GLG News by Howard Bruck

Implications: Desktop virtualization has always been an enticing proposition, but it was never able to overcome the practical limitations, and more importantly never gained acceptance from the user base.  However, the proliferation and acceptance of browser based applications, proliferation of high capacity networks; improved technology, concerns for security, and the need for cost efficiencies will ultimately lead to wide-spread acceptance and massive deployments.

Analysis: As a long term user of Citrix Desktop Virtualization solutions we have realized the lower TCO (total cost of ownership) and simplified security that comes with centralized management of desktops.  We have also experienced the limitations of both the technology (some apps simply don't work) and the debatable need for users to have flexible control over their PCs.  However, several significant trends are pushing the benefits and overcoming the objections:

1) Proliferation of Browser Based Applications

Besides MS-Office, a large portion of applications are being implemented through a browser based user interface.  ASP systems like Salesforce, as well as in-house deployed vendor packages and custom developed applications use the browser.  Even the most popular user-requested applications from Google and Wikipedia to YouTube and Facebook all can be run from a thin client, virtualized desktop.  Even MS-Office works well in Citrix or other virtualized desk top.

2) High Speed Networks Proliferation

High speed networks and network acceleration technologies from Cisco, Avaya, F1, Juniper, and others, including the ability access the network from just about anywhere greatly reduces the need to have individual PC/laptops.  Applications work nearly as fast and will only get better.  This also allows new devices like the Apple iTouch to be more of a desktop replacement.

3) Security

Almost goes without saying how dramatically more a virtualized desktop can be controlled, secured, and audited.  Regulated industries like financial services and health care, as well as general controls cited in Sarbanes Oxley are significantly less expensive to comply with under virtualization.

4) Cost – Virtualized desktops have a very fast ROI.  

5) Cool Factor  

Cool, as in highly desirable to an envious degree.  The mystique created by VMware’s server virtualization, as well as the general acceptance that the web applications are better than things you install with a CD onto a PC will continue to overrule the remaining objections about taking someone’s PC away.  

So, there will be a lot more virtualized desktop devices from HP-Neoware and Wyse being ordered by the enbd of the year.  High end desktops will become a specialty item for graphic designers and others.  More cool hand held devices from RIM and Apple.  Way fewer traditional desktops and laptops.  At some point before the 2012, Microsoft Windows desktop operating systems will also be a fond memory.     

Implications: The most recent round of virtualization technology has been highlighted by the dynamic emergence of VMware as one of the hottest products around. Of course virtualization has been around a long time both on the mainframe (IBM) and the desktop (Citrix). But why has this latest round of products grabbed so much attention and what are the short and long term implications?

Analysis: In the short term there is the low handing fruit. Server consolidation and better schemes for load balancing and disaster recovery planning are some problems that this technology addresses. The implications for providers are that businesses will probably buy fewer, but larger servers. Maybe a few less operating systems licenses, but more virtualization software. Virtualization on the desktop will mean less PCs but more network devices (Wyse, Neoware…).

A lot of this is being made possible by the nearly omnipresent network. As long as you have an input/output device (terminal, laptop, cell-phone…) it does not matter how or where the content is coming from. So, network infrastructure providers and telecommunications carriers will benefit from virtualization.

Most importantly, once the network and virtualization technologies become more mature and more robust, an even greater impact will be realized. Since processing power (i.e. servers) can be recreated when needed, this will become a commodity. Imagine a mainframe-like computer that virtualizes a 1,000 windows servers. Let’s take a particular business that has applications for 200 servers that are needed from 7am-9pm Monday through Friday, and only need 35 servers overnight and on weekends. This business would rent those virtualized servers only for the time they are needed.

In this scenario, large computer manufacturers like IBM and HP would be selling a lot more big and expensive machines, along with maintenance and services. Data center operators like EDS and CSC would be providing these virtualized servers to the business users on a pay as you go basis.

Its kind-of funny how this looks like the old “time-sharing” model of the early days of computing. A significant portion of this equation that still needs a solution is the data storage piece because your servers are no longer pieces of hardware, but software and information saved on storage devices and they do not look any different that your real data. There is a lot of new innovation coming in that area as well and by the time we figure that out the model will change even more.

Implications: The big will continue to get bigger; there is very little doubt about that trend continuing. The question will be who does it better? Financial institutions prefer to buy technology from large established providers. The SOX requirements to demonstrate a significant effort on vendor management drives these financial services firms to reduce the number of providers they do business with. Two questions arise from this trend. Firstly, who will be the winners that make smart acquisitions, integrate the products, realize cost savings, and gain overall market dominance? Secondly, who will be acquired, and at what premium over current market value?

