Executive Interview: HP's Robin Purohit on How CIOs Can Contain IT Costs While Spurring Innovation Payoffs

Transcript of a BriefingsDirect podcast with HP's Robin Purohit on the challenges that CIOs face in the current economic downturn and how to prepare their businesses for recovery.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Learn more. Sponsor: Hewlett-Packard.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you’re listening to BriefingsDirect.

Today, we present a sponsored podcast executive interview that focuses on implementing the best methods for higher cost optimization in IT spending. [See HP news from Software Universe on cloud enablement technologies.]

To better define the challenges facing CIOs today, and to delve into what can help them properly react, we are here with Robin Purohit, Vice President and General Manager for HP Software and Solutions. Welcome back to BriefingsDirect, Robin.

Robin Purohit: Wonderful to be here again with you, Dana.

Gardner: Clearly, the cost-containment conundrum of "do more for less" -- that is, while still supporting all of your business requirements -- is going to be with us for quite some time. I wonder, Robin, how are CIOs reacting to this crisis, now that we're more than a full year into it?

Purohit: Well, just about every CIO I've talked to right now is in the middle of planning their next year’s budget. Actually, it's probably better to say preparing for the negotiation for next year’s budget. There are a couple of things.

The good news is that this budget cycle doesn’t look like last year’s. Last year’s was very tough, because the financial collapse really was a surprise to many companies, and it required people to very quickly constrain their capital spend, their OPEX spend, and just turn the taps off pretty quickly.

We saw a lot of CIOs getting surprised toward the end of year 2009 and the beginning of year 2010, and just having to stop things, even things that they knew were critical to their organization’s success, and critical to their business success.

So, the good news is that we're not in that situation anymore, but it's still going to be tough. What we hear from CIO Magazine is that about two-thirds of the companies out there plan to either have flat or down IT budgets for next year. A small amount are trying to actually increase spend.

Every CIO needs to be extremely prepared to defend their spend on what they are doing and to make sure they have a great operational cost structure that compares to the best in their industry.

They need to be able to prepare to make a few big bets, because the reality is that the smartest companies out there are using this downturn as an advantage to make some forward looking strategic bets. If you don't do that now, the chances are that, two years from now, your company could be in a pretty bad position.

Gardner: Given that we are either flat or refining still and that this might last right through 2010, it means we have to look at capital spending. I think probably a lot of costs are locked in or have been already dealt with. When it comes to this issue of capital spending, how are these budgets being managed?

Important things

Purohit: Well, with capital spend, there are a couple of pretty important things to get done. The first is to have an extremely good view of the capital you have and where it is in the capital cycle.

You need to know what can be extended in terms of its life, what can be reused and what has to be refreshed? Then, when you do refresh it, there are some great new ways of actually using capital on server storage and networking that's at a much lower cost structure, and much easier to operate, than the systems we had three or four years ago.

Quite frankly, we see a lot of organizations still struggling to know what they have, who is using it, what they are using it for, and where it is in the capital life cycle. Getting all of that information that is timely, accurate, and at your fingertips, so you can enter the planning cycle, is extraordinarily important and fundamental.

Gardner: It certainly seems that the capital spending you do decide on should be of a transformational nature. Is that fair?

Purohit: Yes, it's true. I should have said that. Capital, as we all know is not only the hardware, but software. A lot of our customers are taking a hard look at the software licenses they have to make sure they are being used in the best possible way.

"Today's innovation is tomorrow’s operating cost."

Now, the capital budget that you can secure needs to be used in very strategic ways. We usually advise customers to look in two buckets.

One, when you are going to deploy new capital, always make sure that it's going to be able to be maintained and sustained in the lowest-cost way. The way we phrase this is, "Today's innovation is tomorrow’s operating cost."

In the past, we’ve seen mistakes made, where people deployed new capital without really thinking how they were going to drive the long-term cost structure down in operating that new capital. So that's the first thing.

The second is, the company wants to see the CIO use capital to support the most important business initiatives they have, and usually they are associated with revenue growth, by expanding the sales force, and new business units, some competitive program, or eventually a new ecommerce presence.

New business agenda

It's imperative that the CIO shows as much as possible that they're applying capital to things that clearly align with driving one of those new business agendas that's going to help the company over the next three years.

They are clearly in bucket that either dramatically lowers the ongoing cost structure of new technologies, or clearly rides the capital spend with something that a line of business executive is trying to do over the next two or three years. They have the best chance of getting what they think is really necessary.

Gardner: It seems that in order to know whether your spend is transformational, you need to gain that financial transparency, have a better sense of the true cost and true inventory, and move toward the transformational benefits. But, then you also need to be able to measure them, and I think we are all very much return-on-investment (ROI) minded these days. How do we reach that ability to govern and measure once we put things into place?

Purohit: It's a great point. The reality is the CIO has been a bit of a cobbler’s child for some time. They've done a great job putting in systems and applications that support the business, so that a sales executive or a business unit executive has all of the business process automation and all of the business information at their fingertips in real-time to go, and to be competitive and be aggressive in the marketplace.

It's imperative that the CIO shows as much as possible that they're applying capital to things that clearly align with driving one of those new business agendas that's going to help the company over the next three years.

CIOs traditionally have not had that same kind of application. While they can go through a manual and pretty brutal process to collect all this information, they haven’t had that real-time financial information, not only in what they have or plan to do, but to track, on an almost weekly basis, their spend versus plan.

I guess, all the CFO cares about is whether you are on track on your financial variance, and if you aren’t on track, what are you doing to real-time optimize to the changing realities of the budget that are adjusting monthly these days for most CIOs.

This is where we really see an opportunity. They help customers put in place IT financial management solutions, which are not just planning tools -- not just understanding what you have -- but essentially a real-time financial analytic application that is timely and accurate as an enterprise resource planning (ERP) system, or a business intelligence (BI) system that's supporting the company’s business process.

Gardner: If we have a ratio in many organizations where we have 70 percent roughly for maintenance and support and 30 percent for innovation, we're going to need to take from Peter to pay Paul here.

What is it that you can do on that previously "untouchable" portion of the budget? How can we free up capacity in the data-center, rather than build a new data center, for example?

It's a cyclical thing

Purohit: The joke I like to tell about the 70:30 ratio is that, unfortunately, we've been talking about that same ratio for about 10 years. So, somebody is not doing something right. But, the realty is that it's a cyclical thing. Today’s innovation is tomorrow's maintenance.

It's important to realize that there are cycles where you want to move the needle and there are cycles where you can't. Right now, we are in a cycle where every CIO needs to be moving that 70:30 to 30:70. That's because, first of all, they'll be under cost pressure. I really believe that the leaders of tomorrow in the business world are going to be created during the downturn. That's historically what we’ve seen. McKinsey has some good write-ups about that.

