Where is Marc Cabi?>
November 16, 1999
Voices Events With...
Mark Wolfenberger
Credit Suisse First Boston analyst Mark Wolfenberger took part in a
Voices Event on Nov. 16, 1999. The following is a transcript of that
event which has been edited for clarity.
WSJ_Host: Grab your lunch and pull up a chair for another Voices Event
with Credit Suisse First Boston analyst Mark Wolfenberger. I'm your host
Ravina Khosla.
Mwolfenberger: Hello from Mark Wolfenberger, just call me Wolf for
short.
WSJ_Host: Hello Mark, many investors are waiting for the Federal
Reserve's announcement on interest rates this afternoon. How do you think
the Fed's decision will impact the software industry? Or will it?
Mwolfenberger: Tech is a competitive weapon used by companies to
generate revenues. If the Fed slows the economy, industry will look for
cheaper ways to conduct business. I think the Fed's decision in many ways
could be construed as a non-event to tech, because in many ways software
and tech in general is driving much of the growth we've seen without
inflation.
recruiterman: What type of growth is anticipated as the result of the
Internet and one's ability to download immediately the software of ones
desire?
Mwolfenberger: The Internet is a platform change, not just for
technology, but also for the economy. Software has become such a
competitive tool, that any risk of downtime at all is serious. That's why the
asp model makes sense. Not only do you avoid the risk of download
failure, but ownership risk as well.
LANDERSON: When, if ever will we be able to rent software…or
be able to purchase only applicable functions of an application as opposed
to having to buy all of Excel 98? Is this a viable model for software
companies?
Mwolfenberger: You can do it today. Renting software allows you to
transfer ownership risk and reliability risk to a vendor. It is the model of the
future as evidenced by Microsoft's recent Win2000 deal with
Usinternetworking (USIX). It will be a significant change of business model
for software vendors.
Marke Clinger: Do you see companies outsourcing major applications
(SAP, etc.) to ASPs, if so when do you see this industry maturing into a
mainstream market?
Mwolfenberger: Major applications are being outsourced right now by
fortune 1000 companies. SAP, Oracle, PeopleSoft, Broadvision, Bann,
JDedwards, Siebel. The asp model, originally designed for the middle
market, is finding acceptance by Samsung, GE Capital, U.S. West, etc.
Helio: How will the info-appliances impact the market of software
distribution? Consider the cellular and WAP and so on.
Mwolfenberger: Digital convergence is a fact. Soon you will walk past a
kiosk a the airport gate and wave your cell phone over it to buy a ticket.
Again an example of tech as a competitive weapon at the front line of
revenue generation for companies. Accordingly, the more critical tech
becomes, the more your digital convergence is a fact. Accordingly, the
more critical tech becomes, the more you will want to outsource the
reliability.
ryanmosaic: While ASP's appear to be the future, do you believe that
there will be an interim period where software programs for handhelds
(such as WindowsCE) will proliferate?
Mwolfenberger: Sure, but that period is becoming increasingly shorter.
The digital convergence is happening faster than we thought. New vendors
of software for handhelds will want to consider the affect the asp market
may have on their product and plan for it.
Marke Clinger: What issues do you see that need to be overcome in
order for outsourced applications to be common place?
Mwolfenberger: Change in the software business model needs to be
addressed. Software companies are used to selling perpetual licenses that
have created strong growth rates. Renting software has less growth impact
near-term but longer-term profitability. Therefore, as the asp model takes
off, software vendor growth rates will probably come down. Software
vendors need to adapt to this business model change in order to make the
practice more widely accepted
sdauray: Speaking of revenue, do you think that software financing is a
better answer than renting or hosting for the vendors and the customers?
Do you have any views on vendors using third-party finance companies to
help make their products easier to buy for the customer?
