2010: Looking Into The Crystal Ball

Predicting the future is risky business. Without a crystal ball and the power of foresight, the future is all but a hazy mist on the horizon. Yet this does not preclude us from using our experience to assess and analyze what 2010 has in store for the software industry, vendors, and partners.

The software industry is a tough nut to crack. It is constantly evolving both in terms of its market players, products or solutions offered, as well as the type and variety of services.

The recession and global financial slump has undoubtedly impacted on how we, as software infrastructure providers, and our partners, are doing business. And despite talk of many countries coming out of global recession in the coming months, the challenges for our industry will be formidable, to say the least.

The global recession, as I see it, has resulted in two trends taking shape. First, customers have become more demanding of vendors. 2010 will not be a year that software companies can grow by just raising prices. Customers now want quality at the best possible price — at no cost if possible. Second, the industry has not only been forced to push its prices downwards but it has had to look for and create new revenue streams to counter what can be described as an exodus to the Cloud by many businesses.

Although the economic situation has been a catalyst behind these two trends, I don't think it is surprising or unexpected. The reality is that vendors in 2010 can ill afford to increase prices. Those that already offer ancillary services apart from on-premise products will be able to maintain stronger revenue streams thanks to the diversification of services and solutions they offer. However, vendors whose business is dependent on selling software alone will find themselves under greater pressure to remain competitive.

We are already seeing a marked shift towards hosted and managed services. Vendors, partners and customers have quickly realized the benefits and low costs that this delivery model offers. With storage and bandwidth costs exceeding Moore's Law, the cost to provide a managed or hosted service will be almost negligible. This, in turn, means services offered in the Cloud will be extremely profitable. I am confident that this phenomenon will be a strong catalyst pushing software vendors to change strategy and start offering more services online and thus respond positively to the need to lower software prices. We could see over the next five years multiple billion dollar markets shrink to sub-$100M markets.

That said, it is not only vendors who have issues to deal with. Value-added resellers (VARs) will also be forced to rethink their strategies next year. As software prices go down, so will margins, leaving resellers with a growing hole in their income. As software moves to the Cloud, customers are not willing to pay for customization; they expect the service to "just work". To counter this, VARs will need to create new revenue streams that depend less on selling onpremise software and more on providing value added services, via the Cloud, to their clients.

In 2010, I think we will see VARs taking a lot more interest in those vendors that have made the shift from solely on-premise to the Cloud or a hybrid offering, that is, giving customers the option to choose an on-premise solution as well as services in the Cloud, separately or both together.

Next year, we will also see a marked increase in the uptake of Edge Services — Cloud-based solutions that will suit customers who want to retain an on-premise infrastructure but also want defense-in-depth, continuity and redundancy.

2010 will be a year of challenges for the software industry and VARs. However, these challenges are not insurmountable. I firmly believe that next year will be a great opportunity for those who are willing to diversify. Those who prefer the status quo, however, could be in for a shock. And it will not be the result of the global economic slump but a failure to see what the crystal ball has been showing us all along.