Enterprise Spending: What's Hot, What's Not

"A lot of people even have their budgets approved, but they're not jumping in with both feet," said Mick Gallagher, CEO of San Diego solution provider LS Technologies. "A lot has to do with the economy, the elections. Let's face it, what with the concentration on foreign rather than domestic policy, there's not a lot of confidence out there."

Yet solution providers haven't lost their optimism. Their expectations for sales to the enterprise market, after bottoming out at the end of 2003, have increased steadily for the first half of this year, according to the CRN Monthly Solution Provider Survey. There was some pullback in June, but the upward trend resumed in July: Last month, 51 percent of solution providers surveyed expected sales growth of at least 6 percent over the following three months in the enterprise market. This was up from a low of 33 percent last November and 45 percent in the July 2003 survey.

Buoying those expectations are the actual IT spending plans of enterprise companies themselves. In the second quarter of this year, the level of spending priority reached two-year highs for both Internet-related and hardware/software spending, according to the CRN Business Spending Survey.

However, despite the growing expectations of solution providers, and the rising importance of technology spending to enterprise companies, these businesses have yet to follow through with their spending plans. That doesn't mean we're headed for another ice age, though.

CRN recently began surveying businesses not only on their spending plans, but on their level of commitment to implementing these plans. In the June survey, 59 percent of enterprise firms planning to increase technology spending in the next 12 months said they were "extremely committed" to these plans and that they were already being implemented. Only 5 percent expected that spending increases were not likely to be implemented any time soon.

So, yes, there appears to be a thaw in sight. But even though the economic recovery doesn't seem to be in doubt, it seems certain that unless energy prices fall significantly, growth rates in the second half will be below economists' initial expectations. Recent experience suggests that despite the growing importance of spending, this could lead large companies to further put off their technology spending plans until the picture becomes clearer.

"I'm reasonably optimistic about spending picking up, but it won't take much to spook people," said Gartner analyst Martin Reynolds. "If consumers stop spending, if oil hits $60 a barrel, if the euro starts to weaken--when any of that happens, then large IT companies will report lower results from lack of customer spending."

Amid this fragile recovery, though, some enterprise product categories, such as blade servers and KVM switches, are red-hot. To help identify areas that aren't as obvious, CRN talked to solution providers in eight other market segments to identify why some areas are hot or not so very hot--at least not yet.WHAT'S HOT

VoIP Has Nice Ring To It
Va-va-VoIP. Solution providers are seeing it. Vendors such as Avaya and Cisco Systems are seeing it, too. Growth in the VoIP market continues to skyrocket, gaining momentum as the technology matures and moves from bleeding edge to mainstream.

"In the future, I believe that 2004 will be the year to look back to in noting when the adoption of IP telephony began to accelerate," said Don Peterson, chairman and CEO of Avaya, Basking Ridge, N.J.

Solution providers touting the technology point to toll bypass and easier administration as driving forces behind IP telephony adoption. At the same time, productivity gains achieved through features such as one-number dialing, unified messaging and presence are also forcing enterprises to take a serious look at VoIP.

"It's probably our fastest-growing area," said Mark Theoharous, president of Burwood Group, a solution provider in Chicago. "The potential for true integration between voice, data and video, putting that telephony solution on the same [data] network, under the same management, is pretty powerful," he said.

Worldwide, the enterprise IP telephony market hit $1.7 billion in 2003, up 89 percent over the prior year, according to Synergy Research Group. Sales for the first quarter of 2004 grew to $595.8 million, up 56 percent over the year-ago quarter, according to Synergy. Growth in VoIP comes as sales of traditional telephony products decline, solution providers say. "Right now, about 20 [percent] to 25 percent of our voice business is VoIP," said Scott Klemm, vice president of operations at Distributed Computing Inc. (DCI), a solution provider based in Baltimore. "Within the next 18 months, that will easily flip-flop so that 75 percent of our voice business will involve some type of IP technology," he said.

-Jennifer Hagendorf Follett

Antispam: The Message Is Clear
As spam continues to be an ever-present, humongous nuisance, antispam filters continue to be a hot, hot technology.

Antispam and antivirus solutions are "absolutely the No. 1 messaging issues," said David Via, vice president of technology transition services at Wolcott Systems Group, an Akron, Ohio, solution provider specializing in collaboration and mail systems.

The never-ending battle to stop spam, preferably before it enters a company's e-mail system or, failing that, before it clogs inboxes, has evolved into a cat-and-mouse game between spammers and top spam fighters such as Brightmail, now part of Symantec, Postini, SurfControl, CipherTrust and others. While antispam technology has improved--the inclusion of heuristics has cut down on the number of false positives, for example--even those on the front lines say spam will never disappear.

"You're never going to eradicate it entirely because the spammers keep changing," said Diane Cook, partner with SofTek Excellence, a Toronto-based IT security solution provider.

