A look into the future

What’s in store for 2005?

Well, industry experts say to expect network industry merger activity – nearly $60 billion worth of which took place in one week last month – to continue unabated, and don’t be surprised if this turns out to be the year enterprise-scale VoIP makes it to the mainstream. Look for licensing issues to be top of mind as vendors iron out the impact of server enhancements on application pricing. You might even catch a glimpse of Microsoft’s long-awaited Longhorn software, albeit in beta only.

Analysts also expect to see increased emphasis on server consolidation, open source projects, offshore outsourcing and regulatory compliance.

There might be fewer vendors to choose from in 2005 if merger and acquisition activity does carry on, but the result could be broader, more integrated offerings from the vendors that remain. Those offerings could change the way IT executives fill out their data centers, secure their networks and link their far-flung sites.

“It’s clear 2005 will be a really interesting, exciting and challenging time for our industry,” says Frank Gens, senior vice president of research at IDC. He predicts “almost boringly moderate” IT spending growth of about 6%, but adds that “we will be dealing with an environment that’s all about convergence of individual siloed market segments.”

On the M&A front, BEA Systems will be among the first companies acquired, predicts Frank Dzubeck of Communications Network Architects. A logical acquirer is Computer Associates, he says. One of BEA’s assets is its WebLogic enterprise service bus. “CA could use that to link all of Unicenter together,” Dzubeck says.

While it didn’t nab SAP, Microsoft is expected to make some move to acquire middleware technology. “The leverage within the enterprise is moving up the stack, closer to the business process,” Gens says. “Microsoft needs to strengthen its position. We’re not going to speculate as to who they will buy. Certainly that community of application vendors and some of the integration platform vendors is where we believe Microsoft will target.”

Cisco, too, will add to the acquisition frenzy. The company has historically been an acquisition ace, building its router, switch security and VoIP business lines on acquired companies’ technology. Last year it used acquisitions to enter new markets, such as wide-area storage management, and to augment its existing technologies. By year-end, Cisco had announced 12 acquisitions worth more than $700 million. Expect at least as many deals in 2005.

Meanwhile, marquee vendors will continue to use acquisitions to gobble up more share of enterprise IT spending. Systems vendors such as IBM, HP, Sun and EMC will acquire smaller companies in an effort to provide a “dynamic infrastructure platform” that combines hardware and software into a single package, analysts say. For its part, Dell might have to expand beyond being simply a box vendor and look at providing more of the infrastructure software pieces.

Awake at night

Security continues to dominate IT mindshare – and the emergence of wireless protocol exploits will do little to quell that. Mikko Hyppönen, director of anti-virus research at F-Secure, suggests this frightening scenario: A wireless-enabled laptop infects other wireless devices simply through their proximity to the infected machine.

The possibility of that happening is real, he says. “The fact that computers are listening to over-the-air traffic means they are, at least in theory, vulnerable to protocol exploits, which would be able to infect them just because they are too close to an infected computer,” Hyppönen says. “Sooner or later – if not in 2005, maybe in 2006 – we will see exploits using these wireless connections.”

Even if a user has a firewall or VPN to secure the wireless connection, the computer still is listening to the radio waves, he says. “The more I think about it, the more I’m worried about it,” Hyppönen says.

Uncrackable viruses also could be on the horizon. Authorities put up their best numbers yet in 2004 with respect to arresting virus writers, but unfortunately the people they’re catching are hobbyists and teenagers, Hyppönen says. The biggest threats come from professionals who are beefing up their arsenals.

“Since the first PC viruses came 18 years ago, so far we’ve been able to crack every single virus. But that could change,” Hyppönen says. “Our enemy is professional and is actually investing money in the development of their attack tools and their viruses.”

Another issue that keeps enterprise IT executives up at night is compliance with regulatory initiatives. In particular, the Sarbanes-Oxley Act of 2002, intended to deter fraud and protect investors by establishing more stringent standards for corporate governance, is commanding an increasing share of IT resources.

