Software's unfinished business for 2007
Tooling up for the new year
2006 in review 2006 was an important year for enterprise software and developer tools. The computing old guard trudged on with product updates, marketing hype, and the spinning of political schemes. New challengers, meanwhile, gained traction and credibility. We identify the big events and trends of 2006 that will reverberate for the next year, and look at how they will play out.
Microsoft squeezes past Vista finish line. Now for the hard part
With characteristic modesty, Microsoft launched its first desktop operating system in five years. "This is the biggest launch in our history," chief executive Steve Ballmer crowed as Microsoft kicked out Windows Vista with a new edition of Office, 2007 Office System, and the Exchange Server 2007. "These are frankly the most significant releases of these products [Vista and Office] we've ever done."
Undoubtedly, this was Microsoft's single biggest event of 2007. In the end, though, Windows Vista was nothing like the platform Bill Gates promised in 2003, and turned out to be just another Windows update offering improved administration, performance, and scalability, a new browser (that barely keeps pace with Firefox on features), and – oh – parental controls that outgoing Windows co-president Jim Allchin unwisely reckoned meant PC users could get away without anti-virus software.
The only big ticket item from 2003: the groovy Aero interface promising break-through graphics. The catch? Apart from needing extra hardware for Aero you must also pay more, as the entry level Windows Vista Home and Business Basic use the traditional, non-Aero interface.
Office 2007, meanwhile, was an evolution in simplicity for Microsoft but hardly a revolutionary step: the new interface is suited to Windows Vista and simplifies access to previously hidden Office features. There's also integration with back office software from Microsoft and SAP.
The next 12 months will be the story of how well Windows Vista and Office 2007 sell. Microsoft hasn't revealed its own expectations, while analysts are divided: Ovum reckons Windows Vista will outsell Windows XP while Gartner has told customers to defer upgrades. Office, meanwhile, will hit the usual hurdle of users sticking with what they have, or waiting until they install Windows Vista before upgrading.
While Microsoft will no doubt claim some random benchmark as sales success for Windows Vista and Office in 2007, factors like the straddled November/January launch, the impact of delays on corporate purchasing cycles, and missing the vital holiday shopping season will have a significant impact on sales of both products next year.
The enemy of my enemy...how to kill Red Hat
Successive quarters of growing faster than the Linux server market had secured Red Hat's position as the open source darling of Wall St. Then came Oracle, and that Microsoft and Novell pact.
Oracle chief executive Larry Ellison could barely conceal his glee when he announced Oracle Unbreakable Linux Network (ULN) at the massive OracleWorld conference in October. The database giant's long-awaited move into open source support services was made more significant as an act of revenge on the world's largest Linux distribution, brought after Red Hat stole JBoss out from under Ellison's nose earlier in the year.
Since Larry announced ULN would undercut Red Hat's support network on price, if not quality, shares in Red Hat have traded 37 per cent lower.
The second blow to Red Hat was the jaw dropping alliance between Microsoft and Novell after 20 years' hostility and five years after Microsoft's senior management compared Linux to a "cancer".
Keelhauled by the community for selling out to Microsoft, Novell's pact was equally remarkable for the fact Novell got into bed with a sworn enemy on sales. By agreeing to re-sell 70,000 SuSE Linux Enterprise Server (SLES) vouchers, Microsoft hopes to stymie Red Hat's growth by pushing SLES while Novell hopes to close its yawning market gap with Red Hat.
Next year will be a defining time for all parties. Red Hat will be forced to reconcile competition from Oracle even though Oracle's support capabilities are unproven: a Pacific Crest survey of IT purchasers and users found 29 per cent would switch to Oracle. Discounts will be a factor: 64 per cent of Red Hat customers felt it's "very important" Red Hat offers some kind of discount.
2007 should see Red Hat try to retain existing customers and to grow by attracting new business. If it's successful, you could see Red Hat exit next year with a more firmly grounded services package based on an entire middleware stack, by wrapping in JBoss and even – possibly – a database.
Novell, meanwhile, is unlikely to see too many Linux converts as a result of its Microsoft deal: preliminary expectations for 2007 are for revenue below 2006's results, while 2007 will surely be a further test of the patience of Novell's customers, investors and staff. Oracle and Microsoft can afford to sit back and watch the Linux cock fight.
SOA: the long, long road to sanity
The continued absence of an agreed SOA standard meant 2006 was a big year for SOA hype and three companies had a grip on the bullhorn: IBM, SAP and Oracle.
Oracle kicked off with a massive customer event in January to clear the confusion it had caused the previous year by running Fusion Middleware and Project Fusion in parallel.
Also, Oracle continued a two-year, $20bn plus buying spree that claimed 24 scalps while succeeding in reassuring the companies' customers their software's future is safe in Oracle's hands. The trick worked and customers began spending money again.
By September, Oracle said its revenue growth and SOA strategy was putting the squeeze on SAP. "We think Oracle's strategy is helping us overtake SAP and win market share," Ellison said. Stung by claims and results that disappointed analysts, SAP officially responded with growth stats of its own and by calling Oracle's Fusion "slide ware".
SAP eschewed growth through acquisition. It delivered the first, full SOA implementation of its software, mySAP ERP 2005, in spring. In the summer it outlined a five-year roadmap for a 100,000-strong customer base, up from 35,000, with 50 per cent using its new software by 2010.
