Not sexy, but thriving

Cloud computing is all the rage and grabbing the headlines, but does this mean that the business applications market is wilting? Not so, says Jane Thomson, MD of Softworx.

Thomson says the recession has changed IT spending in that there is more caution and decisions are taking longer. “Many businesses are now operating off a 'schedule of absolute priorities', which often means cancelling and postponing non-essential projects, especially replacement projects. Companies are also looking at extending the life of assets through upgrades.”

What's keeping CIOs awake at night? According to Thomson, it's escalating costs with little additional perceived benefit. “Proving ROI is becoming very important, as is getting buy-in for IT initiatives. Then many businesses are trying to turn capital expenditure (Capex) into operational expenditure (Opex), because justifying Capex is becoming increasingly difficult.”

Good news for enterprise business applications companies is that open source software firms are thriving. Red Hat, the world's leading provider of open source solutions, saw growth in total revenue of 12%, to $183.6 million for its fiscal year 2010 second quarter ended 31 August 2009. Subscription revenue for the quarter was $156.3 million, up 15% year-over-year. It appears that when budgets are tight, open source becomes increasingly popular, so much so that even traditional software companies are exploring open source, particularly after IBM and Oracle threw their lot in with Linux.

Good news for enterprise business applications companies is that open source software firms are thriving.

Mandy de Waal, ITWeb contributor

Another trend that is being driven by the economy is the drive by CIOs to favour quick wins or quick fixes over complex and elaborate software implementations. Says Thomson: “We are seeing a lot more 'smaller' requests for software and services, as well as 'quick' upgrades.” Then, as expected, ROI is becoming more crucial than ever. “There is more realism around ROI expectations today. We are finding that the focus is on capital expenditure and minimising this rather than the more traditional ROI, which was usually difficult to measure anyway.”

Thomson adds that the recession is bound to mature the local software market by making it tougher and more resilient. “Expect to see an increase in the consolidation of software vendors, and a move on the part of vendors to offering more creative licensing models.”

The business applications market will have to get a lot more creative if it is to stave off the erosion of its market by cloud computing. According to Gartner, of the R480 billion spent on business applications in 2008, 10% went to applications delivered via the Internet or hosted remotely.

“Cloud computing is a broad and diverse phenomenon. Much of the growth represents a transfer of traditional IT services to the new cloud model, but there is also scope for creation of substantial new businesses and revenue streams,” said Ben Pring, research VP for Gartner. “Cloud computing enables a shift in IT provision from direct purchase and payment for services to provision of services that are free at point of use and where revenue is derived from advertising. Services supported by advertising are currently, and will remain, the largest component of the overall cloud services market through 2013.”

Thomson says other pockets of growth will be in critical systems. “That and systems that have an impact on direct business improvement, like inventory optimisation to assist the cutting of working capital.” Thomson adds that the recession will change the way software is charged for, where options like “SaaS, hosting, rental, and recurring revenue models are gaining firm ground”.

Her advice when it comes to selecting software partners during the downturn? “Favour agile businesses - those that are prepared to share risk with you.”