One of the clear themes emerging at the BancBoston Robertson Stephens Tech99 Conference is the pervasive fundamental shift of computer architecture to a thin-client web based architecture of computing. While everyone has accepted how this shift affects traditional ecommerce, it is now becoming clear now that the thin client revolution is also affecting the enterprise, and the enterprise software business.
A thin client architecture is one where the client part of a network interaction does very little data processing or data storage. Thin client activity is predominantly input and output. The Web browser, particularly without java applets, is a thin client.
Fat client applications are ones with much data processing and data storage on the client computer. Most require the user to understand a unique interface. In addition, fat clients generally require purchase of an additional license for each copy of the application installed on a PC.
The revelation that the internet would change the nature of retailing was clear two years ago. What is now becoming clear is that the very same fundamental shift will undercut the enterprise software business as well.
Previous Fundamental Shifts
Mainframes cost $1,000,000 each, but in the beginning of the computer revolution, that's all there was. Then minicomputers came along, offering the same processing capabilities, but for $100,000. Then PCs arrived, and again cut the cost of computing by 90%, costing (originally) about $10,000. Each new architectural phase has brought a ten-fold reduction in the cost of computing.
The primary benefit of the thin client architecture in a retail business is that labor costs can be off-loaded to the person using the thin client part of a system. If that person is unpaid by the business, for example, a customer, the business benefits.
The internet's cost decimation is not in the enabling machinery. It's in the labor. Businesses that can get customers to enter data and interact with the internet instead of calling an employee on the phone, who then enters data or answers questions, can dramatically reduce costs.
New Thin Client Enterprise Companies
Several companies presenting at the Robertson Stephens are focusing on applying the thin client web architecture to other areas of enterprise software.
Brightware is a private company that is developing automated systems for customer support, both pre-sale, and after-sale. The browser based Advise Agent uses AI (artificial intelligence) and dynamically created HTML pages to help a user acquire information prior to placing an ecommerce order. It's the automated version of "May I help you?" Brightware also sells an automated email solution, which reads the content of an email, and uses its logic to send its best answer, automatically. If the system can't interpret the email, it gets routed to a human. Again, the goal is to replace labor costs of providing customer support.
Concur Technologies (CNQR) is another company developing thin client web applications for the enterprise. Concur's system automates travel and entertainment processing over an intranet. They also sell a procurement product for ordering office supplies, processing purchase orders, and monitoring the enterprise purchasing habits. The opportunity for a business is reducing labor costs in office supply and procurement, as well as eliminating paper order forms. Everyone in the enterprise has browser access to a single system for T&E reports and purchasing.
However Concur's still applies a "per-seat" license fee, which is a "fat-client" model. Briefing.com feels this model will be harder to use as the thin client model invades the enterprise.
Concur is newly public company with only $20 million in revenue, but it sports a market capitalization of over $500 million. Clearly, the market believes that the thin client revolution will be as big in the enterprise as it is in consumer retailing.
PeopleSoft
The coming thin client revolution in the enterprise is casting a shadow on existing enterprise software businesses.
PeopleSoft's (PSFT) presentation at the Robertson Stephens Tech99 Conference underscores this theme in a dramatic way, but probably not the way the company hoped.
First, CFO Al Castino made a blatant sales pitch for the stock price, comparing key financial statistics between SAP and PeopleSoft. SAP carries a Price/Sales ratio almost twice that of PeopleSoft, yet PeopleSoft's revenue growth and net income growth are higher than SAP's. In addition, PeopleSoft has almost as much cash as SAP, yet it is a smaller company.
The key message was that PSFT stock is clearly a bargain, but there wasn't any focus on future growth prospects. Briefing.com finds this approach of direct comparison to another stock unusual. After all, the conclusion reached by investors might be that SAP is overvalued, and should be shorted!
The PeopleSoft presentation then continued with an explanation of the company's new strategy: the "PSBN, or PeopleSoft Business Network." This radical new direction by PeopleSoft clearly shows how the thin client revolution is impacting the enterprise software arena.
PeopleSoft, with the PSBN portal, is attempting to make access to PeopleSoft information look exactly like interactions with a personalized portal interface. The Business Network is designed to link together all of the client-server pieces of the PeopleSoft product suite. Thus a user of multiple PeopleSoft products can access them all through the PSBN.
The sample PSBN screen shown looked almost exactly like a screen from MyYahoo. The user can personalize the browser page to display portions of PeopleSoft data information. Clicking on the displayed information allows drill down into the data. There is even a "communities" button which connects the user to "self-service communities", but the presentation wasn't clear on what those are.
But what is the business benefit, to the customer, of buying the PSBN interface? The presentation didn't address this issue at all. If the customer is an existing PeopleSoft client, what economic benefit is derived from replacing the existing PeopleSoft "fat" client with the new PeopleSoft PSBN web client? Where is the savings from labor replacement? How do you measure ROI on the new PSBN? Will PeopleSoft drop the per-seat license for clients if you implement the PSBN web solution?
PeopleSoft's presentation never answered this question, but it is the core question at the heart of the thin client revolution. Nevertheless, PeopleSoft clearly feels the pressure of the thin client revolution, as they are going to great lengths to dress up their product as a "thin client web app." They have to do something, however. Robertson Stephens January 29, 1999 report on PeopleSoft, handed out at the presentation, is subtitled "A Long, Difficult Road Ahead."
Institutional investors were evidently not impressed, as the money manager sitting next to us, who begged not to be quoted, summed up the presentation at the end by saying "It's still too early to buy this stock."
Briefing.com Analysis
Thin client Web applications replace labor costs, in the enterprise and in ecommerce. That's one of the key message coming out of the Robertson Stephens Tech99 Conference.
Companies whose business models are aligned with this principle are hot items in the market, but most of the enterprise thin client companies are still private. But even the private companies like Brightware are presenting to packed rooms, as money managers are doing their best to understand the new models of the thin client revolution.
In a later Stock Brief, we'll provide a short summary of some of the other private companies developing thin client applications for the enterprise.
The above is from briefing.com
The above is one of the reason that I beleive we are entering era of Big Fat Servers. IBMs mainframes are now just big fat servers. The story on thin clients above is one reason way DELL is also getting into storage.
Greg |
