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What’s an Annual Review and Market Outlook issue without the views of the experts? IT Market Research firm Springboard Research gives us its take on 2006’s IT buzz and 2007’s hottest IT trends, based on executive interviews with CIOs and IT decision makers at leading organizations across the region.
2006: A Year of Strong Market Performance
In 2006, the overall economic buoyancy in the Asia Pacific region, especially in China and India, continued to drive the IT market forward. Enterprise spending was boosted by the growing sophistication of Asian companies in the Large Enterprise and Small and Medium (SMB) segments who continued to direct investments towards the Asian market, which thus boosted spending across the region.
Top Trends of 2006:
SOA – IT Buzzword of the Year
Springboard Research has named SOA as the most prominent IT buzzword of 2006, noting that "SOA was everywhere to be seen and heard across Asia in 2006."
Software as a Service – IT Trend of the Year
Following in the footsteps of successful Software as a Service (SaaS) firms such as Salesforce.com, Springboard Research observes how software vendors of all types grappled with how to best offer SaaS capabilities in their products. "From our interviews with leading international software firms throughout the year, it became apparent that most are still trying to understand how to respond to the trend and protect traditional sources of revenues as SaaS upstarts emerge as new threats. Everyone, however, acknowledged the long-term staying power of SaaS in Asia Pacific," notes Dane Anderson, CEO & EVP of Research at Springboard Research.
India – Asian IT Market of the Year
Always viewed as a promising IT market for the long term, yet, present day revenues did not always match the promise or population therefore causing it to be eclipsed by China for the past decade. However, this latter trend has started to change this year as vendors in all market segments persistently identified India as one of their largest and fastest-growing markets in Asia.
Lenovo – Asian IT Vendor of the Year
Lenovo’s acquisition of IBM’s PC business raised many questions about the Chinese vendor’s ability to integrate such a large and globally focused American company. According to Springboard Research, although some questions remain, Lenovo has put many of those doubts behind it, becoming an increasingly visible and integrated company.
HP/Mercury Interactive – Acquisition of the Year
HP’s US$4.5 billion acquisition of Mercury Interactive gave a significant boost to the vendor’s software business, which has struggled to generate solid performance on a consistent basis. In addition, the acquisition positions HP to benefit from a key trend that Springboard Research expects to impact the market in 2006 and beyond – SOA.
Other key trends of 2006:
IT vendors in the APAC Expanding to Tier2 and Tier 3 cities
This year’s key growth strategy of many IT vendors in the region was the expansion of their geographic footprints in the Asian region. Many aggressively expanded their office and channel networks in smaller cities across several countries. The ‘big boys’ such as IBM, Intel, HP, IBM, Sun, Dell, SAP and Oracle benefited from expanding to new markets and profited from demand from new emerging centers of business and economic activity. Geographically, Oracle and HP were among the vendors who focused significantly on expanding to Tier 2 and Tier 3 cities in China and India.
SMB market boosted as vendor programs become increasingly viable
Almost all leading IT vendors increased their focus on the SMB space across the region especially in China and India. However, Springboard Research notes that despite dominating the business universe in the region and contributing around 35% to IT spending in Asia, the segment still remains largely underserved.
In addition 2006 stands out the year when IT vendors vied with each other to focus on geographic expansion, launching new products and modifying existing ones to better suit SMB needs.
Key players such as Microsoft, Hitachi, HP, Oracle, Dell, EMC and SAP also initiated partnerships and even created new SMB-focused business units in order to more aggressively tap the market segment.
The enhancement and expansion of vertical industry capabilities
Many vendors moved their vertical industry capabilities beyond the finance, telco and public sector mainstays going into areas such as retail, healthcare, media and entertainment and education. Though finance, telecommunications, manufacturing and government continued to be most vendors’ largest source of business, the dynamism and growth of these new verticals has resulted in significant business. Healthcare in particular, has emerged as one of the fastest growing verticals in the region.
Outsourcing and managed services creating waves
There was a renewed focus on services in 2006. While outsourced IT and managed services remained favourites mainly with large and upper-mid market customers, SMBs also started showing interest in these services. A key trend in the services market during the year was shrinking deal sizes and the emergence of small niche service providers. Large vendors, particularly IBM, launched service solutions especially targeted at small and mid-market customers.
Public service delivery spurs government investments in IT
Growth in the government segment was driven by major investment initiatives taken by governments across the region to improve their own organizational efficiency.
Government organizations in Australia, China, Hong Kong, India, South Korea and Singapore made significant investments in IT during the year. In addition, the public sector also emerged as one of the leading adopters of SOA in 2006.