Spending on compliance with the Sarbanes-Oxley Act will reach $6.1 billion in 2005, according to AMR Research. A healthy chunk of money spent – $1.71 billion, or 28% – will go to technology. However, the primary resource consumer is personnel: Internal head-count costs will total $2.08 billion, or 42% of compliance spending, AMR says.

Regulatory and compliance concerns, combined with continued mergers and acquisitions this year by large corporations requiring identity integration, will keep identity management top of mind, says Earl Perkins, vice president of security and risk strategies at Meta Group. What remains to be seen is how corporations attack identity management – from a traditional top-down provisioning and workflow stance, or via federation. The concept of federated identity calls for users to authenticate themselves to their local network and then pass that authentication to partners for access to services or data on the partner’s network.

“Federation is just catching its breath and merging with Web services security and starting to appear in some early key implementations,” Perkins says.

Toys for the data center

Consolidation has been the rallying cry in data centers for a few years, and 2005 will be no different.

Look for switches to become multifunctional, with LAN switches handling more network services roles such as IDS and firewalls, for example. One big driver is to reduce the number of boxes network administrators have to handle. That also will result in smarter switches that can pass information back and forth with servers, keeping track of application availability, for instance. Also watch for more 10G Ethernet switches to be deployed in the LAN core as servers become more powerful and enterprise data center managers look for ways to transport data more quickly.

The blade market will continue to heat up. Dell re-entered the market in November, and analysts expect that to help push prices down across the low end of the server market.

“Most vendors have come out with lower-cost blades, industry-standard, less fancy blades aimed at the lower end of the market. . . . This could be the year where there are a lot of products like that in the pipeline,” says Charles King, principal analyst with Pund-IT Research. IDC expects the blade server market to top $1 billion in 2004 and be more than $2 billion in 2005.

Overall, the downward pricing pressure will continue across the server market as commodity servers take on more powerful roles through clustering and virtualization.

Indeed, the server virtualization market will see strong growth in 2005 as IT managers look for ways to get more out of existing resources. Microsoft has entered the market with Virtual Server 2005, which should help drive the technology mainstream. VMware, an EMC company, dominates the market, and analysts expect it to keep that lead. IDC predicts the virtual machine software market will increase 15% next year, and expects a number of start-ups and veteran companies to come out with technology to virtualize applications across servers.

On the processor front, Advanced Micro Devices took the early lead with its 32-/64-bit Opteron chip and will again be out in front when it comes to dual-core x86 processors. AMD says it will release a dual-core Opteron in 2005, but Intel has pulled back on plans to release a dual-core Xeon this year. While enterprise users can expect to see dual-core Itanium-based systems by year-end, dual-core Xeons won’t ship until 2006.

For the best of both worlds, servers based on 32-/64-bit chips will continue to make headway. Opteron-based systems will be sold running primarily Linux for high-performance computing, while Intel’s EM64T will establish itself as a Windows platform in existing 32-bit environments, analysts say. That is helping give Intel an edge in the 32-/64-bit world, where 60,000 EM64T-based servers were shipped in the third quarter of 2004, compared with 54,000 Opteron-based systems.

But all this innovation is not without its penalties. Virtualization, capacity on demand, multi-core processors and other server architectures that give boxes more processing power and flexibility have forced software vendors to take a closer look at how they license their applications.

Oracle, IBM and Sybase say they will consider each core a CPU for licensing purposes, but analysts note that two cores on a die might not necessarily mean double the performance. Microsoft is alone in saying that it will charge strictly per CPU, regardless of the number of cores. Gartner predicts companies that license by CPU could see software costs increase by 50% or more by year-end if they don’t press software vendors for changes in pricing and licensing policies.

One licensing approach that’s gotten a lot of lip service will continue to disappoint: utility-based software pricing.

Lots of vendors talk about software being doled out and sold like a utility. But it’s not a reality yet, according to Gartner. What’s available today from software vendors promoting “utility-based” pricing models are simply billing variations on traditional licensing models.

Charging companies by the seat for software is like utility companies charging customers according to the number of light bulbs and appliances in place in a home, rather than by how much power is actually consumed, the research firm says. Through 2006, no enterprise application vendor or application service provider will offer a true utility-based pricing model, Gartner says.