It means that you need to be driving as much innovation as possible and getting to that 70 percent. Now, in terms of how you do that, it's making sure that the capital spend that you have, that everything in the data center you have, is supporting a top business priority. It's the most important thing you can do.

One thing that won't change is that demand from the business will all of a sudden strip your supply of capital and labor. What you can do is make sure that every person you have, every piece of equipment you have, every decision you are making, is in the context of something that is supporting an immediate business need or a key element of business operation.

When we work with a lot of customers, we help them do that assessment, and I'll give you one example. A utility company I worked with was able to identify up to $37 million of operational and capital cost savings in the first couple of years just by limiting stuff that wasn't critical to the business.

It also means there are more things and more new things to manage.

There are lots of opportunities to be disciplined in assessing your organization, both in how you spend capital, how you use your capital, and what your people are working on. I wouldn't call it waste, but I would call it just a better discipline and whether what you're doing truly is business critical or not.

Gardner: I suppose having that financial visibility and transparency that allows that triage to take place, and then moving towards this flip of 70:30 ratio, we have to involve people and process and not just technology, right?

Purohit: That's right. If you don't get the people and process right, then new technologies, like virtualization or blade systems, are just going to cause more headaches downstream, because those things are fantastic ways of saving capital today. Those are the latest and greatest technologies. Four or five years ago, it was Linux and Windows Server.

It also means there are more things and more new things to manage. If you don't have extremely disciplined processes that are automated, and if you don't have all of your team with one play book on what those processes are, and making sure that there is a collaborative way for them to work on those processes, and which is as automated as possible, your operating costs are just going to increase as you embrace the new technologies that lower your capital. You've got to do both at the same time.

Gardner: Now, HP Software Solutions has been describing this as operational advantage, and that certainly sounds like you're taking into consideration all the people and process, as well as the technology. Tell me a little more about what you’ve been doing in the past several months and how this will impact the market in 2010.

Best in class

Purohit: We talk about operational advantage, we talk first of all about getting close to a best-in-class benchmark of your IT costs as a percentage of your company’s revenue.

They say close to best, because you never want to race to the bottom and be the lowest-cost provider, if you want to be strategic. But, you'd better be close. Otherwise, your CFO is going to be breathing down your neck with lots of management consultants asking why you are not there.

The way you get there is through a couple of key steps that we have been recommending. First and foremost, you have to standardize and automate as much as you can.

The great news is that, right now, there is really sophisticated technology that we have. Many companies have to apply this to this problem, where you can take a lot of the stuff that you know how to do every day and that involves a lot of people, and eventually a lot of manual work that could be done incorrectly, if you are not careful.

Standardize and automate them to make sure they get done in a very efficient way, in the cheapest possible way, and in the same way every time. We've seen customers take $10 million of operating cost out in 6 to 9 months just by automating what they know to do and what they know they need to do repeatably every time.

We’ve done a ton of work to roll out and automate those best practices, and how to get the advantages of faster innovation using Agile development, without creating a bunch of risks as you move faster.

The second thing that we really work on with people is getting that financial visibility, and getting all of their financial information on labor, projects, capital, and plans in one place, with one data model, so that they have a coherent way to plan and optimize their spends.

Those two things are huge levers. The third thing that we've really started to work with people on is all of these innovation projects, which are really brand new innovative techniques, like Agile development?

How do you make that labor tool extremely effective using that new technique like Agile development? We’ve done a ton of work to roll out and automate those best practices, and how to get the advantages of faster innovation using Agile development, without creating a bunch of risks as you move faster. Those are three really fundamental elements of what we're doing right now.

Gardner: I suppose that when you are picking on something quite as complex as this, you need to have some goal and some vision and direction about what are the realistic goals for some of these cost optimization activities. You mentioned the percent of revenue for IT spend as one gauge. What sort of results do you think people can meaningfully and realistically get in terms of some of these larger metrics?

Important goal

Purohit: We've seen the best companies actually implement this swap from 30:70 to 70:30. So, getting to 30 percent of your spend on operating costs in this cycle, where you need to be investing for the future, is absolutely an achievable and important goal. The second thing is to make sure that you’re benchmarking yourself on this cost of IT versus revenue on the most important competitors in your industry.

The reason that I phrased it that way is that it's not a general benchmark and it's not just the lowest-cost provider in your geography or industry, but you want to know what your most important competitor is doing, using technology as an advantage for both cost structure and innovation.

You want to understand that, spending probably something similar to that, and then hopefully be smarter than them in how you implement that strategy. Those are two really important things.

The third thing is that, depending where your IT organizational maturity is, there are opportunities to take out as much as 5 to 10 percent of your operating cost just by being more disciplined.

Say that you're a new CIO coming to organization and you see a lack of standardization, a lack of centers of excellence, and a lot of growth through merger and acquisition, there is a ton of opportunity to take out operating cost.

We've seen customers generally take out 5 to 10 percent, when a new CIO comes on board, rationalizes everything that's being done, and introduces rigorous standardization. That's a quick win, but it's really there for companies that have been probably a little earlier in the maturity cycle of how they run IT.

The same thing is happening now that happened in 2001, when we had our last major downturn. In 2001, we saw a rise of outsourcing and off-shoring, particularly to places like India.

Gardner: Another way of reducing this percentage of total revenue, I have to imagine, from all the interest in cloud computing these days, comes from examining and leveraging, when appropriate, a variety of different new sourcing options, both, new and old. How does that relate to this cost optimization equation?

Purohit: That's a great point. The same thing is happening now that happened in 2001, when we had our last major downturn. In 2001, we saw a rise of outsourcing and offshoring, particularly to places like India.

That really helped companies to lower their cost structure of their labor dramatically and really assess whether they needed to be doing some of these things in-house. So, that clearly remains as an option. In fact, most companies have figured out how to do that already. Everybody has a global organization that moves the right labor to the right cost structure.

A couple of new things that are possible now with the outsourcing model and the cloud model -- whether you want to call it cloud or software as a service (SaaS) -- is that there's an incredibly rich marketplace of boutique service shops and boutique technology providers that can provide you either knowledge or technology services on-demand for a particular part of your IT organization.

That could be a particular application or a business process. It could be a particular pool of knowledge in running your desktop environment. There's really an incredible range of options out there.

Questions for the CIO

What every CIO needs to be doing is standing back and saying, "What do we really need to be the best at, and where is critical intellectual property that we have to own?" If you're not running at the best possible cost structure for that particular application or business process or you're not operating this infrastructure at the best possible cost structure, then why don't we give it to somebody else who can do a better job?

