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Stack war
March 10, 2006
In an article on Jeff Nolan, who runs SAP's so-called "Attack Oracle" group in Silicon Valley, Tom Foremski succinctly defines the different strategies of SAP, Oracle and IBM, the three companies that, arguably, represent the biggest powers in the world of enterprise IT today. SAP's strategy, writes Foremski, is founded on a belief "that the value is in the processing of the data" - in the applications, in other words. Focusing its strategy lower in the "stack," Oracle believes "that owning the database is the key to owning the glass house of the IT organization." IBM is in the center, with its "strong middleware business" that glues the various parts together.
What this means is that the three companies are going after the same prize - controlling the customer relationship - from very different angles. Each, therefore, has a strong incentive to neutralize its competitors' strengths by commoditizing the parts of the stack that are most important to them. SAP's trying to commoditize the database, by promoting, for instance, the open-source MySQL; Oracle's trying to commoditize middleware, also by promoting open-source options; and IBM's happy to commoditize the applications (while maintaining an escape hatch to "business process automation" up above the stack).
It's an interesting dynamic that, in total, would seem to simply accelerate the commoditization of everything. What the big guys appear to be hoping is that their control over the customer survives - or is even amplified by - the commoditization of the technology. The war, in other words, isn't being waged over the technology - you might even say that it doesn't matter - but over the terms of the customer relationship. It is, at heart, a marketing war, aimed at influencing perceptions - as Nolan's focus on using creative "communications strategies" to attack Oracle implies.
Maybe, though, it'll turn out that this is just a big mopping up operation at the end of an old war. If you look into the thickets around the battlefield, you can just make out the camouflaged faces of various bands of guerrilla fighters. The next war may be on their terms - fought not over the stack but the services that replace it.
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Comments
eloquent!
Technologists line up their allegiance to one of the camps and become religiuos zealots.
Smart CIOs will play the 3 against each other and manipulate the guerillas to their advantage...
the reality of course is each of the 3 have long histories of selling together. They may not like each other but probably will not be suicidal
On the topic of religious wars, how soon before we have cartoon controversies?
Posted by: vinnie mirchandani at March 10, 2006 03:40 PM
I really hate that phrase, "owning the customer." If I'm the CIO of a large corporation I would relish the oportunity to go up against a vendor that thought they "owned" me. That's what I like about the Liberty Alliance where these corporations joined with the industry to create specs and products that they would use. Orange even forced IBM to join or no sale. Who owns who?
Posted by: ordaj at March 10, 2006 10:40 PM
This is a classic case where everyone loses.
The companies drive down the value in what they are doing - it becomes a price war. They drive it so all the money is made in the services - then "hey presto" the service peice is done off-shore!
Because no one specialises in anything anymore, everything is "just OK - not great" - so we end up with crappy systems that do not really meet the requirements. And innvation? Forget about it! No room for that in a commodity market.
As for companies "owning" the CIO - it really happens! I have seen it happen. I have seen a senior technical advisor FIRED on the say-so of the sales rep for the company. It gets that bad.
No one wins in these situations - but everyone thinks they are.
Posted by: Simon at March 10, 2006 11:46 PM
No Microsoft?
Posted by: Dennis Howlett at March 11, 2006 11:19 AM
Dennis' one word comment is telling...does Microsoft have a serious enterprise role? It sure seems much more focused on web 2.0, search, Office....
Posted by: vinnie mirchandani at March 11, 2006 01:38 PM
actually Dennis had two words. Where is the logic checker when you need it...I thought you wrote some time back Google was working on a mind reader?
Posted by: vinnie mirchandani at March 11, 2006 05:19 PM
No innovation in a commodities market? These 3 plus Microsoft have margins that would make the Mafia blush, but where's the innovation? Ellison has been a visionary but actually went outside of Oracle to help found salesforce and NetSuite, two companies with excellent track records in innovation.
I think that we are seeing a huge paradigm shift from an IT landscape dominated by innovative technology for large organizations to a landscape dominated by innovative technology for small and medium enterprises. After the huge IT spend in the enterprise market from 92 to 2001, the big four are embedded in large orgs for a long time. Now they must figure out a way to show some modest growth over the next few years in a pretty lackluster market. Since they have so few new customers to chase they end up slinging it at each other. A lot of Sound and Fury...
Posted by: Tom at March 12, 2006 12:37 PM
An economist would say its marginal (zero) cost economics of software continuing to play itself out, aided by competition, intensified by a slower, more mature software industry. But there's still much room for innovation - albeit a different kind - somewhat less about the technology, and more about how the value chain of a business is configured.
Counter to commoditization, I see innovation that seeks to create more value, scale, repeatability, efficiency and profit margin in the software value chain. More value via technology that does smarter things (eg. intelligence-based business processes), better economies of scale (eg. Oracle's acquisitions), more efficient production (eg. distributed OSS development, offshore development), service repeatability and productization (On-demand Apps, SOA-based component assembly services (IBM's SOA hub announcement last week)...
If you ask me, still a huge load of fun to be had in the enterprise software world... :)
Posted by: Mohit Mahendra at March 13, 2006 06:48 PM
Jeff Nolan and Ian Campbell are having an interesting debate on our blog. Read
Posted by: Mike Smock at March 20, 2006 10:01 PM
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