2007: Top Predictions
"2007 will be an interesting year for IT vendors with fundamental market shifts being driven by Service Oriented Architecture (SOA), Software as a Service, Virtualization and the Mobile Workforce," says Anderson. "When combined with the emergence of Asia as a key engine for global economic growth, 2007 is sure to present unique opportunities to IT vendors well positioned to take advantage of the dominant market trends."
Ravi Shekhar Pandey, senior market analyst for Springboard Research adds, "CIOs and IT Managers are continuing to be forced to do more with less. Even when their budgets increase, it seems as if organizational technology needs are increasing even quicker. Companies in Asia will continue to increase their spending, but they will be more focused on serving business needs instead of being seen as just buying technology."
Even as new investments in technology, products and services continue to change the IT landscape in enterprises across the Asia Pacific, Springboard Research expects CIOs to focus on two key goals in 2007: doing more with less and making IT more agile and aligned to business needs. This in turn will ensure that IT systems become increasingly manageable, cost-effective and virtual and technologies as well as strategies built around these key dynamics will be well-placed for success. Based on its predictions and research, Springboard Research expects the Asia Pacific IT market to exhibit healthy growth and dynamism in 2007
The Top 10 2007 Trends that will shape enterprise IT are:
- IT Vendors will see Service-Oriented Architecture (SOA) guiding a larger percentage of their customers’ IT infrastructure investments
Springboard Research predicts that the SOA market in the Asia Pacific will grow 41% in 2007, a significant portion of which will be contributed by SOA related system integration and consultancy services. SOA will enjoy greater adoption in the region next year, with the creation of more agile information systems and making better use of existing infrastructure driving this. "Whether organizations embrace the term SOA or not, they will continue to look at ways to integrate their IT more effectively with their business goals and in the process, also focus on dissolving IT complexities. Given that, we expect SOA to steadily spread its influence throughout Asian enterprises in 2007, and in the process, fundamentally alter the way IT systems are operated and managed," elaborates Anderson.
- Virtualization will mature and come into its own in 2007, driving changes in hardware and software pricing models
Once again, the drive to do "more with les" will be central to spurring virtualization implementation in business enterprises in 2007.
Despite the advantages, virtualization has not always been a smooth ride for organizations. Organizations that embrace it often face new management and performance issues, and in addition, vendors have been building unrealistic expectations from virtualization.
"We believe that in 2007, virtualization will be one of the hottest technologies in Asia with greater technology maturity and fewer unrealistic expectations. Virtualization will be hot with servers, storage and applications. Moreover, we expect virtualization to not only impact the IT systems of enterprises but also the bottom line of IT vendors who will be forced to rework their hardware and software pricing models as the trend becomes more pervasive," explains Anderson.
- Organizations will see a sharp increase in their focus on network-friendly applications
Network performance will be a key goal for many organizations in 2007. This will fuel the demand for applications that are less complex, do not consume too much bandwidth and do not add to network complexity. There will be more urgency for thinner bandwidth optimized ERP, CRM and SCM applications in organizations that are expanding to new markets and geographies, On the other hand, CIOs will increasingly seek solutions to bridge the divide between network capabilities and demands of enterprise software. Network optimization will be another key focus. However, Anderson also notes that CIOs will continue to prefer applications that are easy to configure and use by business users so that they can function without much intervention by the IT department. This in turn will be one of the key factors driving many organizations to consider SAAS (see Prediction Number 5).
- Windows Vista will stimulate IT buying activity, but mainstream adoption will be delayed in 2007
Springboard expects that Microsoft’s latest big ticket offering will keep users occupied as they begin considering upgrades. They also note that while many of the reports on problems and faults with Windows Vista may be exaggerations, CIOs and business users are going to be concerned with facilitating smooth migrations.
"We believe that organizations going in for a Vista upgrade will have to incur extra hardware costs, an expense line item that many of them may not have planned for while budgeting for the upgrade. Many CIOs we interviewed indicated that because a Vista upgrade will entail hardware upgrades as well, many companies are likely to go for Vista only when they have planned a hardware replacement. As such, in spite of Vista’s potential to stimulate IT procurement activity, 2007 will see only a slow start to Vista adoption," notes Anderson.
- Software as a Service will see substantial gains in acceptance among Asia Pacific enterprises
As Asia Pacific enterprises continue to be more demanding with their IT needs, they will increasingly look for external support. A growing number of organizations will focus more on their business and less on IT, and this will fuel the growth of on-demand software services as well as other IT services. This will especially hold true in the SMB space where outsourcing has traditionally not been an option.
SaaS in stepping in to provide SMBs with the ability to leverage world-class, robust applications that they do not have to manage, Enterprises too will become more focused on services both internally (and therefore look at SOA to deliver applications as services) and externally (and therefore look at SOA to deliver applications as services).
Anderson notes that while this will not translate to an all-out embracing of SaaS across the organization, he adds that "they will surely be more inclined to adopt the on-demand model for their non-critical operations.