The cost structures associated with running infrastructure as a service (IaaS) are so dramatically lower and are very compelling, so if you can find a trusted provider for that, cloud computing allows you to move at least markets that are lower risk to experiment with those kind of new techniques.

The other nice thing we like about cloud computing is that there is at least a perception that is going to be pretty nimble, which means that you'll be able to move services in and out of your firewall, depending on where the need is, or how much demand you have.

It will give you a little bit of agility to respond to the changing needs of the business without having to go through a long capital-procurement cycle. The only thing I would say about cloud is be cautious, because it's still early, and we're seeing a lot of experimentation.

The most important thing is to pick cloud providers that you can trust, and make sure that your line of business people and people in your organization, when they do experiment, are still putting in the right governance approach to make sure that what's going out there is something that doesn’t introduce extra risk to your business.

There’s a lot of diligence that needs to be put in place, so that cloud becomes less an experiment and more a critical element of how you can address this cost-structure issue.

Trust your provider, if you are putting data out there in the cloud. Do you trust how that data is being handled? If that cloud infrastructure is part of a business critical service, how are you measuring it to make sure that it's actually supporting the performance availability security needs of what the business needs?

There’s a lot of diligence that needs to be put in place, so that cloud becomes less an experiment and more a critical element of how you can address this cost-structure issue.

Gardner: Now, when we talk about cost structure, I would think that's even more critical for these cloud providers in order for them to pass along the savings. They themselves must put into place many of the things we have talked about today.

Purohit: That's right. Cloud providers have to push the needle right to the edge in order to compete. They're using the best possible new technology around blade computing, virtualization, automating everything, new service oriented architecture (SOA) technologies, so that you can do small component applications and stitch them together super fast.

The right governance

That's the value that they're providing. Then, the challenge is that you've got to make sure that not only do they have the great innovation, and great cost structure, but you trust what they are doing and that they have the right governance around it. I think that's really going to be what separates the lowest-cost cloud providers from the ones that you want to bet your business on.

Gardner: Is there anything else you want to offer in terms of thinking about cost optimization and how to get through the next year or two, where we are flipping ratios but are also maintaining lower total cost?

Purohit: I want to go back to this innovation bucket, because, as I said, you don't want to come out of this cycle as a CIO who was associated only with lowering cost and didn't fundamentally move the needle out, making the business more competitive.

You have limited ability to make those bets. So, the best bets are ones that are very prevalent, very top of mind for the business executives who really change the dynamic in terms of competitiveness, sales productivity, or the way they engage their customers.

The most consistent project that we have seen, the kind of project we see out there that are good bets for those innovation dollars, is around a theme you call application modernization.

The most consistent project that we have seen, the kind of project we see out there that are good bets for those innovation dollars, is around a theme you call application modernization.

What's happening right now in the industry is what we believe is the biggest revolution in application technology of the enterprise in probably 10 years. That's a composite of things that you build applications with these new Agile development methods.

All of these rich Internet protocols are revolutionizing the way you visualize and interact with applications, crossing over from the consumer world into the enterprise world. A whole, new wave of application platform technology is being introduced by SAP, Oracle, and Microsoft. And, SOA is becoming very real, so that you can actually integrate these applications very quickly.

Our view is that the companies who use this opportunity to modernize their applications and have this rich interactive visual experience, where they can nimbly integrate various application components to innovate and to interact with their customers or their sales people better, are the ones that are going to emerge from this downturn as the most successful leveraging technology to win in the marketplace.

We really encourage customers to take a very hard look at application modernization, and are helping them get there with those scarce innovation dollars that they have.

Gardner: Very good. We've been discussing the need for implementing best methods and achieving higher cost optimization by looking at reverse ratios from maintenance and support to innovation and transformation. Helping us along our journey in our discussion, we've been joined by Robin Purohit, the General Manager and Vice President for HP Software Solutions. Thanks so much, Robin.

Purohit: Thanks, Dana.

Gardner: This is Dana Gardner, principal analyst at Interarbor Solutions. You have been listening to a sponsored BriefingsDirect Podcast. Thanks for listening, and come back next time.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Learn more. Sponsor: Hewlett-Packard.

Transcript of a BriefingsDirect podcast with HP's Robin Purohit on the challenges that CIOs face in the current economic downturn and how to prepare their businesses for recovery. Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.

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BriefingsDirect Analysts Discuss IT Winners and Losers in Era of Global Economic Recession

Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 31, on the outlook for IT in the face of the economic downturn, recorded October 10, 2008.

Listen to the podcast. Download the podcast. Find it on iTunes/iPod. Learn more. Sponsors: Active Endpoints, Hewlett-Packard.

Special offer: Download a free, supported 30-day trial of Active Endpoint's ActiveVOS at www.activevos.com/insight.

Dana Gardner: Hello, and welcome to the latest BriefingsDirect Analyst Insights Edition podcast, Volume 31. This periodic discussion and dissection of IT infrastructure related news events with a panel of industry analysts and guests comes to you with the help of our charter sponsor, Active Endpoints, makers of the ActiveVOS visual orchestration system.

I’m your host and moderator Dana Gardner, principal analyst at Interarbor Solutions, and our panel this week consists of Jim Kobielus, senior analyst of Forrester Research. Welcome, Jim.

Jim Kobielus: Hi, Dana. Hi, everybody.

Gardner: Tony Baer, senior analyst at Ovum. Welcome back, Tony.

Tony Baer: Hey, Dana, good to be here again.

Gardner: And, Dave Linthicum, independent consultant with the Linthicum Group. Is that the correct designation these days, Dave?

Dave Linthicum: That's right. Thanks guys, good to be back.

Gardner: Very good. We’re going to talk primarily today about the burning issue of the moment, and hopefully not for the next 10 years, and that's the financial situation of fairly well-defined panic. We‘re not sure why, but there’s certainly a panic at this point in the global markets, and bailouts and other attempts by governments around the world not necessarily helping, so far. We’re coming to you on October 10, 2008.

Hopefully, when you hear this in the next few weeks, things won't seem quite as dire, but we are going to take a pulse of whether this is panic or whether this is a prelude. We’re certainly not going to look at this through the full lens of the economy. We’re not economists, and people will probably think we don't know what we are talking about, but we wouldn't be alone in that category right now.

So, we will focus it on what we do know a little about, and that is the IT sector, the software business, how this will affect IT vendors, users and enterprises.

First, we've heard a couple of different takes on this whole situation. IBM just came out with some fairly encouraging results, 2 percent real top-line growth and 20 percent bottom-line growth. So IBM says, “Not so bad,” HP had similar results and Oracle as well. They’re saying that we’re seeing some bumps in the road, but certainly not a meltdown. On the other hand, companies like SAP and Dell are saying that they’re really feeling it.

