| I N T E R O F F I C E M E M O R A N D U M
Date: 16-Oct-1992 09:35 CET
From: RITVA SIREN @VBO
SIREN.RITVA
Dept: VB ENS
Tel No: (33)92 95 57 63, DTN
828-5763
TO: See Below
Subject: Commodity products and information utility
While working from home during my vacation day, I thought of
writing my totally amateur opinions of where our business is
going, inspired by Robin's comments.
Warning! This is long
COMMODITY PRODUCTS AND UTILITY COMPUTING
(For the ones who would like to see IT utility I explain my
word selection: IT is not an Utility, it is products, word
information in itself covers too many areas and businesses)
Some of our management messages have stated that HW/SW sales
in our business is going towards commodity business and computer
networks towards utility business. What could it mean?
1. Commodity HW
In the commodity side, HW business could probably be compared to
the consumer electronics and especially TV/Radio manufacturing
and distribution.
-Products are designed and produced in the factory
-Products are sold almost exclusively by distributors
with a minimum per unit effort from the manufacturer.
-Products are serviced by authorized service delivery
companies, which may be the same as distributor, but
not always. For the cost reasons, service delivery must
be close to the customer.
-Manufacturer delivers some product training, but almost
exclusively in train the trainer principle. Public
industrial training organisations offer complementary
training often even for specific brands.
-Facility cabling is provided by an authorized cabling
company, which sometimes is the utility company but
usually not.
!!Nobody goes to a $1000 training course to learn how to use the
home appliances.
!!Very few can justify to go to a series of PC user training
courses even from businesses. -->Products must be developed to
be self teaching -->Even the ones who could justify the
training cost don't need to go.
Where is our place in this chain in late 90'ies.
2. SW commodity
Plenty of users could justify buying computer software perhaps
with $1000 but very few with $10 000. I do believe that there
will be a possibility to buy all required software for an
average PC user in the end of this decade with $1000. To me it
looks like SW business where developing towards the models of
publishing companies.
-Books (even textbooks) are mostly written by private
authors or author groups and payment is received often
based on the success of the book. For encyclopedias, a
group of free-lance people is collected together.
Publisher does not have very much more then the core
business people in their permanent payroll.
-You go to a bookstore, buy a book. If it's for fun you
don't spend an awful lot of time and energy to
understand it. If it's for work, you study it, you may
discuss about it with other people and only if you can
justify both the time and money you go to special
classes if learning by yourself proves to be too
complicated.
SW and SW manuals are already delivered in this way
and it will happen even more.
-->Commodity SW is not sold with plenty of consultancy
-->$10-$50 commodity software buyers do not want to go
to a $1000 course per SW package.
-->$10-$50 SW buyers do not want to pay $1000 fee/day
to get us to install their software
-->SW needs to be self teaching --> There is less need
to participate into the product training
-As there is room for teachers, who teach English or
mathematics or whatever there will probably be
cheap/user teaching of computer usage, not internals.
What will be the commodity product standards?
-for users
-for developers
Where is our place in this chain?
3. Utility business
If we look at the telecom or power supply companies, they still
need plenty of special systems to run their service including
lots of special automating technology. This technology is,
however, highly standardized and you can plug pieces from
different manufacturers together after the initial development
phase. Utility companies are usually very careful of not to
select components, which lock them to one manufacturer. They may
play games with one vendor in the pilot phase, but after that,
major things must be standard. Utility industries keep alive
lots of specialized vendors (ABB, Siemens, Philips,
Alcatel...) but even they have to learn to do things cheaper.
More interesting to us, utility industries employ quite a lot of
people, but even they need to learn to be more productive to
produce services with prices, which customers can afford and to
survive, when competing is allowed.
What does the utility industry for computing look like? We could
look models of e.g. communications industries (telecom and
broadcasting). Telecom is perhaps closer then broadcasting.
-Cabling or equivalent owned by one company, which can
be the same company, which runs the telephone switches
or then not
-Switches owned and operated by a PTT (in future more
and more competing with other PTTs)
-Major users have their own private networks and/or
PBXs, which are run over the PTT service (minimum
cabling) and always connected to the PTT service. -->
PTT offers different levels of services based on
requirements
-Small users have their phone sets connected to the same
big service as the big customers and can communicate
with them.
-Even competing utility providers have their networks
connected together. In most countries they are required
to do this by law.
Service to end users has been so far delivered mostly by the
PTT. It looks like gradually service will be more available from
authorized service providers.
PTT services are mostly highly packetized and majority of
services is sold by packet price.
Private PBX owners have paid relatively high prices for their
solutions but it must be justified by savings.
How will computing utility evolve?
What will it look like?
-Computer network service?
-Information store and/or delivery service?
-Applications (i.e. solutions) service?
-All above together in customer selected pieces?
Who are owning and running it? PTTs? PTT consortiums? Computer
companies? Others?
Who will be the utility systems (cf. switches) providers?
What will be the utility system standards?
What will be the services packets for the computing utility?
What will be Digital's role in this, if we stay alive?
|
| A lot of questions in the previous note !
My 2c.
If we accept the realities of a commodity marketplace for product, then
to succeed, we just need to accept what that means for the
organisation. Painful as that is.
In the back of my Time-manager (UK - 6 ring binder for diary etc), I
have a graph that plots the decline in product margin over the last 6
years (gleaned from reports, Gartner info etc). In the past, H/W type
vendors preferred product , because the margins were higher than that
available in services (No-brainer so far..). The lines crossed about 2
years ago - if you organise yourself right, you can now get a higher
margin for Consulting/SI/Business Process Mgt etc.
But, if the mindset is all about sales per employee, (as opposed to
margin, or return on capital per employee), you will never succeed in
Services which tend to be people intensive.
Digital can succeed doing commodity product, most certainly, but it
won't need many people.
The people making a stack these days ? EDS, Andersen, CGS, CSC etc etc.
People intensive too.
EDS and Andersen are probably one (or two) steps ahead of the
Information Utility game too. They focus on delivering a 'Business
Process' (eg card processing), that just happens to use tons of IT.
They are already moving *further* up the value chain. (..heard that
phrase before.?).
Worth looking at what Unisys did to turn themselves around, and how
ICL (UK/Japanese firm) did to change itself into a service led IT
provider - they both started from a similar 'Product' orientation to
us.
I would re-phrase your title to be: 'The world has *already* changed.
And it's still doing it !'
AW
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| It begins to be time to give some examples of, what's happening:
Just read from INTERNET_TOOLS conference, that Microsoft is selling
a CD for Internet server/connections with $109.
In the same line: Some students from a local college here have put up
the Web service for a local town hall based on the work they have done
along with their related studies and UNIX freeware. They have also organised
the end user training. I bet, that their charges are no more than half
of ours. We can probably still compete with them IF we can deliver
something more reliable/functional and do it (cost)effectively.
--Ritva
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