Goldman Sachs is Predicting “Techtonic” Shifts in IT Marketplace

Goldman Sachs’ latest IT Spending Survey and Software Market Analysis reveals a number of “Techtonic shifts” in technology and business models, as a result of the accelerating transition from the traditional in-house IT model to outsourced cloud computing.

Now, it’s clear that this change isn’t going to happen overnight, but the signposts are clear, and the 41-page Goldman Sachs report highlights a number of key trends. I’d like to focus on a handful of them here.

First, a caveat. The nature of the underlying survey - a controlled group of IT executives from global 2000 companies - means that the findings primarily reflect the attitudes of large corporate customers. But if you think that cloud computing is largely for SMEs, it’s time to think again.

Three-fold Growth in Three Years

Goldman Sachs acknowledges that cloud computing penetration has been happening faster in SMEs than corporates. But their findings indicate that this is about to change, with a projected three-fold growth in the number of SaaS-delivered applications over the next 3 years - suggesting that an explosion in enterprise adoption is about to take place.

Software vendors and IT providers who have anticipated this change are well-placed to take advantage; those who rely on a traditional behind-the-firewall delivery model are likely to come under increasing pressure.

Impact on Business Models

Of course, the implications are not just technological; in fact the greatest stresses are likely to be on traditional business models. The growing user preference for SaaS based solution delivery is already forcing vendors to rethink the traditional direct sales model.

It’s not - at face value - particularly good news for some of the traditional “value added” solution providers, either. It’s notoriously hard to make adequate margins as a reseller of SaaS software unless there’s a significant consultancy and services element to the solution.

This is compounded by a relatively simpler implementation model for many SaaS solutions. But the upside - for those that embrace it - is that a SaaS model creates scope for lower-cost, incremental sales strategies and easier proofs of concept.

Best-of-Breed Beats Integrated Approaches

In the move to next-generation data centre infrastructure, CIOs are expressing a preference for “best of breed” components over “integrated” offerings from IBM, HP, Cisco and Oracle. Reasons cited include performance and cost advantages, as well as the desire to avoid vendor lock-in.

Of course, avoiding vendor lock-in could be a temporary respite if, as Goldman Sachs anticipate, the established integrated technology vendors acquire the leading best-of-breed assets.  By the way, of the established vendors, HP was the most commonly identified “primary provider”.

Winners and Losers

There will clearly be winners and losers amongst the IT supplier market. But you might be surprised by at least one of Goldman Sachs’ survey findings. Over the next 3 years, Google, VMware, Red Hat and Amazon (in that order) are projected to become more strategic to corporate CIOs.

The three biggest losers in terms of influence were projected to be Dell, Microsoft and Citrix - but closely followed by both Salesforce.com and Oracle. I’ll admit that finding Salesforce.com on this latter list was a surprise - but it would be foolish to write them off. They are in many ways the poster child for the Cloud revolution, and I for one expect them to adapt and evolve through their force.com and database.com offerings to prove their mettle as an enterprise-level supplier of Cloud infrastructure, as well as applications.

Enterprises Get Social

I’ll close with one final projection from the report - that enterprises are increasingly embracing social networking platforms, with a projected 50% increase in usage - from around a third to over a half - in the next 12 months alone. LinkedIn was the most widely adopted platform.

2011 could be a good year for well-positioned IT vendors.  Goldman Sachs is forecasting an increase in annual global IT spend of 6%. But it’s clear that some vendors are better placed than others to take advantage. How might your organisation be affected?