For my first question, I want to take this out to Tony Baer. Is this going to be something that drops the tide on all boats in IT? If not, who are the winners and losers likely to be?

Baer: Well, I think the winners are those who are likely to be more diversified into services, services that can help companies harvest more of what they already have. I was actually doing a mental comparison before we got on the call between, for example, IBM and SAP. In other words, why has IBM reported positive results and SAP hasn't. On first blush, they are both global companies, they both have incredible penetration into the Global 2000.

So, part of it is fairly hard to explain, you have to drill down a little bit deeper into the SAP’S acquisition of Business Objects, a two-product company With maybe some exceptions on the Business Objects side, it’s not so much new sales, but essentially maintenance and upgrades to new versions In a tightening economy, putting in a new version of SAP or NetWeaver is probably a discretionary expense.

Just look at IBM, which, besides the fact that it's much more diversified, has services. The fact is that in an economic situation like this, especially where there are a lot of known unknowns, having a services business is a good way of helping clients to discover new economies. And it's also potentially a much more flexible arrangement than having to put in an upgrade of a new version of SAP software.

Gardner: What I think I hear you saying is that companies that are in the services business, and that have primarily revenue through subscription, might fare better than those who are in a product cycle, where licensing and actual product upgrade, in addition to their maintenance, might be in a situation where people will postpone those upgrades.

Baer: Absolutely!

Gardner: Where does that put Microsoft?

Baer: Good question, because they are in a transition. I just had a fairly detailed briefing with them yesterday on their Software Plus Services strategy and that's clearly where they want to go, and they do have some impressive early wins. But it's obviously still not the majority of their business. In the short-term, I think it's going to hurt their business, because clearly take-up of Vista has pretty well-flagged, especially on the corporate side.

Obviously they are trying to cultivate the Software Plus Services side, but that business is still very much in its early in its cycle. In the long run, it will be a good strategy for Microsoft, but they are so early along that it accounts for a pretty slow proportion of their revenue. In the short-term, Microsoft is more vulnerable.

Gardner: I was at a Red Hat conference earlier this week. Their model built very much on subscription and support, not on licensing the software. They give it away essentially. They felt pretty confident too that this wasn't going to be a cliff for them. So, I guess that further substantiates our trend.

Jim Kobielus, how do you see the shaping up for IT vendors? Is there going to be a dichotomy between those who have a recurring revenue model around subscriptions, versus those who have little bit more reliance on software licensing?

Kobielus: By the way, full disclosure, I have a degree in economics from way long ago and I am not going to even try to be dangerous. . . .

Gardner: Well, you might as well, because they don't see that what's going on either, right.

Linthicum: There’s an instant CNN gig out there for you, dude.

Gardner: By the way Jim, you are pretty dangerous, so go right ahead.

Kobielus: Okay, I do see in any economic downturn in the things that get cut from corporate budgets, for example, large capital expenditure (CAPEX) projects. That's going to hurt a number of IT vendors in particular niches, for example the hardware vendors, and where it's a discretionary software upgrade purchase. Those are going to feel the crunch.

Ongoing maintenance of existing systems, existing solutions that will relatively weather the storm. In other words, just to keep on keeping on.

So, the business model that open-source companies like Red Hat have established, and likewise, very mature software vendors like SAP and also Business Objects in the business intelligence (BI) space, they will do relatively okay because a large percentage of their revenue is from maintenance and support.

Those who will get hurt are those vendors who rely on new-product sales, especially new product sales that are very much hardware-centric. And where that comes in now ties in with my core focus areas, BI and data warehousing. We see in the data warehousing arena more of a focus on appliances, the hardware-software bundles that are pre-configured and so forth.

So, all the vendors in the data-warehousing space, pretty much all of them have re-geared their entire go-to-market strategy around hardware optimization of their own with turnkey solutions.

How will this economic crunch shake out the data warehousing appliance industry, really the data warehousing market? In any downturn, users, large corporate IT, look to rationalize and streamline their vendor commitments. In other words, they consolidate to a few very large, very strategic vendors. So, the big guys will get bigger and the small, pure-play data-warehousing appliance vendors will be acquired or will vanish.

Gardner: Is that the flight-to-quality kind of effect, do you think?

Kobielus: “Flight-to-quality,” explain that Dana?

Gardner: Well, you are not sure about where vendors might be and you might want to have one throat to choke, a bit more opportunity to deal with them, and that they can bargain with you because they want you long-term business. They are in a more powerful position and so quality, not unnecessarily the buy side but on the sell side, makes some sense.

Kobielus: Okay, yes, it's very much the phenomenon. They are the dynamic in play here. I think that the larger data-warehousing vendors will do relatively okay, especially those who are well-established and have a substantial amount of maintenance and support revenue themselves. I’m talking about the likes of Teradata and Oracle and IBM and a few others.

But, right now, with the data warehousing and BI vendors, every time I talk to them, I ask them, “Okay, a substantial proportion of your business is in the financial services vertical. How are you feeling? Are you seeing any softness in demand for your solutions?” And pretty much uniformly, they say, “Well, so far so good. We’re not really seeing a huge cut back in orders, or even any substantial delays in placement of orders that were expected,” but everybody is sort of bracing for the worst.

Gardner: Alright, so what I heard from you is that there is certainly a benefit of subscription, but there are also certain niches within IT that are specialized and that are hot right now, like BI and warehousing, that adds such a competitive advantage that they are probably going to continue to invest there.

Let’s look at this not necessarily just through the selling but on the buy side, those people who are in IT shops. Let's go to Dave Linthicum. You have been in the situation of specifying and buying. About 70-80 percent of these budgets are already locked into maintenance, not a lot of discretionary spending. What kind of pressure do you think they are going to feel?

Linthicum: They are going to feel a lot of pressure with anything that can be cut in the short-term. It's really going to be more that there is so much stress in there, instead of just definite cutting, just tactical pulling of expenses. They are looking to morph the way in which they consume IT. I just did a survey yesterday. I basically talked about the economic downturn and their plans to implement strategic technology into their enterprise. And everybody came back with, it's going to increase in interest but decrease in cost.

In other words, people are going to move into more efficient technologies. They are going to look at a little bit more at cloud computing and other ways to save money and start moving aggressively in those directions.

I think IT and some of the IT leadership were just waiting for an excuse to drive in this unfamiliar, risky area. If their budgets are sliced, they still have the responsibility for doing very intense IT business processing, and they are looking for new innovative ways to do that. That's inclusive of cloud computing and services-oriented architecture (SOA).

I don’t know if you looked at the SOA market just in terms of services, but it seems to be exploding right now. I’m not sure about the adoption of technology and the selling of technology. That may be an after effect, after all of these SOAs start taking more strategic positions within these enterprises. It's definitely a game changer right now. I’m not sure if it's positive or negative, but it's changing the game.