Underlying both companies' strategies is a desire for growth among both the existing, enterprise customer base and new markets - crucially the mid market. 2007 will be important for SAP in getting the ball rolling on upgrades to mySAP ERP 2005 and delivering a new version of its mid market All-in-One product, based on mySAP 2005 and NetWeaver. Oracle, meanwhile, should release updates of Siebel, PeopleSoft and JD Edwards certified on Fusion ahead of Fusion's promised completion in 2008.
But what of IBM? Not involved in business applications, IBM continued its stately progress of releasing 20 and 30 new products at a time on SOA. Expect more next year.
A new chapter in SaaS
Software as a service (SaaS) continued to grow. Salesforce.com overcame data centre outages and customer disquiet by hitting the 500,000 subscriber mark at 27,000 companies and bringing in $500m in revenue for the year.
NetSuite, meanwhile, stepped up its campaign against Salesforce.com, trying to get customers to switch. Both were buoyed by AMR Research that said 40 per cent of companies are using hosted CRM. Incumbents responded.
SAP launched its long-awaited hosted CRM suite, offering a "mixed" approach with both online and onsite CRM. Oracle retorted with a sleight of hand, claiming 1.7m subscribers at 2,000 companies for its On Demand business. On Demand in Oracle's book, though, came to mean Oracle software delivered on an external suppliers' infrastructure and SaaS, instead of just SaaS. The SaaS business it acquired in 2005 from Siebel lost both visibility and roadmap.
2007 will be an important year for SaaS. Salesforce.com will need to reconcile the talk of saying it has enterprise users by providing a customer list that goes beyond that already touted Merrill Lynch. To get there, expect Salesforce.com to announce more technology and partnerships for deep data synchronisation between its own CRM and business applications and database products from rivals – notably Microsoft.
A critical factor will be the long awaited launch of Microsoft's hosted CRM. While Microsoft lags Oracle and SAP in business applications, it generally does well in the mid market. How Microsoft delivers its own CRM suite in 2007 could determine how far Oracle and SAP start to offer a good, clean SaaS pitch. It will also force Salesforce.com to push into the enterprise to compensate for the new competition.
Grumpy old men and the developer challenge
The developer old guard wrestled to deal with the challenges of the "new" in software development. Events were summed up when James Gosling, venerated each year at JavaOne as the father of Java who inadvertently helped birth an entire industry last decade, was flamed for blogging that scripting languages – the lingua franca of a new generation of Web 2.0 developers - are not good enough for building enterprise applications.
To keep Java in with this crowd, Sun Microsystems went on to add support for PHP, Perl, Ruby and other scripting languages to Java Standard Edition (SE). To help ensure Java can ship with Linux, Sun also released Java under the GPL. That proved too much for some, and Gosling's peer and Sun fellow Graham Hamilton apparently quit Sun fearing fragmentation of Java in the hands of the community.
Borland Software also grappled with the challenge posed by open source to its own business. After 20 years, Borland took the monumental decision to sell its venerated JBuilder, Delphi, and Windows developer tools. After an eight month search, though, Borland came up short and opted – instead - to run the tools as a subsidiary called CodeGear.
Next year doesn't promise any relief from the open source pressure. CodeGear will go to market with an unproven, Eclipse-based version of its JBuilder IDE. CodeGear will campaign on value-added management features it's built on top of the basic Eclipse Framework.
Eclipse, meanwhile, will do more to make it easier for developers to find and work with Eclipse plug-ins in their chosen IDE. Whether CodeGear can succeed with its pitch will be a test case on whether commercial tools companies can really entice paying customers with the promise of "value" on top of the Eclipse platform.
Elsewhere, 2007 will see AJAX and scripting continue to grow, but Java should retain its place in the enterprise. The trick for Java vendors will be in converting AJAX and scripting developers into long-term users of Java for "grown up" applications.
Immoveable object meets irresistible force
Real news comes from the most unlikely sources. And so it was. Microsoft blindsided everyone during what should have been a routine quarterly conference call in April by casually saying it planned to spend $2bn more on R&D than analysts expected this year. Microsoft topped that up in October with an additional $1.3bn. The cash is going on an internet search, advertising and services challenger to Google. The long anticipated show down between the immovable object on the desktop and the irresistible force from the internet was finally on.
As Microsoft's own online ads revenue went south, though, and the Redmond marketing department applied its "Live" online moniker to a growing bevy of "me too" Web 2.0 services during 2006, analysts questioned the wisdom of chasing Google. That put Ballmer on the back foot: "There are very few areas where, except for Microsoft Bob, we haven't succeeded or where we're [still] telling you we are going to succeed," Ballmer said. "We think the businesses we pick are very good businesses and we should stick with them."
The real problem for Microsoft was the difficulty of predicting what Google's strategy really is, beyond the blindingly obvious – revenue from ads. Case in point: the purchase of online word processing firm Writely was seized on as the advent of an online word processing alternative to Word. It transpired, though, Google was building a subtler alternative: rich functionality in Gmail and Google Docs & Spreadsheets, which combine word processing and spreadsheets.
The stage is set next year for a complex and protracted battle between these juggernauts. Microsoft will continue to fine tune and tweak its ads search engine and will likely attract online traffic. If Microsoft's previous experience in the internet field with Hotmail and MSN is anything to go by, its latest strategy will plateau instead of achieving exponential growth.
Microsoft's biggest and best hope will be if Google takes a wrong turn or hits a bad patch, as Sony did in the games market against Xbox. Meanwhile, you can expect Google to woo small businesses and individuals using Google Docs & Spreadsheets and Google Apps for Your Domain, with the ultimate possibility of a merger between the two. ®