The future is services with a smile

The future of software is services with a smile, says Josh Greenbaum, a consultant.

It’s always tempting to talk about the future of enterprise software in terms of technology. But if I take a hard-nosed look at the future of enterprise software, I see something more important than mere technology, as compelling as technology is.

Because the most important trend to hit the software world in the next five years won’t be about bits and bytes, but about something that only a lawyer or accountant could get excited about: corporate buyers’ changing relationships to their software vendors.

The changing relationship between customer and vendor will have multiple dimensions, but all with a similar impact: Total cost of ownership will go down, while customer choice goes up. Customers will be able to not only choose from an increasingly wide palette of functionality that can be delivered at a much lower cost, but they also will be able to choose from a wider palette of services, support, maintenance and licensing schemas that will turn this into a buyers’ market that would make Adam Smith weep for joy.

As it turns out, there is a little technology behind the first reason why the customer/vendor relationship is about to change so dramatically. The advent of service-oriented architectures (SOA) will set the stage for much of this change. Once the world of enterprise software is truly service enabled, and customers have well-designed and highly functional service architectures in place, software development and deployment will be changed forever.

Whereas today complex business processes have to be programmed from scratch by an army of high-priced consultants or bought as part of a high-priced packaged software suite, the world of SOAs will let those processes be assembled, in a highly customer-specific manner, from a Lego-like set of existing subprocesses and services. Complex processes will no longer be complex to build and maintain, and the mass-customization of off-the-shelf business processes will raise productivity significantly.

These service architectures will be at the forefront of the change in the buyer/seller relationship. Software vendors will go from being high-priced caterers, delivering entire ready-to-eat meals, to being grocery stores selling ingredients for an increasingly capable do-it-yourself army of chefs and cooks. As an ingredient seller, the vendor’s pricing will reflect the fact that some components are commodities (such as general ledger) and some are highly specialized and very expensive (such as invoice reconciliation for the retail supply chain.)

Service and support will change as well, because no single vendor will necessarily take full responsibility for a complex component application that depends on services developed and supported by third parties. If your caterer sends over a bad soufflé, you know who to call. If your homemade soufflé fails to rise, you can try blaming the hen that laid the eggs, but chances are it will be hard to figure out what went wrong and how it should be fixed.

Which brings us to the second reason that the relationship between customer and vendor is about to change forever: Software as a service, also known as on-demand computing and outsourcing. The world of enterprise software is bifurcating into two basic use modes: strategic, value-added functionality – the kind that differentiates you from your competition; and commodity functionality – the stuff everyone in your industry uses. How software is deployed will follow a similar trajectory: Commodity functionality will be outsourced, whereas value-added functionality will be insourced.

What’s important is that commodity functionality may make up a sizable chunk of the total applications portfolio. Most companies are running most of their financial and human-resource applications like commodities. There will be no good reason to keep these applications in-house, and lots of good reasons to move them out. Shifting a large percent of software portfolio to outsourcing will alter the vendor/customer relationship even further. A commodity portfolio will need no expensive upgrade path – funded by a 20% maintenance fee – and the vendor’s involvement with the customer’s success will be greatly diminished. Again, vendors may find themselves selling Wonderbread instead of a rustic pain de campagne.

Which brings us to the final reason for this radical change: TomorrowNow, a services company bought earlier this year by SAP. TomorrowNow’s business model is simple: Provide alternative services for those companies whose applications provide commodity functionality and who are loathe to fund an unnecessary upgrade path. For these customers, TomorrowNow will discount vendor support costs by 50% while still providing bug fixes and regulatory upgrades. The original vendor disappears from the relationship entirely, the customer gets a major price break, and the users are left with no change at all.

When you add it up, it’s a revolution poised to happen, albeit one that is about as sexy as your CEO in a gunny sack. Service architectures will not only change how software is used; they will fundamentally change how software is sold and serviced. This will potentially increase the number of smaller, specialized vendors in a company’s applications portfolio, and as the number of vendors grow, their individual account control will diminish. Meanwhile, software as a service will shift the traditional license model away from perpetual licenses to a pay-as-you-go model. And for companies tired of funding upgrades they don’t plan to use, service providers such as TomorrowNow will allow them to disengage completely from their software vendor with little or no consequence.

So forgive me if the future of software looks to be more about a shift in relationships than a shift in technology. Technology will always show up to amaze and thrill us. But technology’s ability to empty our pocketbooks without imparting its promised value is on the decline. In its stead will be a more rational and cost-effective use of technology that will benefit everyone, except maybe those vendors that were taking advantage of everyone in the first place. And who needs more of them anyway?

Greenbaum is principal of Enterprise Applications Consulting in Berkeley, Calif. He can be reached at josh@eaconsult.com.