Gardner: When we look at how these organizations, these enterprises will move to, as you say risky, unproven, or just innovative new ways. What aspects of IT do you think they are going to be more willing to offload to a cloud first? Clearly, there is going to be too much risk in some areas and acceptable risk in others. Where do you think we are first going to start to see business activities and IT functional sets and applications offloaded -- just because it's so much cheaper to do it that way?

Linthicum: I think it's initially going to be the office-automation technologies, moving to more of the lighter-weight processes, and then moving to more of the heavy-weight processes.

Gardner: Can you be more specific on an application-by-application basis?

Linthicum: Yeah. Instead of having a huge Microsoft infrastructure just for e-mail and calendar-sharing in groupware, and those sorts of things, moving to things that are in the cloud. This is obviously Google, but there is also a ton of other guys that are offering some pretty good technology -- information-sharing using similar infrastructure. They’ll start outsourcing that, versus maintaining all these data centers that are just dealing with e-mail and communication between people within the company.

Gardner: Sure, there are plenty of hosted exchange too. Even if you don’t want to move from Microsoft, you can go off-premises.

Linthicum: You can go off-premises with lots of stuff and the cost is always cheaper, and also it allows you to upgrade and innovate into new technological areas you haven’t driven before.

Next, would be tactical, software-as-a-service (SaaS) applications. Take some of the HR processing, which is driven by some kind of in-house system in the data center, and outsource that to the dozen or so SaaS vendors who are offering HR processing. That's kind of a light-weight business process.

Then, the next generation is even more risky, and I don’t see a ton of guys doing that initially. It involves some of the core business processes, and getting into an SOA kind of an initiative. Re-automating those, but also outsourcing a tremendous number that haven’t been done before for the primary reason of cost saving.

Gardner: I think I’m hearing from Dave here that not only we are now going to make baby steps towards significant innovation, but the economic pressure that's going to come down on CIOs and IT departments forces them more towards that transformational level of change. So, that could include a lot more SOA, a lot more virtualization, internal on-premises cloud infrastructures, and so on.

Jim or Tony, how do you feel about the possibility that more economic pressure is actually a catalyst towards transformation rather than iterative change?

Kobielus: You mentioned my name first so I’ll respond first and I’ll be brief, so Mr. Tony can go right after me. I see definitely the economic downturn is going to expand the footprint, as it were, for the cloud in data warehousing, where data warehouses are becoming ever larger in the hundreds of terabytes and now into the petabyte.

I’m seeing an upsurge in the number of start-ups and data warehousing vendors that now have cloud based offerings. For example Vertica and Oracle now support databases that can run in the Amazon EC2. There are other vendors, like 1010data, that are very much pure plays in the fact that they only operate in the cloud and they are very highly scalable, share nothing, and parallel process.

There are, of course, SaaS-based offerings on a subscription basis. In other words, where there is a capital expenditure crunch or a budget crunch, and users can’t afford to pay the millions of dollars to bring one of these petabyte-scale data warehouses in house, they are going to go outside to the likes of a 1010data or using Amazon EC2 to aggregate, persist these huge datasets.

They can do very complex analyses and also run a greater degree of their data mining and predictive analytics algorithms in that very cloud. It just saves them money, and it's not a huge capital expenditure. It's a pay-as-you-go kind of thing. I think that's going to be the trend and those vendors who are already out there could be the major beneficiaries of this current economic crunch.

Gardner: So, that might mean if you are going to go to market, you want to have a cloud avenue for your go-to-market activities in addition to on-premises, or even say an open-source support model, right?.

Kobielus: Yes, for sure.

Gardner: Tony, what's your take on the possibility of harsh economic times as actually a catalyst towards the increased transformation?

Baer: Well, I am going to pair a couple of words that would otherwise seem like an oxymoron, which is tactical transformation. In times like these, obviously you have changing economic conditions, changing in a very unpredictable manner. On the other hand, the financial crunch and the credit crunch is going to restrict the amount of resources you have at your disposal. So, you’re basically going to look very opportunistically. You are going to look at, let's say, the low-hanging fruit that will give you the greatest gain in savings or a way to respond to the market in a more agile manner.

That will be very much in the way that Dave and Jim mentioned, which is that you will be taking advantage of specific services in the cloud. You won’t necessarily do a global top down or enterprise-architectural SOA transformation, if you haven't done SOA already. But, opportunistically, if you are trying to take advantage of some of these cloud-based services to start doing mining on a more massive scale, at the same time trying to lower your risk, it will require certain applications or data source that you may have. You may need to conduct a transformation, where you will implement, more flexible architectures, data SOA architecture.

But you will do it opportunistically in these tactical areas, where you can take advantage of services in the cloud that give you the advantages of the transformation to solve the problem you need to deal with, and at the same time, minimizing your risk.

Gardner: So, they are going to be looking for innovation without a big CAPEX, and if they can do that at the same time they are shutting down their own high-cost, high-labor applications in data centers that will be particularly attractive.

Baer: Or put it another way, “Capital, what capital?”

Gardner: Remember, not all companies are like banks. They have cash on hand, or they have ability to raise capital in a variety of different ways, rather than just going to a bank. So, we don't need to lump all these different types of enterprises into just the financial crisis problem.

Baer: Agreed. It's not to say that capital is totally shut-off, but the fact is that it's going to be rationed and a lot more carefully. I was just reading the advice that all these VCs are reading, and what they are saying is that if you have capital, find ways of stretching it.

Gardner: Save more cash, hold your cash basically. Speaking of verticals, let's look at this now through the lens of verticals, which verticals will do well and which will not.

My first take on this is that the government vertical is actually going to explode and might even start going down this road towards transformation in a much more significant way. Now, we can't read the tea leaves entirely on the economy, but politically we do start to see quite a momentum around the Democratic ticket and potentially a substantial majority for Democrats in Congress. They have put down platforms that include significant investments in such things as energy, healthcare, and of course they are going to need to transform how the government and the financial sector work together to calm the markets down.

On the other hand some, verticals that don't look good include retail and manufacturing. The auto industry is getting whacked. So, as IT spending is sliced and diced according to vertical, do we get a net-net up, down, or flat, when we look across verticals. I want to take a look at that. Dave Linthicum.

Linthicum: Yeah, it’s great living in Washington DC, let me tell you, because I think no matter where this thing goes, there is going to be full employment. The housing prices have actually crept up.

I think that you’re absolutely right. People are going to look to government to solve some of these issues and bureaucratic changes are going to be built here in different divisions, and people are going to have oversight of the financial industry.

