The incredible shrinking IT industry
Out of Business proposition
Opinion It's taken me ages to get it. The IT industry, at least as I knew it, is fast disappearing before my very eyes. It took the speculation that Sun and Apple would team up to jog me out of my IT industry's trance. When I thought about the real business logic of such a relationship, the idea was just silly. Forget all that consolidator crap, which in any case is a route for jaded companies that lack innovation and intellectual leadership. Apple and Sun are in completely different markets - Apple in an emerging consumer products industry, and Sun in (excuse the pun) a sun-setting office equipment sector.
When you really, really think about it, Apple is now not a computer company at all, but a consumer products company, using shelf-available technology products as components to build great consumer products. Some of these happen to resemble old fashioned personal computers. (Apple says that it ships 700,000 products each month, of which 50 per cent are iPods. And I suspect less that 10% that they actually manufacture.) Apple products are a million miles from doing traditional office chores. Don't believe me? Then look at the evidence.
iPod could be confused with being an MP3 music player, but actually its much more - a thing of beauty, built to play music that has been selected and mixed by an individual, using a hybrid software/service consumer product called iTunes. This is a pure emerging market consumer play and one that actually (if you buy into the whole Apple product line) allows individuals to even broadcast their music mix creations over the Internet. Rap goes commercial; street goes Wall Street. Apple products make everyone an artist through play-lists, equalizers and play options.
The fact that an iPod has an on-board operating systems and multi-gigabytes of storage has little or nothing to do with anything. iPod and music aside, Apple products focus on digital photography (iPhoto), electronic story telling (Keynote), video (iMovie/iDVD), the Internet (Safari) and, more recently, human interaction (iSight). Apple's gone, man. And gone to a better place. Sun on the other hand are stuck in the mud, going no place.
So where does this leave the others. Let's see....
IBM is now an office services company; it provides and supports office equipment at one extreme (PCs that are the boring equivalent of office machines), and services offices at the other extreme (central computer and consulting services). IBM's background is in successfully making and selling office machines; the first were time card machines in the early 20th century, which automated factory workers clocking in and out. IBM's challenge is to use residual revenue, profit and cash from historic product lines (such as the 390 range) to make itself successful in smaller office machines and services. Good luck, especially as, if you had not noticed, the office itself is heading south – 3 million mostly office jobs have disappeared from the USA in the last three years. This does not bode well for office equipment makers.
Data plumber’s merchant
Cisco is a data plumber's merchant, supplying everything from internal data piping to connections, joints and converters (routers etc.). From Roman times, water was the focus of plumbing systems and attracted high profile investors. Since the mid-1990s plumbing has been about data, and Internet connecting to corporate data riverheads. But the funny thing about plumber's merchants is that in the end nobody really gets excited about them. And that is what will happen to Cisco. Just think, 30 million USA homes will have high speed connections by the end of 2003, and each one of these homes will have on average eight to ten times the capacity of the average company’s privately networked site, and will do so for about ten per cent of the cost of a private site interconnect. Who really believe that Cisco will be able to retain their margins? And by the way, that's in today's world; with PLC things get much, much worse.
Sun and HP still are old-fashioned big office machine makers, but are trying desperately to move up the food chain and get into office services and machines. Since the wide availability of power office tools (aka PCs), neither has been very successful. And neither really can get their head around the fact that they are in a tough commodity market with no real advantage, and a very poorly articulated value proposition. Imagine selling the Java to the average stressed business manager. Or all that crap that HP spray endlessly onto business and computer magazines. Give me a break. Talk revenue and profit enhancement, not bullshit.
And Dell is a high volume discount office equipment supply shop -- nothing more. Its parallel is white goods, but their market is not motivated in the same way; chose between a washing machine and a new PC - not hard eh?
The whole point is that increasingly IT companies don't or can't have a pure information technology value proposition, because in isolation, such a proposition today has no measurable business value. Its like companies that make automobile components; rarely do they get identified in an the end product's value proposition, which is getting people and things from A to B in varying degrees of style. Like, very few people really care about who makes the fenders or air bags, as long at they perform adequately. In IT, the incremental business value of equipment and software has been sucked dry.
But, you’re saying, what about the Next Big Thing? Won't that reestablish IT as a stand-alone industry? No - the Next Big Thing is all about how technology is better used and creates more value in the context of business results. It's about IT becoming a management, not a technical, discipline. That means how do line managers grow revenue or profit; not about getting excited over some tarty new technology.
If the IT industry’s answer is to buy more faster PCs, it is barking up the wrong tree. Please, HP and IBM, stop those stupid adverts that show sub-human looking people trying to look meaningful - pathetic or what? Nobody who has budget out there really cares about 64 bit processor speeds or bussing architectures other than enthusiasts, which is what we all in IT are becoming. And that is no value proposition; it's an out-of-business proposition. ®
About Cormac O'Reilly: Late sixties IT industry entrant with early developer gigs in London at Abbey National, Unilever & BOC. Senior IT oil field trash in the eighties and nineties; Schlumberger (Houston TX) and Shell (The Hague). Board IT big-wig at Costain (London) before CIO/CTO at Digital and Wang Global/ Getronics (Boston). Non-exec director at two flame-out dot.coms; now spending ill gotten gains and being provocative in Newburyport, MA