Marc Andreessen on What's Next
Corporate IT is becoming commoditized, and companies are desperate to continue slashing costs. Automation, says Andreessen, is the answer.
FORTUNE.COM
Tuesday, November 26, 2002
By David Kirkpatrick
siliconinvestor.com
The other day Marc Andreessen gave me an impressively cogent analysis of what's happening in business IT. True, his ideas added up to an argument why his company, Opsware (formerly known as Loudcloud), would thrive over time. Call me gullible--after last week's column on Microsoft, plenty of you already have--but I think Andreessen's probably right on both counts.
His analysis begins with the observation that every component of modern technology infrastructure is rapidly becoming commoditized.
A few of his favorite points:
"Linux and Windows are winning--everything else is losing."
"You can replace a $300,000 Unix server with ten $3,000 Dell servers for a ten-times savings right off the bat--and they'll outperform."
Storage hardware has gotten so cheap--close to $1/gigabyte--that fully redundant storage for a big multinational company can now cost only around $300,000.
Bandwidth costs have plunged. Andreessen says that whereas Netscape paid about $1,600/megabit in late 1999, today the price is down to a mere $50.
It's all driven by Moore's Law, he explains--semiconductor costs, which underlie most tech advances, continue to drop exponentially, bringing down the costs of most core capabilities. But Andreessen thinks the reason we're seeing such dramatic across-the-board commoditization now is because of what he calls a "maniac" focus on cost-cutting among customers. "In 1995," he explains, "the reference architecture at companies was Sun/Oracle/EMC/Cisco, or their comparable competitors. That was still true in 2000 when the bubble ended, because people could still afford it. Now they can't."
Now customers are finally taking advantage of the commoditization that had been creeping along largely unnoticed during the boom. All this has created what Andreessen believes to be a one-time "systemic decline" in the cost of tech infrastructure. But of course it costs a heck of a lot more to operate all this stuff than to acquire it. Andreessen says it costs 6 to 8 times more over time. That's why IT staff constitutes, on average, something like 40% of the overall corporate IT budget. Getting rid of all those expensive people is a top corporate priority, because it would be the best way to cut costs.
Meanwhile, customers have been putting an essential task on hold--installing new applications. It's because there's not enough money, and because CIOs feel burned. Says Andreessen: "Most of the software ideas of the late '90s which people tried and failed on--customer relationship management, marketing analytics, supply chain management, B2B procurement--those ideas all made sense and had good business justifications. But the tech wasn't quite there. Many customers who bought early feel bitter. But at some point those things will hit the mainstream and work."
So now there is a growing backlog of applications that companies want to implement, even as they are desperate to cut IT costs and staff. "And automation," says Andreessen, "is the answer."
Historically every corporate application had its own hardware and infrastructure resources--dedicated servers, storage, and database. That's one reason the utilization rate for servers in most companies is only about 20%. Typically, SAP has its own infrastructure (probably multiple ones), and so does Siebel, supply chain, home-grown applications, etc.
That, says Andreessen, is increasingly becoming unnecessary. Now these commoditized components can become merely a set of generic resources to be used for any application at any time. This applies to servers, storage, databases, application servers, firewalls, data routers, and other parts of the corporate computing architecture.
Here's where the Opsware opportunity comes in. Its software allows resources to be pooled, with applications drawing on the aggregate infrastructure only when they need to. Explains Andreessen, who is Opsware's chairman: "Perhaps you need an application running on a BEA applications server on Red Hat Linux with certain approved security patches and a custom Java package--and all that for four hours. Then later in the day you can apply that same infrastructure for your payroll system."
So not only is the infrastructure itself getting cheaper to acquire, but companies can also utilize and manage it all much more efficiently. That's better than average news for CIOs.
It's still early in this transition. Few companies are yet taking full advantage of it. But Andreessen's view isn't radical, and Opsware isn't the only way to get savings and improve systems efficiency. What Andreessen is saying echoes Sam Palmisano of IBM when he talks about On Demand computing. It's what HP's Carly Fiorina was talking about in her speech at Comdex when she spoke of "adaptive infrastructure" and "virtualization to achieve better capacity utilization." Andreessen explains it more clearly and eloquently than either of these two computer makers because he has a lot less invested in the old world.
Opsware itself is now just a software company. It sold off its services business to EDS and dropped the Loudcloud name earlier this year. Andreessen sees huge opportunity selling Opsware's management software to both companies themselves and outsourcers who provide infrastructure remotely. The company has $65 million in cash and plans to be cash-flow positive by the middle of 2003, largely because of guaranteed revenues tied to the EDS deal. Like I said, I think they'll do fine.
Questions? Comments? E-mail them to me at dkirkpatrick@fortunemail.com. |