It hasn't helped that the CAN-SPAM Act hasn't seemed to stem the tide of unsolicited e-mail. In fact, many swear volume has increased since that legislation took effect the first of the year.

The stakes are high, especially for financial services firms, which are required by new regulations to archive e-mail that is "accepted" by their mail systems. That means any message that makes it through their gateways must be stored and managed, said Bill O'Brien, principal at Commercium Technologies, a Rumson, N.J., reseller. Clearly, it behooves such customers to stop spam at the periphery of their organizations.

As solution providers wage this war, they have their favorite spam-fighting tools. Commercium Technologies recommends Postini's solution, and Wolcott Systems Group has seen success with Postini and MailFrontier. SofTek recommends SurfControl or Sophos.

The battle will certainly continue. The Radicati Group estimates that worldwide revenue from antispam products will hit the $979 million mark this year, growing to $1.7 billion in 2007, roughly a 15 percent growth rate.

-Barbara Darrow

BTO: Technology The Way Business Is Run
Shouldn't the plan be for IT to empower business instead of making IT the business of the day?

The groundswell of enterprises answering "yes" to this question is the reason business technology optimization (BTO) has become a hot topic. Companies have come to the realization that it's time to make technology work for them, instead of the other way around. And BTO strives to do exactly that by aligning IT infrastructures and application life cycles with the business objectives they serve.

BTO solutions ranging from IBM's Tivoli to SingleStep's Unity show that vendors both large and small are enabling the channel to equip their customers with the means to deploy and manage not just point products, but business IT platforms. The result saves customers money by optimizing IT resources such as storage, application maintenance and support administration. In turn, such savings free up discretionary spending for new technology.

BTO is all about IT serving the bottom line of an enterprise by linking the server room with the boardroom without all that noise, said Greg Redmond, president of Network Performance Services, a solution provider and network monitoring company in Pennsauken, N.J.

"At the CIO level, they want to see that a service is up and running," said Redmond. "If they're running SAP, the boardroom doesn't necessarily care if there's a router down; they care if a client can get to the SAP service and how that service is performing overall. "They want a different dashboard at the CIO level," Redmond added. "There may be alarms going off for the IT administrator, but they want to see everything as green from a business perspective."

-Dan Neel

SAP Is On Fire
When it comes to hot, SAP blazes across the enterprise application marketplace. These days it seems the Germany-based company--once known among systems integrators and customers for its Teutonic insistence on its way or the highway--can do no wrong. "SAP is becoming the only long-term choice," said Suresh Ketha, president of Global Enterprise Management Solutions (GEMS), an SAP solution provider in Irving, Texas, that has won two large accounts in the past six weeks alone. "Large companies view SAP as the solution for the next 10 years. I have not seen any other solution sell as well as this in the enterprise market."

The world read the measure of SAP's flame-on temperature in the most recent quarter, when the company reported a 17 percent rise in worldwide revenue and a 63 percent jump in U.S. revenue. Those U.S. results are especially noteworthy, coming at the expense of SAP's competitors in the broad enterprise application arena as well as in the CRM, ERP, supply chain management, product life management and supplier relationship management markets, according to SAP USA CEO Bill McDermott.

"If you look at SAP's North America results against our top seven competitors, the market would be up double digits on a year-over-year basis," McDermott told CRN. "If you extract SAP from the numbers, the market would be down 2 percent year over year."

Through 2003, SAP's peers were i2 Technologies, Oracle for business applications, PeopleSoft and Siebel Systems. Based on that peer group, SAP would have amassed 61 percent world market share--42 percent market share in the United States--in its second quarter, ended June 30. This year, SAP replaced i2 with Microsoft's Business Solutions segment among its peers. Within this company of companies, SAP claims 55 percent worldwide market share and 37 percent share of the U.S. market.

-Rochelle Garner

WHAT'S NOT

Utility Computing: More Off Than On
A concept hovering on the horizon for years, utility computing still remains a mirage, solution providers and vendors acknowledge.

While the concept of pay-for-use sounds attractive to customers, utility computing remains stalled by a lack of proven solutions deployed in the field. "We see some customers interested in utility computing," said Kirk Zaranti, executive vice president of STI, an IBM Business Partner based in Indianapolis. "But I think IBM needs to get a couple of contracts [to prove the viability of the concept]. I think absolutely it will be a big play in the next 12 to 14 months. But its not being adopted as fast as IBM thought it would be."

Nick van der Zweep, Hewlett-Packard's director of virtualization and utility computing, thinks that the ability to partition new Itanium chips may further utility computing in the market. With the enhancements to HP's Virtual Server Environment introduced at HP World last week in Chicago, van der Zweep said HP could make strides in utility computing.

"We can take partitioning to the next generation," he said. "Previously, the smallest partition I could make would have one CPU dedicated to it. With virtual machines, you can take a quarter or a tenth or a twentieth of a CPU and create a partition. That means a four- or eight-CPU box could have 10, 20 or 30 virtual machines running on it at the same time."

