Before I Forget…

While most of the IT industry has tiptoed around the idea of software-as-a-service for big companies, EMC is diving right in.  Its new MozyEnterprise offers online data backup and recovery for businesses with hundreds or thousands of PCs and servers, starting at about $5 a month per system.  MozyEnterprise is just the beginning, said EMC VP of marketing Roy Sanford in an interview, and he hints at future SaaS offerings in two areas of business EMC hopes to grow: security and IT management.  It’ll deliver all SaaS offerings through a platform called EMC Fortress.  The enterprise SaaS play is a gutsy step for the $12-billion-a-year company.  Most tech companies who’ve ventured into SaaS — think Microsoft, Oracle, and SAP — haven’t courted big business in order to protect the large license fees they get from selling on-premise software.  But EMC has taken the consumer-oriented Mozy Online service offered by Berkeley Data Systems, which it acquired last year for an undisclosed amount, and recast it for the enterprise.  EMC puts MozyEnterprise under the SaaS nomenclature because it uses a multi-tenant architecture to perform backup services on desktops, laptops and servers, and the service can be managed by an administrator over the Web.  EMC says it has 1,200 resellers lined up to offer MozyEnterprise, many of whom have been offering Berkeley Data’s Mozy for consumers and small businesses.

Fortunately for EMC, the company needn’t worry about the type of internal strife that can happen when SaaS threatens to replace salespeople’s commissions — primarily because EMC/Berkeley has never offered an enterprise version of Mozy.  Sanford acknowledges, however, that future SaaS offerings may not be as uncomplicated.  “It’s always a challenge when you step on some of the old business models,” he said, while quickly adding: “We don’t see ourselves competing with ourselves; we see ourselves growing a new business.”  EMC doesn’t want to “tip its hand” at what else it’ll deliver under Fortress, Sanford said, while adding that consultants site security and IT management as ideal areas for SaaS.  EMC’s RSA Security business, which it paid $2.1 billion for in 2006, already offers Key Manager as a service, for storing and managing access to encryption keys, he noted.  EMC isn’t a SaaS vendor in the traditional sense of the word, delivering up software services to manage customer relations, billing, or human resources.  But considering EMC’s expertise in data storage and security, and the sheer size of its customer base, its move into the on-demand world could give a major boost to the acceptance of SaaS among big business.

Reference : http://www.intelligententerprise.com/showArticle.jhtml?articleID=205917978

India is still the most attractive country to which to move back-office operations, according to the 2007 Global Services Location Index compiled by A.T. Kearney.

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The index evaluates 50 countries according to three main categories: financial attractiveness, availability of skilled workers and the business environment.  India stays ahead of China, ranked second, thanks to lower wage, infrastructure and regulatory costs.  Both countries lead the rest by a good margin.  Policies to promote service exports in Latin America have helped Brazil and Mexico rise in the global league.  Less established locations in eastern Europe, such as Bulgaria and Slovakia, are now ranked higher than either Poland or the Czech Republic….And Malaysia is ahead of Singapore…..interesting…..

Reference : http://www.economist.com/displaystory.cfm?story_id=9725614

Accenture has been named as the new worldwide leader in Systems Integration (SI) services, according to an IDC analysis of SI services revenues for 2005.  IDC said the competitive shift is significant.  It’s the first time IBM Global Services has been bumped from the top spot since IDC first began tracking the market in the late 1990s.  IDC defines SI as a process that includes the planning, design, implementation and project management of a solution that addresses the specific technical or business needs of a client, including systems and customer application development and implementation and integration of enterprise packaged software.  According to IDC market analysis, Accenture’s rise to the number one position in worldwide SI was due to customers’ increased investments in SOA, infrastructure improvements and application services.  “Fueled by strong customer demand particularly in the Americas and EMEA, Accenture achieved 8% growth, well above the market,” IDC reported.  “Deep client relationships, a robust ecosystem of partners, and strong brand recognition have contributed to its success.”