If the Democratic administration comes in, there is going to be more civilian spending, and there is going to be probably a little shift from the spending in the Department of Defense on the military side.

So, this area is going to be explosive yet again, based on some things that are occurring and based on the government taking power in particular industries that they think they can be helpful in taking power. You can argue whether that's a good thing or a bad thing, but you are definitely going to see a lot of job shifts as things shift to that vertical.

The retail space is going to suffer tremendously. They already have very narrow razor-thin margins. I think we are going to see a lot of the larger retailers suffer and perhaps go away. I think healthcare is going to remain fairly static, and I think some of their costs maybe reduced. As they start moving into more of a socialized medicine, if the Democrats take it there, there is going to be some big shifts there.

Believe it or not, even though you are moving into a healthcare-for-everyone kind of an environment, you are going to see that actually cost probably will go up, as a bureaucracy is put in place to maintain and administer that.

Finance is obviously going to be killed for a long time, especially the banking industry. That's going to be an area that isn't going to recover very quickly from what's going on right now, but I think that manufacturing ultimately will recover and we are going to see some good growth in the year 2009-2010.

Gardner: Why do you see manufacturing as doing okay?

Linthicum: Because, the need for products worldwide is down right now, because people don't have the capital or access to the credit to make that happen. However, they are going to continue to have to replace airplanes, factory equipment, those sorts of things. It's just going to be a pent-up demand, and I think that's going to basically get unleashed in 2009-2010.

You’re going to see the large durable goods, large manufacturing kind of systems. People are going to just spend money on that area and that's going to be a worldwide driven thing. It's not going to be just driven from the United States.

Gardner: Great. Jim Kobielus, you mentioned earlier that you saw financial organizations buying data warehousing services and solutions as sort of still growing, if not at the same rate. I'd like to have your take on the financial sector alone Sure, there’s lots of turmoil, lots of contraction, but that doesn't necessarily mean you can shut off your IT systems. Mergers and acquisitions, consolidation sometimes can have a short-to-medium increase in IT requirement.

Kobielus: Right, and one of the things, Dana, that occurred to me is that the financial vertical and the government vertical are becoming overlapped. There is a degree of nationalization already that's taking place. The government is taking back Fannie Mae and Freddie Mac. I think they have taken over AIG, but all around the world, you hear governments, especially in Europe saying, “Hey, we need to re-nationalize or, to some degree, exert tighter control over the financial vertica., I think this is everywhere in the world.

What we’re already seeing is that the government vertical, as they have indicated, will continue to grow, because it's going to exercise much greater oversight and equity positions within the financial vertical. I think the early part of this decade is a prelude to what we’re going to see in even greater abundance in the next 10 years.

After the whole Enron fiasco, with Sarbanes-Oxley and so forth, we saw the growth of this market and this technology called governance, risk management, and compliance (GRC) to exert tighter control over the financials of private enterprise, and bring greater transparency.

I think we are going to see now, the government exert ever tighter GRC reigns over the financial sector, to a degree unprecedented, because we now have government actually owning or controlling a number of the key firms in that space. So, the whole GRC sector is in an embryonic stage. There are a number of vendors like SAP and Oracle who have taken sort of a leading-edge position in that area. That will expand greatly, and we are going to see more of these risk dashboards and controls being implemented in the context of BI and the data warehousing investments that enterprises have already made.

In terms of the horizontals, the GRC sector will come into its own, and it will be primarily the driver. There will be the financials, and then it will be around the world. All governments will enforce the use of this kind of technology.

Gardner: Right, and at a higher abstraction, that really means governance, and as much as internal governance it's perhaps governance from the extended enterprise sense, where there is going to be governance that crosses organizational boundaries. That's not going to be done with folks holding clipboards. That's going to be largely automated.

It’s going to have to be enforced through policies and rules and governance engines, it sounds an awful lot like SOA, but we are not going to apply the infrastructure we have developed for SOA. Just like services, we can apply it across a multitude of different business processes and activities in order to satisfy what you are talking about.

Baer: This reminds of something I heard from Microsoft this week. I was in Seattle at their BI conference, and they were talking about how Microsoft internally is using their own BI tools and stack. They described a number of roles -- like marketing, sales, and finance -- and how they use BI. Then, I asked the person, “Okay, your CEO, Steve Ballmer, obviously uses BI, but does he have a risk dashboard or a compliance dashboard or tools?”

Clearly, Microsoft is under a number of legal and regulatory mandates, compliance and so forth, and the people from Microsoft couldn’t answer that question immediately. They weren't really quite sure what's on Steve's dashboard.

In three years time, every CEO in the world will have a GRC dashboard that tells them on any given day the hoops they need to jump through to satisfy the regulators, I think that's coming fairly soon.

Gardner: Not just regulators, but the market doesn’t want to be caught unaware, as we apparently have been with this meltdown. In the future, they are going to want to know not just what they have to do to comply, but what the unknown risks are in terms of how the markets themselves are behaving.

Let's go to Tony Baer. Tony, what's your take on the opportunity for governance infrastructure to move beyond SOA, and is the new environment for business a growth area for SOA governance infrastructure?

Baer: Yeah, big time. I was talking before about these opportunistic areas. In the case of governance, I don't know if I would call it “opportunistic,” but it is an area in which you do not have an option as to whether you comply or not. Therefore, the only economic way to provide all the information and to do all the audits without having to rip apart all of your existing back-end infrastructure is through a service's layer on top of all that.

Maybe I can come up with a cheap buzzword here, a buzz-line or a tag-line, such as “Son of SOX,” for what's going to become a changing regulatory environment. You’ll need a governance layer that can contend with changes in this moving target.

Obviously, the only feasible way, from an architectural standpoint, to deal with that is do a flexible architecture, and that's essentially what a SOA is.

I very much agree with Dave and with Jim in terms of what are likely to be the growth sectors, but there are a couple of extra points I want to plug in there. This ties in with this question. The financial industry itself will not be a growth sector over the next few years, it will be very much a consolidating sector, but guess what, as you consolidate, you need to invest in consolidation.

Imagine all these huge mergers going on. Wells Fargo just finally got the agreement to acquire Wachovia, but of course there will be a some litigation from Citibank. Also, Bank of America acquired Merrill and there’s the whole reorganization of Wall Street, from investment banks into banking institutions.

The fact is, there is going to be a lot of transformation going on, and it's not transformation to support a growing business. It's transformation to support a changing business. There will be a lot of investment there, in addition to whatever investment will be necessary to deal with the new governance risks in compliance requirements.

Another area -- and I wanted to slip this in because it's nothing intuitive -- but if you look back at past history during economic downturns, and I hate to use the 'D' word but back in the depression, and I hope we are not heading into one, what area boomed during that era? Hollywood, the film industry. People were going out to the movies for cheap thrills.