Software trends

Linux will continue to be the fastest-growing server operating system. While Windows holds on to its dominant position, Linux is expected to account for about 20% of volume server shipments in 2005, up from about 18% of the market in the third quarter of 2004.

“That’s more than twice the rate of growth of Windows and still less than a third of Windows’ share in volume, but it’s into a very interesting level,” IDC’s Gens says.

More large enterprise users, such as the Department of Defense, look favorably on Linux, and analysts expect that to expand in 2005, with users bringing in commercial Linux distributions. “The romantic image of people buying into open source because they don’t want to pay a lot of money is a bunch of hogwash, and, in fact, there are a lot of other reasons why people are moving toward open source,” Gens says.

Meanwhile, 2005 is expected to be the year that open source makes a big move beyond infrastructure services such as file and print. The adoption of open source databases such as MySQL and open source application servers such as JBoss will be on the rise as enterprise users get more comfortable with Linux moving up the stack.

But don’t hold your breath for desktop Linux. Adoption of Mozilla Organization’s Firefox 1.0 Web browser started with a bang, with 10 million downloads of the open source browser in the first month after it became available in November. But Linux won’t eat much into Windows market share on the client side. While enterprise users are becoming more accepting of the idea of open source on the desktop, Windows will hold the dominant position there for years to come, analysts say.

Outside the open source camp, Microsoft isn’t resting on its laurels.

Microsoft will continue its heavy focus on security in 2005, because the company still needs to prove to the market it can get it right. First up will be the delivery of patch management help that is critical to proving Microsoft can provide competent tools to control its own platform.

Key software for corporate customers that Microsoft plans to deliver in 2005 includes Windows Server Update (code-named R2), even though some key features have been stripped out; versions of Windows Server and XP for processors that support 64-bit extensions; and the first betas of Microsoft’s Longhorn client and server.

New and old

The offshore outsourcing trend isn’t going away. Onshore providers such as IBM Global Services, Capgemini, Accenture and HP are increasing their offshore presence, and the services offshore firms provide are becoming increasingly complex, moving into areas such as CRM, call centers, and remote infrastructure and application management.

Companies in growing numbers will look to offshore IT service providers in 2005 as a way to cut costs. However, the offshore backlash will continue: According to Gartner, through 2006, half of U.S. companies planning offshore outsourcing will experience friction from the public-policy arena in making and executing their decisions.

Meanwhile, 2005 could be the year for VoIP. Companies such as Ford Motor, Boeing and Bank of America are testing the VoIP waters, and analysts expect more enterprise users to follow suit. “VoIP will go mainstream, at least in the enterprise,” IDC’s Gens says.

Some of the year’s big trends come from new interest in old technologies, such as the IT Infrastructure Library (ITIL).

This could be the year the ITIL framework goes mainstream in the U.S., analysts say. ITIL is a set of management best practices that help network managers set processes and better document IT actions for future audits, such as those related to new regulatory legislation. “After nearly two decades of slow growth adoption, it looks as if ITIL may experience its big breakthrough” in the U.S. in 2005, says Rich Ptak, a principal at Ptak, Noel & Associates.

All eyes also are on the use of radio frequency identification (RFID) technology. Around for a half-century, RFID is finding a place in supply-chain infrastructures, fueled by some big-name backers. Wal-Mart’s well-documented RFID pilot kicks off this month, with 137 suppliers due to start tagging cases and palettes of goods destined for the retailer’s three designated distribution centers.

But fully automated RFID infrastructures won’t be part of the pilot. Most of Wal-Mart’s participating suppliers have designed slap-and-stick, versus sophisticated enterprise-class RFID implementations, says Erik Michielsen, a director at ABI Research.

About 70% of the participating suppliers are deploying “band-aid” systems that meet Wal-Mart’s basic demands but won’t scale to tie together multiple sites and integrate with enterprise systems, Michielsen says. Fewer than 30% are looking at RFID as “an opportunity to fundamentally change internal business processes to obtain internal return on investment, cost savings, and increased efficiencies,” he says.