to bring and harness the capability of the Internet to provide a new level of capability that is not really achievable in a PC-based computing model. We do see cloud computing as the future delivery model of IT,” says Whiteside.
Google is not the only one building huge data centres focused on application delivery. Microsoft, Yahoo, IBM, Oracle and SAP are also putting in place the utility engines for all kinds of services delivered over the web, talking about business applications as a service or storage as a service or collaboration as a service and more. And not just to end-users. Google executives were recently spotted calling on several of the world’s largest financial services companies with propositions for handling their storage, email and backup as a service.
In short, such companies see themselves as the next big utilities companies – where the utility is IT services. As that becomes a reality – especially for SMBs – there will be dramatic changes in the employment prospects for IT management.
