Show me the model

IN THE AFTERMATH of the Bubble, much hand-wringing and searching continues for a viable business model in the Internet Age. Of course, there’s one obvious model: Microsoft. But failing an entrenched monopoly, the choices soon boil down to one: real customers.

As Web services gain traction, a new buying decision matrix is emerging. Regardless of whether you believe in the vision of dynamic Web service components being discovered in real time via massive parallel UDDI federations, Web services are already squeezing big bucks out of integration costs. As Merrill Lynch CTO John McKinley told InfoWorld, an $800,000 project came in at $30,000, thanks to a Web services approach.

Let’s say that 60 cents of every IT budget dollar is spent on integration costs — software, services, and people. This is the IT tax on businesses moving forward, just what needs to be done to handle the legacy cost of staying in business. Now let’s take a conservative 10 percent as the Web services ROI.

If the total global IT market comes in at a trillion dollars, then 10 percent of $600 billion is $60 billion. Let’s pay half of that as return on the original XML investment. That leaves $30 billion for new investment, extending Web services across the corporate firewall to partners, suppliers, and customers, and converting an IT cost center into a revenue stream.

Before we examine the new investment pool, let’s roll back to the other $30 billion that was already spent. As the Bubble grew, so too did the CTO’s role. He or she leveraged mission critical technology expertise in concert with the CIO to gain competitive momentum in the enterprise click-and-mortar build-out. At the SMB (small-and medium-sized business) end of the market, entrepreneurial CEOs collapsed all these roles (including the CFO) into one and bet the farm on the information revolution.

As the smoke clears, the new buying decision model is based on three decision points. First, the CEO or CFO decides How Much will be spent overall. Remember, this comes after the budget is set, losses are written down, managers are assigned, and layoffs are discounted. In other words, there is real money here, earmarked for spending.

Next, the What and Who are identified: What is the architecture, what are the packaged applications, who are the players — the architects, programmers, business developers, and consultants? I’m talking about where the rubber meets the road, the name on the box — J2EE or .Net, open source or open standards. These decisions are made by the CTO, the CIO if there is no CTO, or the CEO if neither of the above.

Now comes perhaps the most strategic decision — When. When do we jump into the Web services evolution? Do we reinvest in the current Web services stack or wait for transactions and security to be built out in the standards process? Do we wait for identity services to materialize or hand off federation to an intermediary? Or do we just give up and surrender to IBM Global Services?

This decision is made by the chief technologist — whoever has achieved mind share and collaborative status necessary to pull the trigger on the buying decision. As CTOs begin to make use of the overbought assets of the Bubble, they harvest equity with CIOs looking to recover from their Bubble excesses.

In turn, CIOs look to consultants who deliver on consolidation projects, spurring incremental investment with rapid ROI on CRM, SCM, and ERP projects. Here, the chief technologist often relies on hosted solutions, such as salesforce.com, which sends a resonant message of rapid deployment, low incremental cost, and a bundled stealth services offering.

And don’t forget the entrepreneurial CEO, the SMB chief technologist, who’s in the crosshairs of every major vendor from Oracle to Microsoft. Big Red’s MSCRM app is targeted at these folks, slipstreaming in a repackaged BizTalk integrated with a OneNote-enabled Office.Net and an XDocs front end. Or will they trust Larry when he takes time out from his boat races to do another patronizing Web services demo: “Nice Web services” — [pat, pat].

Handicapping all this is the job of the chief technologist. Shai Agassi is No. 3 at SAP, a member of the company’s executive board. He sees the world through different-colored glasses. “Microsoft is really in the business of stores. They try and own more and more of the stores,” he says. “It’s a great business. I wish I was in that business. But that’s their business model.”

“By the way, ‘Who owns the customer at that point?’ is a dumb question,” Agassi suggests with a grin. “We don’t think anybody owns the customer, just like nobody owns the employee because they run an HR application. At the end of the day, the customer is the customer, [and] nobody owns them. If they go somewhere else, that’s your problem. A CRM application does not own the customer, it just stores data temporarily for you until you decide it doesn’t do the job for you.”

What about Sun? I ask. “Sun could own this industry. Sun has Java. You guys call it an industry standard, but Sun owns that piece. If Sun wanted to do a Netscape on this piece, they could.” IBM? “IBM has great market penetration. They have IGS, which does good by a lot of customers,” Agassi acknowledges. “As much as they want to be a software company, they sell hardware and services.”

And SAP? “Our model is we sell packaged business processes at 17 percent maintenance a year,” Agassi says. “Not by sending you hordes of people,” Agassi continues. “That’s our model. Unfortunately for [IBM], it’s the winning model for the next 10 years. That’s my opinion. That’s not their opinion.”

Not How Much, not What, but When and If SAP’s chief technologist is right.