A major push for SaaS adoption will come from traditional software vendors, especially Microsoft, who will engage SaaS more actively to profit from it. In fact, large software vendors will recognize SaaS as a more dynamic element of their business.
"The onslaught of upstart SaaS vendors and Google offering applications on-demand will force the likes of Microsoft and others to more openly recognize the virtues of the on-demand model," adds Anderson. Springboard also expects 2007 to see the emergence of a number of new partnerships between traditional software vendors, local ISVs, SaaS vendors and telcos leading to the growth and development of new SaaS ecosystems in the region. The year will also see a number of venture-funded SaaS start-ups in the region.
- Mobility will transition from being a secondary issue to a key element of enterprise IT strategy
Despite being on the horizon for many years now, mobility adoption in organizations has not been particularly widespread. Although there is a growing number of mobile workers, organizations have little to support them or have yet to extract real business value of out mobility. 2007 will be different, declares Anderson.
"As the population of mobile workers continues to grow in the region, we expect this region to adopt clearer and more long-term strategic approaches to the deployment of mobile technologies in 2007. With mobile and wireless technologies becoming more pervasive with the launch of more high speed wireless networks based on WiMax or 4G cellular technologies, it will become increasingly difficult for organizations to keep mobility out of their IT strategies," says Anderson.
However, he also notes that given the personal nature of mobility, most organizations will have a tough time managing it in their current IT environment. A major challenge will be the ever-changing behaviour of mobile users that are harder to control.
- 2007 will see an increase in the number of strategic partnerships in the Open Source arena
There will be some significant changes in the open source world in 2007, many of which will be driven by initiatives from the proprietary world.
Springboard Research believes that a growing acknowledgement among non-open source vendors about the value proposition of this technology, will force them to include it in their business strategies.
"The foundation for this has already been laid in 2006 with Oracle announcing its intention to emulate Red Hat’s success in the enterprise space. We also expect Microsoft to change its outlook on open source, especially Linux, significantly. In fact, Microsoft has already acknowledged Linux’s growing prominence in the IT infrastructure by working out a collaboration deal with Novell. We expect Microsoft to get into more open source partnerships in 2007 with other Linux vendors," states Anderson.
- The SMB segment will continue its momentum in 2007, and increasingly turn to outsourced solutions
Asian SMBs have become a more important market segment as almost all large IT services and software vendors came up with a more focused strategy directed at this segment in 2006. Springboard Research expects this momentum to continue in 2007 and reach a new level as more products become commodities.
"IT vendors will target SMBs with an array of outsourced and managed services. We expect SMBs in this region to gradually start embracing these services in 2007," says Anderson.
He also notes that packaging services to suite SMB IT budgets and communicating the business value of outsourced and managed services will be the two biggest challenges that service providers will face next year. "However, despite this, as SMBs expand their operations driven by the positive economic climate in the region, we expect a significant number of SMBs to become early adopters of these technologies."
- Indian IT service providers will come under increasing pressure from MNC providers
Top Indian IT service providers, no longer just selling the low cost advantage but much more, will come under increasing pressure from MNC providers, especially in the SOA domain.
With much larger SOA engagements and investments in technology, Springboard Research predicts that the likes of IBM, Accenture and HP who have been making the biggest investments in SOA, will be better placed to corner the offshore market for SOA- related consultancy and services than Indian companies like TCS, Infosys and Wipro. The MNC providers’ experience in process automation and better client reference base will work to their advantage. Moreover, MNCs have been building SOA competency across the spectrum by not just investing in new R&D, but also by acquiring companies to fill out their software and service portfolio.
However, despite the expected Indian provider-MNC slugfest, Springboard Research believes that India will emerge as the most significant hub for delivery of offshore SOA services to customers across the globe.
- Indian IT service providers will be more aggressive with acquisitions, with one major tie-up expected before the end of the year
New competitive pressures including the urgency to increase the depth of offerings, will force Indian IT companies to develop more aggressive acquisition plans in 2007. Although some large Indian companies like TCS and Wipro have been regularly acquiring companies, they have not focused on large acquisitions. This will change in 2007.
"Even as Indian companies become more aggressive in acquiring service providers with strong bases in Latin America and Eastern Europe, we expect Indian service providers to team up with private equity investors and other funds for big ticket acquisitions in the US in 2007. The business environment of some of the large US vendors will make them easier acquisition targets for Indian companies," adds Anderson.
Springboard’s predictions are focused on the Asia Pacific IT market as a whole and are meant to provide an outlook at what we are seeing from decision-makers in the market. The 2007 Predictions Executive Brief is positioned to help IT vendors understand the changes and trends that Springboard believes will affect the IT markets in Asia in the future.
By Shanti Anne Morais
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