According to the IDC report, worldwide SI services experienced its strongest year since the peak of the dot.com boom in the late 1990s.  The market experienced growth of approximately 4% in 2005, about double over the previous year.  However, half of the top eight companies experienced declines due to various factors.  “The improved economic conditions, pent-up demand and a desire to align business processes with IT systems drove spending,” continued the report.  IDC also noted that willingness to embrace the evolution of the software environment, close collaboration with partners and customers, strong understanding of the industry-specific business processes, and mature and seamless global delivery capability are predictors of future success in the SI market.  Outsourcing growth opportunities notwithstanding, project-based services represent the leading services business for most of the top 10 worldwide SI providers, according to the report.  Accenture, for example, further increased its outsourcing business to 40% of its overall services business, compared with 37.4% the previous year.

Reference : http://www.tekrati.com/research/News.asp?id=8127

THE DEAL

• IBM on Wednesday took one of the most dramatic steps yet in its bid to overhaul its slow-growing services business with a $1.3bn software acquisition.  IBM agreed to pay $28 a share for ISS, an 8 per cent premium to its closing price the day before.
• The all-cash purchase of Internet Security Systems will further erode the barriers between IBM’s services and software divisions.
• ISS, whose software is used to fend off intrusions against corporate and government IT networks, will be run as part of IBM Global Services, even though IBM already sells security software under the Tivoli brand via its separate software division.  IBM said it would run ISS as a separate unit within its services business and leave its existing management in place.  It also said ISS’s product strategy would move “in lock-step” with Tivoli.
• The ISS deal marks the services division’s biggest acquisition since the purchase of the PwC consulting division in 2002.
• It is IBM’s third big software deal in the past three weeks.  It agreed to pay $1.6bn for FileNet, which makes content management software, and $740m for MRO Software, whose technology is used to track and manage corporate assets.

THE RATIONALE

• Deal reflects an acceleration in Big Blue’s use of acquisitions to raise its profile in some of the fastest-growing segments of the IT market as it battles to revive its flagging growth rate. 
• The technology giant set out on its services strategy last year, moving executives to bring a more product-based approach to the services division.  Backed by ISS products, IBM will be better placed to sell “standardised, repeatable, software-based services”, said Val Rahmani, general manager of IBM’s infrastructure management services business, who will oversee the ISS business.
• Recent deals partly mark IBM’s attempt to counter a slowdown in technology spending by corporate and government buyers.
• Combining ISS with services rather than the software division reflects IBM’s broader plan to use software to revitalise services.
• Tom Noonan, chief executive of ISS, said putting his company into the services division echoed a broader trend in the software world.  More than half of ISS’s revenues come from subscriptions rather than traditional up-front software licences, he said.

Reference : http://www.ft.com/cms/s/54bc1e7a-32a1-11db-87ac-0000779e2340.html

Did not know that Nandan Nilkeani, co-founder of Infosys (market cap $20b) has been dubbed the “great explainer” by Thomas L. Friedman, author of The World Is Flat: A Brief History of the Twenty-First Century.  Excerpts from the FT article entitled “The Great Leveller In A Rising Land”, an awesome read, alongwith amusing caricature -

“It was very generous of [Friedman] to credit me with the idea for his book,” says Nilekani, who this year received the Padma Bhushan, one of the highest civilian honours awarded in India.  Friedman described how the Infosys chief executive sat on the couch outside his office and said: “Tom, I’ve got to tell you something, the global economic playing field is being levelled.  And you Americans are not quite ready.”…..”[Friedman] is an ideas entrepreneur,” he says.  “Entrepreneurship in business is about a guy who has the best idea and acts quickly to get his product to market. He’s the intellectual equivalent.”  Listening to Nilekani explain the future of outsourcing might be intellectually stimulating, but softies who hanker for job security and a stable monthly paycheque will find it profoundly unsettling.  Global offshoring is today an industry still in its infancy, with more than 90 per cent of the addressable market yet to be tapped, according to Nasscom, the Indian software lobby group.  “Anything that can be sent over a wire can be outsourced, anything fungible is up for grabs, any tradeable service anywhere in the world,” he says.  “Fifty per cent of global GDP is services and a lot of that is tradeable.  The sky is the limit.  Everybody has to restructure to play this game because price contamination has started.  If one company in a sector is doing it, but others aren’t, it’ll become more competitive.”  When one company “punctures the umbrella” for an industry by outsourcing to India, it has huge restructuring implications for everyone else in the sector, he says, triggering a chain effect that ends only when all companies are “totally globalised”, their supply chains fragmented, human capital sourced across the world.  “That’s the nirvana we want to reach,” he says.  “It’s an inexorable trend.“