Van der Zweep said every customer he talks to buys into the utility computing vision, "but each one of them is taking baby steps or half steps toward that goal, and virtualization--to be able to move resources from one partition to another and then to only pay for what you use--is a big step forward. Is it all the way to the vision of utility computing? No, it will take us five or 10 years to get all the way there."

-Craig Zarley

64-Bit Not So Chipper
For a technology solution to work well in the enterprise, hardware and software need to move in step as if dancing a waltz.

So a funny thing happened when Intel and Advanced Micro Devices brought their 64-bit hardware to the enterprise ball: Their dates didn't show up.

Solution providers say a continued dearth of good software to exploit Intel's Itanium processor and AMD's Opteron and Athlon 64 chips has continued to hold back the adoption of mainstream 64-bit solutions. "Maybe it's a software issue," said David Chang, president of Agama Systems, a Houston-based system builder. "Maybe people don't see all the benefits of 64-bit computing yet. We still sell those systems. But do we sell a lot? No."

Not that Intel, Santa Clara, Calif., and AMD, Sunnyvale, Calif., would agree.

AMD, for example, has had two consecutive quarters in which it beat analyst expectations for profitability as sales continued to grow.

And Intel executives have said all along that the company didn't seek to build a new market with its 64-bit Itanium processors. Rather, it merely wanted to take a chunk of the existing--and profitable--RISC server space that has been dominated by chips from rivals such as Sun Microsystems, Hewlett-Packard and IBM.

Neither Intel nor AMD provides unit shipment numbers for their 64-bit processors.

John Samborski, vice president of Ace Computer, an Arlington Heights, Ill.-based system builder, said his company has seen new sales of AMD Opteron-based workstations or clusters, many of which will run 32-bit software while customers await 64-bit applications.

"But for the regular desktop [and server] it's like, 'Who cares?' " Samborski said. "With the server, the problem is there's not a significant server product that's shipping from Microsoft that's working with AMD or Intel 64."

-Edward F. Moltzen

Siebel On Shaky Ground
How the mighty have fallen. The biggest, meanest player in the CRM universe is being viewed by the market as an "also-ran." That would be Siebel Systems of course--among the few CRM pioneers to remain standing.

Judging from its recent financial results, standing is about all it's doing. For the past few years, Siebel's business has been one long sucking sound. That downward spiral took on real drama in Siebel's most recent second quarter, ended June 30. Among the financial missteps: the lowest license revenue since 1995.

Siebel management attributed the shortfall to difficulty in closing deals, especially of the large variety. "We have seen a lot of that business go away," said Chris Gryskiewicz. executive vice president of Templeton and Company, a certified Siebel reseller in West Palm Beach, Fla. "I think there's been a saturation at the upper end with regard to Siebel, and [the software] doesn't scale down to the midmarket real well. That's probably a big reason for the reduction in their revenue. There are only so many big projects to do around, and midsize companies aren't willing to spend the dollars needed."

Large enterprises may not be so willing, either. In this most recent second quarter, San Mateo, Calif.-based Siebel closed 15 deals worth more than $1 million vs. 29 such deals in the previous quarter. No matter how you slice it, Siebel is losing a big piece of the CRM pie. In the most recent figures from research firm IDC, Siebel lost more than 27 percent of its market share to hold 11.9 percent in 2003. In that same period, SAP--which doesn't even specialize in CRM--grew its share to hold 6.7 percent of the worldwide market.

-Rochelle Garner

Rough Draft For Services-Oriented Architectures
Don't let the industry marketing machine fool you. While services-oriented architectures may be the most overhyped technology since Web services, solution providers are not seeing customers trample each other in a mad scramble to implement them.

"Only a small percentage of clients are actually at the stage of transforming their IT organization with SOAs," said Kevin Pollari, a lead partner in New York-based Accenture's Global Architecture and Core Technology practice.

In an SOA, functions are broken down into low-level actions that can be reused across the enterprise. Called "services" because they lie ready for any application that invokes them, they can be combined into more complex functions. Such components of repeatable business processes provide the utility behind an SOA--removing IT redundancies while promoting greater business flexibility.

Therein lies the dilemma for most customers, solution providers say. Most companies have an unnerving hodgepodge of systems set up to serve widely disparate business needs. Before a solution provider can build an SOA out of such a system, those business operations have to be understood, standardized and turned into services.

This is no small task. The popularity of Web services, which uses XML to define, send and secure common business processes, has helped this situation. But tying together a bunch of Web services does not an SOA make, said Jeff Mitchell, managing director of integration services at Bearing Point, McLean, Va.

Developing a true SOA is still a complex task only a small percentage of customers are willing to tackle. It's likely that this slow rate of adoption won't stop vendors such as IBM, Microsoft and BEA Systems from continuing to jockey for position to offer the best software for building SOAs. But it's clear that it will take more than a few years before SOAs live up to their true potential.

-Elizabeth Montalbano