An excellent presentation at a recent IT symposium in Cape Town looked at the challenges faced by enterprise resource planning (ERP) vendors as consolidation in the industry continues to claim vendor after vendor. The analogy of small fish being devoured by bigger and bigger fish came to mind, always a convenient yet admittedly simplistic way of encapsulating the current state of the software industry. More recently, some observers have declared that consolidation is inevitable at all tiers of the industry and that this spells the death of the creative software environment that characterised the late 1990s.
Could it be that one day you will be able to buy an ERP solution by buying a magazine with an attached CD?
Gavin Halse, MD of ApplyIT.
Coupled to this, I had the privilege of listening to Bill Gates, founder of Microsoft, declare recently that Microsoft will continue to compete strongly in areas requiring "high levels of sustained investment". Within that statement was contained the essence of the biggest problem experienced by software giants today: how to continue to differentiate their offering and extract economic value from intellectual property, while software becomes "commoditised" around us. When you are a "big fish" you have to use your strength and size (and investment dollars) to compete, because in almost all other respects "big" is also associated with cumbersome, inflexible and slow to adapt.
My ideas on this topic were further developed by a good colleague who has held many directorships of software and technology companies over the past 20 years. His assertion was that "one day all software will be free". Of course I did not agree this spelt the end of civilisation, but it did raise some questions as to where we are all headed. Any software specialist who has spent a few hours at Heathrow and was anxious to get rid of the last of their sterling coins has bought a number of computing magazines adorned with DVDs packed with gigabytes of "free" software, often representing the demise of some luckless software vendor. Could it be that one day you will be able to buy an ERP solution by buying a magazine with an attached CD?
A quick search on the Internet for "open source ERP" confirmed my fears. The world was indeed seemingly coming to an end because you can now download a full ERP solution for free and buy the full documentation set for $40 from some address in the US. If ever there was a warning light for software vendors, this is surely it... Beyond software becoming a commodity was the very real prospect of it becoming freely available for free, a concept hitherto only understood and embraced by dubious pirates.
The analyst at the Cape Town symposium had an analogy that has stuck with me and brought back some balance and perspective on this issue. He likened the software industry of the future to an ocean ecosystem, dominated by large, grey, homogeneous "deep sea" creatures that live in the depths. These represent the software giants so familiar to us all, and who until now have produced operating systems, productivity software or weighty ERP solutions.
However, in the ocean, the deep sea fish coexist with many coral reefs, rich with a variety of colourful small fish darting in and out of their own mini ecosystems. Certainly, small fish ultimately feed big fish - but the coral reef always survives: without the reef the deep sea fish will also die.
Humans are inherently very creative and software is simply one modern expression of that creativity. As they solve business problems profitably, niche software companies will continue to survive within the coral reefs of our ecosystem. This encouraging truth is as relevant to disillusioned graduates of computer sciences as it is to a CIO struggling to select a software vendor for its manufacturing business. Many years of "sustained investment" in deriving an algorithm for music by big fish has yet to produce even one mediocre symphony. Millions of dollars of Hollywood investment ploughed into recreating the wonders of Middle Earth have still relied on the ideas and imagination of one talented and arguably underpaid author, Tolkien.
My theme for IT professionals in manufacturing companies has always been one of balance: both the coral reefs and deep sea fish have a vital role to play. And far from a threat, commoditisation of software should be seen as a mopping up of good ideas that have served their term. The really creative processes will always originate in the coral reefs; the astute among us will recognise this and there will forever be a place for niche software vendors to bring their ideas to market profitably.
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