part 2
FURTHER PRESSURE LIKELY ON SOFTWARE MAINTENANCE. All CIOs expressed ongoing efforts to reduce software expenditures including resistance to annual software maintenance fees. Software vendors have been far less accommodative in reducing maintenance prices than they have in discounting new license fees. CIOs continue to press for ways to reduce software maintenance fees and note that software sales cycles are now typically six months long and involve painful/protracted negotiations as companies haggle over not just the license fee, but related terms and conditions, including variables that will affect ongoing maintenance fees.
STORAGE: DATA GROWTH IS HOT, BUT REVENUE GROWTH IS NOT. Our panelists generally agreed that data growth would continue at high rates, but that ongoing price erosion, moves to lower-priced storage (i.e., mid-range), and increased utilization rates would not translate into inspiring revenue growth for vendors. One CIO saw storage spend growing at 15% a year, but the others saw storage spending only flat-to-slightly up going forward. Additionally, one of our panelists pointed out that, while drives are getting cheaper, other pieces of the storage purchase (i.e., HBAs, switches, software) are not. Therefore, these other pieces are becoming an increasingly large and conspicuous portion of the overall storage purchase, and are thus likely to draw pricing pressure from customers.
MOST PANELISTS MOVING 'AS MUCH AS THEY CAN' TOWARDS INTEL-BASED SERVERS. Most of our panelists are moving aggressively towards Intel-based 4- and 8- way servers and blade racks that scale horizontally, mostly at the expense of proprietary Unix like Sun. Drivers were both performance and cost- savings. One of our CIOs indicated cost savings of 2/3 on Intel vs Solaris.
AN INCREASED DRIVE TOWARDS LEVERAGING OF 'COMMODITY,' STANDARDS-BASED IT SOLUTIONS. Members of our panel repeatedly stressed a move towards commodity-like IT solutions and open, standards-based infrastructure as opposed to proprietary solutions. Our CIOs showed consistent aversion to all things proprietary, and enthusiasm for standards such as Linux and XML, as well as open APIs and standard messaging.
THE XP UPGRADE CYCLE NOT LIKELY TO STIMULATE TOO MUCH PC DEMAND. All of our panelists have stretched the lives of their PCs over the past few years and now operate on a 4-year PC replacement cycle (2-3 years for laptops). While each panelist is in a different stage of the upgrade cycle, Microsoft has granted support for these companies on their current systems through next year. Therefore, the upgrade to XP Pro is not viewed as a major catalyst for a PC replacement cycle among these very large enterprises. We would note that these panelists are from four very large enterprises, each with 10,000 plus servers. All commented that they are reducing the number of servers over the next few years, citing significant excess server capacity.
OPTIMISM ABOUT LINUX, BUT NOT IN THE DATA CENTER. The two Wall Street CIOs on our panel have made use of Linux today for computational-intensive applications like analytics and trading. The two non-financial sector panelists have far less developed systems on Linux, but expressed interest in pursuing a Linux strategy and recognized the potential cost savings especially in developer fees. Linux has not yet been adopted in the datacenter, with CIOs citing a lack of compelling rationale to be the guinea pigs in this mission-critical segment of the market.
POSITIVE COMMENTS ON HP MERGER INTEGRATION AND SERVICE; NEGATIVE ON ITANIUM. One of our CIOs commented that HP was doing a 'pretty good job' of rationalizing its product line-up and upgrading its selling organization. While it is still 'early days' and the real proof will come 2-3 years from now, this CIO remarked that HP has been more responsive and the quality of people has improved. Two more of our CIOs echoed these generally positive sentiments about product line and service levels from HP. Still, regarding Itanium, one panelist pointed out that it isn't as fast as expected and is a very complicated chip set, not comparing well with the 'phenomenal' performance levels of the latest Pentium offerings. This CIO noted that he does not have many areas in his shop where 64-bit computing is critical, and that, in his view, Intel may go with 'plan B' and introduce a 64-bit extension to its existing 32-bit architecture. Another CIO agreed that Itanium would only be needed for 'niche' areas like data mining.
NEGATIVE COMMENTS ON SUN'S DIFFICULT POSITIONING. One CIO noted that Sun's intention to put Solaris on Intel is not a bad idea--Sun hopes that if they move fast enough they can keep loyal Sun shops, mostly outside the financial services community, using Solaris on cheap Intel processors (rather than more expensive SPARC processors from Sun). However, this would also require Sun to completely change its marketing approach from a technical leader marketing to tech gurus to a more 'practical' sale to the CIO. Two other panelists agreed that having to compete on reliability, an area where Sun does not rank well, would put the company at a further disadvantage. |