In today's environment, the equivalent of that is, if you already have an Xbox 360 out there, you are going to be buying more games. Those are cheap thrills. It's going to be cheaper than going out and buying a new HDTV or going out to Six Flags.

Gardner: That's interesting. We haven't talked about one sector, and that is the Entertainment/Web 2.0/Internet. We’ve seen some downturn in advertising, including Internet advertising, but is there an opportunity for buying $3 movie and downloading it, a $2 song, a $3 game. How might our Internet /Media/Entertainment economy fare and will it be sliced and diced between those who depend on advertising and those who are not?

Baer: Very much so. The only downward pressure on this would be downward pressure on households to cut expenses and, if they consider that broadband is a discretionary expense, that would be the ceiling there. My sense though is that today to participate in the modern economy, broadband is becoming a necessity.

Gardner: Yeah, it's a utility. It’s like water, electricity. It's one of the last things that will go, right?

Gardner: My mother is 93, and I finally got her to get broadband. So we won’t give it up.

Kobielus: I have to jump in here and be dangerous one more time. I have another degree in Journalism and I was primarily a student of the mass media. If you look at the depression of the 1930s, historians and people who lived through the period talk about, what kept them company, in the dust bowl or wherever when they didn't have a job. It was the radio, which had been introduced in the previous decade.

Now, if gosh forbid, we have something similar coming up in the teens of this decade, what is the new radio? It's the Web. And so, who are the new entertainers? Well, actually in many ways it will be each other. I mean, through the whole Web 2.0 user-generated content paradigm. If you think about it, that's cheap entertainment, because it's generated for free and there is an unlimited supply of it available over some pipe that you've got coming into your home.

Gardner: I'd like to point out that this podcast is coming to you completely free. Continue.

Kobielus: And we are free to say what we want on this podcast.

Gardner: Does anybody else have some thoughts out there on the impact on Internet and startups? What's the impact with startups? We have seen this slide deck from Sequoia Capital saying “batten down the hatches, no discretionary spending, hoard your cash. Is this the VCs overreacting, because it's their pool of money that's its stake, or aare there actually opportunities beyond what they are saying in these dire predictions?

Linthicum: There are huge opportunities out there. If you saw my column I did in SOA World Magazine, I think this is a great time to do a startup.

Number one, VCs be damned at this point. You don't need their money at all, just some angel investors to invest in some very minute infrastructure. With cloud computing out there and the number of things you can do from a marketing, application developer's, and outsourcing perspective, you can basically get a technology company up and running -- and profitable -- probably for the least real cost we've seen in years. It's a great time for people who are innovative, able, and resourceful to get out there and start technology companies.

There are two types of companies out there right now. There seemed to be the big behemoths that are very slow and cumbersome and strategically challenged, even though they are making a lot of money and grabbing a large share of the market. Then, there are the old maids and basically a lot of small startups that just haven't been able to get acquired to do their exits.

Now is a great time for small innovative new startups to get out there and help create new spaces, such as Web 2.0, and I think there are a number of SOA problems that needs solving as well. I'd love to see some startups get out there and take those problems on.

Gardner: So, unintended consequence of the VCs contracting might be laying off a bunch of engineers and entrepreneurs. They'll go out there and say, “Okay, what am I going to do, sit in my garage and cry or am I going to look for platform-as-a-service (PaaS) providers and cloud providers that will allow me to develop a whole new set of applications on the cheap that I could put on my credit card. Then, I only pay for infrastructure as I need it and as I can create a business model?

Linthicum: Yeah, one of the things I would love to see come out of this whole mess that we are in right now is some of the Sarbanes-Oxley stuff contracting a bit. Quite frankly, a lot of the startups out there are unable to do any kind of exit other than acquisitions. You have no chance to take anything public. It's economically not viable for you to do so, because of the cost of maintaining the regulations around the whole publicly traded company opportunity.

I would love to see the government reopen that market a bit and make it much easier for startups that are profitable, that have a good track record and good technology to get access to the public marketplaces. Right now, they have to keep going back to the venture capital community. In many instances, those guys are strategically challenged. They are not focused on a particular industry, they are basically just focused on investment. That's going to be difficult to going forward.

Gardner: So in the ‘30s, we had the Works Progress Administration (WPA), which got people out there with shovels -- and my grandfather was one of them -- moving stuff around in the city in order to create works. Perhaps with an Internet Public Assistance Program, we can let the government be the seed and even steer them towards solutions of the government’s needs.

Now, the government wants to hire investment bankers to solve the problem that investment bankers created, but perhaps there is an opportunity for technologists to be brought in to solve some of these problems too.

Linthicum: Absolutely. What if a couple of the billions of dollars we are pumping back into the banks just went off to assist organizations and start-up companies around the technology space. I think there would be a huge boom in the area, and it would create jobs and be profitable fairly quickly.

I think some of them would probably go away, but overall, I think that it would have a positive effect on the economy. If you think about 1999, we were doing so well, because of the innovations around the Internet technology and other things that were booming. I think we are able to do that again, but we are just putting so many regulations, so much bureaucracy out there, that it makes it very difficult for the upstarts to get going.

Gardner: One little subset on this media discussion would be the press. Jim Kobielus, press has been under a tremendous amount of pressure lately. How are folks like Sam Zell going to fare on their traditional media, as advertising dries up, going to the Internet, seeing appreciable advertising business uptake there. It seems to me they are in the dead-end situation.

Kobielus: There is an ongoing crunch in the whole media sector that continues to ripple and ripple. It forces people out of being full-time journalists. So, it's not a happy thing. There was a Doonesbury cartoon recently in which Rick Redfern had been forcibly retired from the Washington Post. He was told, “Go and be a blogger!” He said, “Yeah, I will be one of a trillion bloggers out there.” “Well, you have a special differentiation. You are ex-Washington Post.”

Everybody is going to be from the journalism space, and even publishers are going to be “ex-journalists.” They have to find some next stage in their career, and I think a lot of smart people are going to become, as Dave indicates, entrepreneurs, but who will be self-funded from whatever remaining savings they have. It's not going to be a happy thing until the credit crunch eases.

Gardner: We only have a few more minutes. Let's look at some other potentially unintended consequences of all this.

If technology company stocks plummet some more, we might see some interesting things there. Somebody floated the idea that Sun Microsystems might just take its cash and buy itself out when its stock is trading at $5 -- and that was a stock that had a reverse four-way split. So it's down like a buck and change from what it was a few years ago.

Also RIM, still a strong company, a potentially for a takeover, is looking back to the buy side. What sort of interesting unintended consequences might we see among the vendors. Any thoughts?