Indeed, India’s IT software and call-centre exports, of which Infosys accounts for about 10 per cent, are surging.  It took Infosys 23 years to reach sales of $1bn and 23 months to turn over $2bn.  The value of India’s IT exports rose 33 per cent last year.  Like many of the entrepreneurs who are spearheading the offshoring revolution in India, Nilekani is a graduate of one of seven Indian Institutes of Technology, in his case IIT-Mumbai in 1978.  Many quit India for Silicon Valley, but Nilekani joined Patni, a local IT company.  Soon afterwards, he sought out Narayana Murthy, the father of the Indian IT industry, and joined him and five others in setting up Infosys.  “We democratised entrepreneurship in India,” he says.  The early 1980s saw the Indian business scene dominated by public companies, well-connected family-owned business houses that monopolised scarce industrial licences, and a scattering of multi-national companies.  “The notion of a bunch of guys united by nothing more than shared love of technology was pretty extraordinary.”  They were in the right place at the right time.  In 1991, foreign companies began looking at India as a base for software operations, economic liberalisation started to open up the country to foreign investors and the government introduced policies that encouraged IT exports.  Infosys, which went public in 1993, rapidly became a byword for a rising India, a mandatory port of call for visiting foreign leaders. 

Nilekani enjoys a reputation for being an ascetic and, with a 4.1 per cent family shareholding in Infosys worth about $800m, is moving fast into philanthropic mode.  Like Bill Gates, he is in the strange position of giving away money while still making it.  “The market economy is the only way to go, but if you want to make it socially acceptable, guys who make money must give back to society,” he says…..Nilekani makes clear that India’s business success is payback for centuries of economic exploitation.  “The juxtaposition of India and China is a consequence of what we’ve achieved on the services side,” he says.  If India is creating job insecurity in OECD economies, he certainly feels no need to apologise.  “I don’t think that a high standard of living is an entitlement,” he says….. “I don’t think the world can live with everyone driving an SUV.  Something’s got to give.  It’s just become more competitive.  If Indians and Chinese can work 80- 100 hours a week and they are part of a global, fungible labour market, it’s going to have an impact on living standards in the west.”…..”I believe that the tide has turned,” he continues.  “Two hundred years back, India and China were 50 per cent of global GDP, but both, for different reasons, opted out of the race.  In China, they turned inwards and in India we had the empire.  The next century is an opportunity to redeem some of that: the flat world has created a unique confluence of circumstances which will have a huge impact on all our lives.”  India faces growing threats from China and other low-cost countries developing competitive IT industries.  “From a strategic perspective, India’s opportunity has never been better for 1,200 years, but we can still blow it,” he says.  Bangalore, the IT capital of India, is a case in point.  Once a salubrious garden city populated by retired army officers, it has morphed into a sprawling and utterly dysfunctional metropolis, its roads permanently gridlocked…..Urbanisation in the west, he says, took place over hundreds of years in countries then with small populations and a limited franchise.  In India, the same process is happening at internet speed in the world’s largest democracy.  “Urbanisation is happening at a pace no urban planner can cope with,” he says.  “An annual movement of one per cent of the population is 10 million people.”…..Over the last 25 years, he and the other founders of Infosys have created a company with a symbolic importance that goes far beyond its size and quarterly profits.  Yet the fact that today it receives 1.4 million job applications a year is as much a testimony to the remarkable regard in which it is held as the poverty of opportunities for bright young people in this country…..

FT Reference : http://www.ft.com/cms/s/e62906c6-191e-11db-b02f-0000779e2340.html