John Treadway

Forrester CEO George Colony predicts that the tech spending impact for this recession will be lighter than the 2001-2003 tech depression.  He has a few good arguments, but perhaps he's being too optimistic.  One of the budget items that gets cut in a downturn is hefty annual fees to analyst firms like Forrester and Gartner.

Of course, we all hope he is right.  While the Boston area job market is significantly more diversified these days, enterprise technology is still a big piece.  Given that one of the leading employment markets – financial services – is in the trash compactor, we need tech to stay strong.  Health care continues to move along, but we're in crisis there too.  And education (rounding out our top Boston markets) is feeling the pinch with fewer able to afford the big private college tuition payments after their portfolios are down 40% or more over the past 12 months. 

So let's hope the folks at Forrester are right on the money – that we're looking at slowing growth and not massive declines in the enterprise tech sector.

The most important pioneer in the public cloud computing space is undoubtedly Amazon with their Web Services environment (AWS).  They started it on a big scale with S3 and have made steady and meaningful progress for the last few years to the point where it's now a great platform for both startups and small enterprises.  Recent releases including support for Windows, persistent storage on EC2 nodes and more make this a no-brainer for so many application needs.  Wall Street firms won't run their trading and risk applications in the cloud for some time – if ever.  When an extra milisecond can make or break a trade, you need to control every piece of hardware, software and networking gear in the process.  But for everyday applications like mail, accounting/ERP, CRM and more, the    re's a lot to love in the Cloud.

AWS has spawned a host of smaller but innovative competitors.  And guys like IBM, Cisco, Dell, BMC and others are all over this space.  None of them have had the pure firepower for changing the game until Microsoft's Azure announcement.

With absolute domination on the desktop, leading presence for groupware, messaging and internal network services, Microsoft's full embrace of the cloud is going to result in some serious changes in the enterprise.  What if you never have to buy servers for 90% of your applications?  Or patch them, or upgrade them or manage them??  That's what this announcement means.  Sure, you still have to buy desktops and notebook computers.  But over time you'll need fewer and fewer servers in your business.

It won't happen overnight – this is going to be a 10-year transition.  But the Cloud just got a lot closer and at some point we'll look back on the tons of hardware we owned and shake our heads.

This is a fairly unscientific look at some of the possible winners and losers in enterprise technology in 2009.  It's important to note that a Winner is a market that is flat or (not likely) increasing – very few markets are going to be on a fast-growth path.  Loser markets will see material drop-off in demand.  Also note that this is broadly defined – in some customer segments or on a company-by-company basis the results will be different.

The Losers
Let's start with the likely losers – I like to get the bad news out of the way first.

• Enterprise 2.0 / Social Enterprise:  Let's face it – for most companies facing massive layoffs, plant closings, credit blocks and suppliers in similar straights, these are just "nice to have" applications.  Wikis, internal blogs, Yammer, communities and other such solutions are just not mission-critical, no matter what value they propose to bring.  There will be exceptions, but this sector is looking at hard times.
• Mobile Enterprise:  for most businesses (perhaps mobile banking is an exception), internal or customer-facing mobile applications are still in the "leadership" category of spending.  That means we will invest to get a leadership position in using this technology and hope for some real benefits as well.  To paraphrase from Maslow's Hierarchy of Needs – people who are having trouble with food, shelter, safety and other basics are not focused on investing in self-actualization or experimentation. 
• Low-Utilization Software Renewals:  there are dozens or hundreds of applications licensed by companies that don't get that much use.  IT budget-masters are going to force departments to justify renewals on license fees and those apps that "sounded good when we bought it" but aren't adding value to the business will see the ax fall.
• PC Replacements & Vista:  just like consumers are holding onto their cars longer, companies are going to continue or increase their focus on keeping existing technology running longer.  Watch for a faster drop in corporate desktop/laptop purchases.  And Vista is just not a priority.
• Network and Data Center Upgrades:  unless it's really impacting the business, look for consolidation/reduction in data center assets.  That means more stuff on eBay, and less new shiny boxes in the DC.  The exceptions will occur where consolidation and virtualization projects can allow big decreases in data center footprint and power costs. 

There are many more sectors that will be impacted, but this is a good start.  I'd suspect that database, CRM, ERP, and other core infrastructure technologies will also get hit.  Watch for the big enterprise dbms vendors like Sybase and Oracle to ramp up their focus on license compliance enforcement as their pipelines of new business shrink.  Offshore outsourcing may also take a hit as companies try to pull back projects to retain local talent where it makes sense.

The Winners
Despite the downturn, many sectors should continue to be strong. 

• Virtualization:  most companies are still early on their transition to virtualization infrastructures.  The cost savings in terms of hardware and power costs are substantial and the downturn could accelerate this transition
• Security:  a lot of compliance-related security spending will stay strong, even in markets as week as the financial sector.  PCI, SarbOx and other regulations include significant emphasis on IT security.  Network security is fairly mature, though always facing new threats.  Application security is a bigger concern today than a few years ago, so I'd expect this to continue to grow.  If you're leading the risk & compliance function at a public company, security issues surrounding your networks, data and applications make it hard to sleep at night.  Add to that the potential for sabotage by employees expecting to lose their jobs coupled with sloppy development and deployment due to under-staffed IT groups and security incidents are bound to increase.  A combination of "black box" and "white box" application security will be required to guard against both types of employee-introduced vulnerabilities.
• Open Source:  the cost advantages of open source are clearly favored in a tight spending environment.  More Linux, less Windows.  More MySQL and EntperpriseDB and less Oracle and Sybase.  More OpenOffice and less Office.  More Zen, less VMware.  And so on.
• VoIP:  if you're consolidating locations, often times you end up with a lot of excess telephony.  Sell the equipment if you can to fund replacement with VoIP.  Any new offices should be VoIP.  Leased voice T-3 lines are so 1985.
• IP Videoconferencing:  the travel budget is going to get a lot of scrutiny.  Adding a low-cost telepresence infrastructure can reduce the need for a lot of travel between corporate locations.  If you can have the big 1-day meeting with your London team (in London) from the comfort of a conference room in NYC, you'll save a lot on airfare, hotels, and expensive dinners.

Again, this is just a snapshot of some of the likely winners and losers in the massive enterprise tech space.  It's clear that we are looking at a major contraction for some types of IT spending and to once again paraphrase and adapt Maslow – if you're facing insolvency, layoffs, plant closings and stress-mergers, the first things to go are those that merely make you better and the last things to go are those that allow you to exist.  And while the Beatles sang "All you need is love" we all know that water is good too…

It's gotten to the point now where people don't want to discuss the market any longer.  It's far too depressing.  So, I thought a little levity might help.  Perhaps someone could reinterpret the truly brilliant Fawlty Towers "The Germans" episode where Basil Fawlty (John Cleese) tells everybody about the German tourists coming to stay at their inn.  "Don't mention the war!" is his warning to the staff and his wife, which of course leads to him doing his best to discuss it at length after getting hit on the head by a mounted moose head.