Kobielus: I have no thoughts. Guys?

Linthicum: Just from your first point, I think you’re going to see some guys who are going to buy themselves off from the market for now, and I can't blame them.

If I were CEO of a publicly traded company, and my stock price was below my market capital, with cash in the bank -- where some of them are -- I’d get off the market quick, because it's a good deal.

Gardner: Absolutely.

Kobielus: I think we've talked in a previous podcast about the upsurge of private investing, of companies going private. I think the difference this time will be that if companies are going to go private, they are going to have to basically bootstrap it. They are not to be able to get a Silver Lake or anybody like that in the short-term.

Gardner: So a takeaway might be, if you can ride this out for two or three years, there is a buying opportunity, even buying yourself.

Kobielus: Right, if you get cheap enough. The other dividend of all that is once you go private, of course, you don't have to worry about all the GRC.

Gardner: One other subject that we haven't talked about is the analysis business. Is this an opportunity for people that need to know more about what's going on, and are folks like us going to be okay? Any thoughts?

Baer: Folks like us. Yeah. I think everybody is becoming an analyst. There is a whole blogosphere. Everybody in the blogosphere, to some degree, is an analyst. So, we’re going to be okay in the sense that we can still do analysis to our hearts delight for free, if we so choose.

In terms making a living on it, I think more-and-more analysts need to be half analyst, half consultant, doing projects for those who will pay us to actually show up and attend to only their needs and help them out with projects and also to make sense of what's going on in the space.

In any good time or bad time, analysts are essentially like reporters or journalists. We not only are in the industry, but we are in a sense above the industry, surveying what's going on and reporting to everybody else what we can see in terms of broad patterns and trends.

So I think there is a greater requirement on analyst to come in and offer reassurances or to tell people, “Okay, this strategy that you have been taking is not going to pan out. You better jump ship and try something different.”

Gardner: So changes are growth engines.

Kobielus: Yeah, and from that standpoint, it basically supplements the fact that there is going to be a decline in the journalist population, essentially a migration towards the extremes, which is on one hand journalism and this is not a development.

I’m very happy to see is that, as the financial base and the business model for journalism businesses is evaporating at this point, you are seeing more-and-more citizen journalists taking up more of the load. People are reading more blogs. They are not buying newspapers.

On the other end, it will create an appetite, and it will create a demand for people who are above the level of citizen blogger to say, “I have some professional credentials, and I can provide you some value-added analysis on your positions, so that you can essentially improve the competitiveness of your business.”

Gardner: Traditional and trade media will contract, which opens up a vacuum that can be filled by the expert-blogger function.

Kobielus: Right, expert blogger, but also the fact is that you get what you pay for. If you are a business and you are trying to improve your chance of surviving the market, you are going to work with key experts, key thought leaders out there, and you will pay for that.

It's not to say this is an infinite market for analysts. The business model for analyst firms is going through some stresses. Especially when you take a look at blogging. A lot of analyst firms have really not adapted to the blogosphere very well, or the more rapid flow of information.

So, even though I think they will continue to be a need for analysis and for paid analysis. The analyst industry or the analyst-firm industry needs to adapt to the new world of faster more instantaneous communications.

Gardner: Well, great. We've had a well-rounded discussion about the situation. We found some bright spots and some counter-cyclical possible growth areas within this sad situation we find ourselves in. But, as we exit I want to go around the panel and on a 1-to-10 scale, with 10 being flush, financial nirvana, and 1 being a dead-pool bankruptcy, where on a scale of 1 to 10 at a median level will the software business be in a year from now, let's start with you, Jim Kobielus.

Kobielus: I give it 5, straight down in the middle. I am trying not to lean towards either the manic or the depressive ends of the spectrum here. I think that some will do quite well and some will not. It's just a matter of taking a deep breath and recognizing that the economy goes through cycles, and the economy occasionally goes through panics -- the banking panics of the early 1900s and the late 1800s. We are sort of in the middle of one right now, which is an interesting phenomenon. I say interesting in the old Chinese sense of may you live through interesting times.

This has been a harsh decade. We started off with a tech-crunch and we are going to end with a tech-crunch, and a financial crunch, and it's going to take some time to sort it through, so just breathe easy.

Gardner: Tony Baer, 1 to 10, software industry.

Baer: Well, I'll give it 4, only because there are different headwinds on this go around. On the positive side, as Dave was mentioning before, the fact is that the barriers to entry are so much lower. So, if you can take advantage of the cloud, you can start in your own garage, and essentially marshal resources for very little cost. Basically, if you can sustain yourself and live close to the ground for the next two or three years, you and many others who are taking advantage of platform-as-a-service will have a whole new generation of solutions that will be ready for the next uptake.

Gardner: Dave Linthicum.

Linthicum: I am going to say 7.5. There are huge opportunities for the innovative and resourceful few out there in the market space. I think that technology shift, moving to higher regulations, you’ve got this “mother of all Sarbanes-Oxley” coming. Everybody is going to need folks in there to re-architect and re-automate and re-cast these businesses.

Then I think if there is going to be some upside in the future. Every cloud has a silver lining and those who are smart out there can certainly find the silver linings in this cloud. I think IT is going to stumble a bit, but a lot of more innovation is going to come into play, and people are going to use the cost-reduction capabilities, become a little bit more modernized and innovative in moving to cloud computing and SOA. All that stuff is going to accelerate tremendously in the next couple of years.

Gardner: I am going to go with 6.5. I agree that this is a transformation period, not just a contraction. I think this is going to necessitate a lot of the things that people have been working towards, but accelerate that, and force them to cut bait on the old stuff that doesn't work and adopt the new stuff that does. So, I’ m fairly bullish on IT, but with a lot of spottiness. There are going to be some pockets of certain failure and the ability in people to move among and between those is what's going to become essential.

I want to thank our panel for a very interesting discussion about the IT sector in this economic maelstrom.

We have been talking with Jim Kobielus, senior analyst of Forrester Research. Thanks, Jim.

Kobielus: Thank you. It was great!

Gardner: Tony Baer, senior analyst at Ovum. Thank you, sir.

Baer: Hey, thanks, Dana!

Gardner: Dave Linthicum, independent consultant with Linthicum Group. Thank you.

Linthicum: Thank you!

Gardner: I also want to thank our sponsor, the charter sponsor for the BriefingsDirect Analyst Insights Edition is Active Endpoints, makers of the ActiveVOS visual orchestration system. I am Dana Gardner, principal analyst at Interarbor Solutions. Thanks for listening, and come back next time.

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Transcript of BriefingsDirect podcast on the outlook for IT in the face of the economic downturn. Copyright Interarbor Solutions, LLC, 2005-2008. All rights reserved.