Bus. Std: The Cheap Revolution

My latest Business Standard column:

In a world where affordability, value-for-money and reduction in total cost of ownership are increasingly becoming themes driving technology purchases, there is an emergence of what Pip Coburn of UBS Warburg has called cold technologies. Richard Karlgaard of Forbes has labelled it as the Cheap Revolution.

Coburn wrote in a research note in early 2003: A cold technology issue is one that commands a major portion of the agenda while having neutral revenue or even anti revenue attributes. A hot technology has the potential to generate revs. So, in 1980, whether one was a fan of the PC or not, both would agree that if the PC took off the tech pie would expand. The PC was a hot technology. Linux is a cold technology. It will shrink the pie. Cold technologies often are issues that are not product related but gain a disproportionate share of the agenda. The migration of the food chain into China is a cold technology issue.

More recently, David Kirkpatrick wrote about technology in turmoil in Fortune: The technology business is in a state of turmoil that was unimaginable just a couple of years ago. Industry icons are under threat, market leaders are at risk, and the whole pantheon of tech greats seems to be under renovation…Microsoft and Sun face open source, Intel seems weakened, outsourcing threatens services playersthese are just a few of the recent shifts in the firmament.

Barrons wrote about technology spending in the US context: [None of the current trends] seems monumental enough to drive a big wave of tech spending in the next 12 months. Sure, companies are still ga-ga over open- source software like Linux, they are adopting voice over IP phone services, they are buying densely packed blade servers and they are spending generously on security software. They also are forking over large sums to meet the stringent audit and reporting demands of Sarbanes-Oxley. But the dollars involved in all of those simply aren’t enough to move the needle on tech spending, given the huge size of the overall technology business.

In the past, the technology industry built it, and the users kept coming wanting the next new thing. But this is no longer true. There is a shift in thinking in enterprises big and small the focus now is getting the maximum value from new investments. In developing countries like India, cold technologies are even more important. They will help the market expand beyond the top 10%.

So, which are these cold technologies? In this and two future columns, we will look at some of the cold technologies that are giving enterprises and consumers more bang for the buck from their investments.

Open-Source Software

The remarkable growth of Linux and open-source has provided alternatives across the software stack. The Apache web server, PostgreSQL and MySQL database software, JBoss application server, OpenOffice desktop productivity suite and Asterisk IP-Telephony solution are some examples of open-source applications which are taking money away from commercial applications by offering alternatives at significantly lower price points.

Forbes wrote recently in an article on no-frills software: The future will be dreadful for software vendors like IBM, Microsoft and Oracle. Customers will balk at ever-escalating prices for mainstream products and will opt whenever they can for bargain-basement software based on freely available code, such as MySQL or the Linux operating system. They’re using the mere threat of installing this open-source software to browbeat Oracle and Microsoft into coming back with better prices.

The International Herald Tribune wrote about the new wave in the software industry: As software vendors end a second year of single-digit growth, MySQL and other second-generation open-source companies are booming. Most are doubling sales annually and adding staff as they transform the industry by distributing basic, powerful software for free or at a small fraction of the market price For the second-generation companies, the key to making money in the open-source universe is simple: Give and ye shall receive.

Software as a Service

The emergence of companies like Salesforce.com (customer relationship management) and Ketera (spend management) which offer software as a service is challenging existing incumbents like Siebel and Ariba. The traditional software industry model has been to charge upfront for software, with additional charges for upgrades and maintenance. The new generation of application service providers now offers software delivered over the Internet for a monthly fee just like a utility company. Thus, while the old paradigm used to have a high initial fixed cost, the one is where there is no fixed cost but only a variable periodic cost.

Marc Benioff of Salesforce.com said in an interview with InfoWorld: This is about a new paradigm thats just lower cost and easier to use than the old paradigm. And traditionally in our industry, that can become a huge success Youve got to look at eBay and Amazon. These are the best solutions: written on big database servers with high-performance systems, high-performance hardware, massive amounts of storage, scalable app servers delivering pages under 500 milliseconds Selling things on eBay is a lot cheaper than setting it up on your store.

This series will continue in the next column.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.