Mwolfenberger: Why own reliability and obsolescence risk, no matter
how attractive the financing. also, the bodies to install software are in short
supply. If there is a problem with a live e-commerce app on a Sunday, do
you want to call in your internal people or leave it up to an asp that
specializes in reliability such as USIX.
wdoerlich: Please comment on the difference between financial
innovations in software delivery and actual "services delivery" innovations
that the ASP-model can provide to both vendors and end-users.
Mwolfenberger: Time to market is what's critical. Getting the app up and
running and having it stable is what's critical. That's where the asp model
excels. The innovation both financial and services wise is actually getting an
return on investment from your software.
rothac: What does Qualcomm's sale of its hardware operations, to
concentrate solely on software, mean for the industry at large?
Mwolfenberger: I don't cover Qualcomm but partnerships has
increasingly come into vogue where companies focus on what they believe
is their core value add and partner the rest.
Honey: What do you think of some of the software companies creating
platforms and applications for Internet appliances? Is this Microsoft
dominated or are there other leading players? What's all the hype around
Centura software?
Mwolfenberger: Sorry, don't know Centura, my space is services.
However, historically, the more chaos and vendors from software, the
better for services, and this will particularly hold true for ASPs.
goldtue: Are we as consumers ready to trust software companies with our
personal information?
Mwolfenberger: Good question, but it's happening without your
permission already if you use a credit card. Customer relationship
management will be the next big wave of effort in tech next year. Mining
data which they already have and making sense of data is now upper most
in mindshare. You are a known consumer.
sdauray: Who are the leading ASP's today, and do you think they will be
the future dominant players - and why?
Mwolfenberger: The one I have mentioned, USinternetworking, clearly
stands out as the most comprehensive asp offering. Essentially, you rent the
entire solution (Siebel, Broadvision, SAP, Oracle, PeopleSoft, Microsoft,
etc.) from them, like renting a furnished apartment. Exodus stands at the
other end, where you rent the space and comm ports but still must buy and
maintain the apps. also near the lower end we have Intel, Qwest, Digex,
MCI and AT&T. Some of the new guys in the middle include Breakaway
and Futurelink.
WSJ_Host: Do you see software giants such as Microsoft joining this
industry?
Mwolfenberger: Yes. As mentioned earlier, MSFT just struck an
agreement with USIX as well as other providers. The services channel,
particularly the asp channel, is becoming the sales channel for software
vendors.
goldtue: What other, unexpected businesses will current software makers
find themselves in besides renting?
Mwolfenberger: Consulting: As I said, tech is at the front line driving
reconfiguration of business models. Also, the portal or virtual community
concept.
WSJ_Host: How will the changing nature of the software industry impact
the hardware industry?
Mwolfenberger: Again, Hewlett-Packard partnered with
USinternetworking to essentially sell hardware through the asp channel.
Intel recently set up server farms along the lines of an asp model.
Essentially, services, or the human content of installation, will be the
controlling factor to software and hardware growth. the industry recognizes
it, and that's why you are seeing these relationship: Whittman-Hart and
Novell, Cisco invests $1 billion in KMPG Consulting. Essentially judge
your hardware or software company on the nature of its services channel,
whether owned or partnered.
happyr: Will the changes in the way software is sold change the way
software is produced? What's all of this going to mean to programmers and
Web producers?
Mwolfenberger: Normally, you would expect it to run a course with a
finite horizon...similar to spreadsheets when we reach a point where we
had sufficient functionality and stability and didn't buy the next version.
However, the Web should extend the life of this current platform shift
because of the fundamental ways its changing business models and creating
a platform by which small companies can effectively compete against large
companies.
mastleford: How pronounced will be the 'webbing' of software over the
next year?
Mwolfenberger: It will be everything. As we see it, customers have only
one priority into next year...get webbed. We are just in the beginning.
Look at PeopleSoft and Baan who just announced or are planning to
announce Web-enabled versions of core products.
WSJ_Host: Thank you all for sharing your lunch time with us this
afternoon.
Mwolfenberger: Thanks for everyone's time today. A lot or what was
said is available in succinct fashion through our newsletters available at no
charge. Contact dean.matus@csfb.com.
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