Analysis: There are several categories of providers.

1)The major players in the US, Fiserv, Fidelity, and Metavante all have a wide breadth of product offerings across the systems, services, and transaction processing platforms.

2)The next tier providers that have a narrower product focus like Jack Henry, First Data, and ACI Worldwide, will need to demonstrate some significant breakthrough to get to the next level, most like through acquisitions of their own.

3)The niche players like Open Solutions, S1 Corp cater to emerging banks and financial institutions, will need to establish a market presence and determine whether to acquire or be acquired.

4)Traditional software companies like IBM, SAP, and Oracle are also looking to expand their horizons and are continuing their investment in financial services systems.

5)Finally the non-US based companies like Temonos, Sanchez, and Infosys tend to have more modern, internationally scoped systems but have had a hard time breaking into the highly regulated and conservatively minded US markets.

The major providers; Fiserv, Fidelity, and Metavante will initially emerge as the firms that will continue to get bigger. Their management teams will be challenged to make wise purchasing decisions and consolidate the various product lines. From the middle tier there will be some fall off and I suspect that partnerships like the Metavante-Temonos deal will work to both company’s advantage.

It is certainly interesting times for these companies and some will clearly win while others will fade away or be acquired.

Implications: Salesforce fills its niche very well.  It remains true to its original cause and has a large and loyal customer base.  Its not all things to all people, not does it make sense in all CRM opportunities, but there is no competitor out there that is as robust at what it does.  As long as they keep the price highly competitve, they will remain a viable provider.

Analysis: The author likens Salesforce to has-been/defunct CRM providers Siebel and Epiphany and predicts the end of SalesForce.Com.

His logic doesn't address some of the fundamentals of why Salesforce was, and continues to be, a compelling solution in many circumstances.  Siebel and Epiphany claimed to be the best of the best, and claimed to be the right solution for any worthwhile company.  Salesforce remains a lean product that only tries to solve the most universal CRM requiments in a very efficient way.

As long as Salesforce keeps focused on doing what it does very well, and keeps up with technology and the most universal new requirements, I forsee a continued long and healthy life.  Hey, they could be bought by some large software provider, but it will be at a premium.

Implications: Yahoo seems to be fading in the rear-view mirror of Google, yet has some features that loyal users still favor.

Google's got its sights on the corporate desktop, so how does Microsoft intend to maintain its dominance.

Can this combination squeeze Google out of its explosive growth path?  I don't think so.

Analysis: Yahoo emerged as THE PLACE TO BE on the web before the turn of the century.  But as the Web developed its own unique culture, Google captured the hearts and clicks of this new society.

Microsoft has been the King of Corporate Computing for two and a half decades (UNBELIEVABLE!).  Although many valiant attempts have been made by the likes of Lotus, IBM, Oracle, even Linux, Microsoft remains the King, no the Emperor.

So, Yahoo is hurting somewhat, but Microsoft is not, at least yet.  Yahoo needs help to raise its profile and make it dominant, although I'm not sure there is room for two dominant search engines. 

Microsoft, with its new SharePoint environment will maintain a commanding role in corporate computing for the next computing generation (about 3-5 years).  Its got too much good stuff for any Google web delivered services to make a serious impact with large corporate buyers.

So, maybe an alliance to keep Microsoft somewhat relevant on the web.  Perhaps Yahoo will be the delivery mechanism for some future planned Microsoft low-end web tools.  But I can't see Microsoft spending a lot of money to be a 2nd class player in what has turned out not be their best playing field.

Implications: Video conferencing has always been a nice idea.  Early experiments prior to 2000 were interesting novelties, but really not very practical.  Over the past several years, only the largest global corporations have had some success using video conferencing in limited scenarios.

Is video conferencing nearly ready for mainstream deployment in corporations?  If so, who will be the major providers of this specialized equipment?

Analysis: Cisco, the most recognized and trusted brand name in telecommunications hardware is making an interesting marketing play in this area. On last week's episode of FOX's action show 24, Cisco's TelePresence product was prominently showcased.

A couple of key questions come to mind...

1) Can the new corporate networks handle this type of traffic successfully?

2) Will the new hardware and software make the experience worthwhile?

3) Will a brand like Cisco make the buying decision less stressful for corporate CIOs?

If so, then Cisco has an opportunity to recreate its original router product penetration bonanza and keep long term players like Tandberg in the smaller super-high-end market only.

Implications: Intuit's recent purchase of Digital Insight, immediately made them a player in the online banking vendor space.

In this fast growing area, there are about a dozen significant competitors, without clear leaders.

For online banking services, large corporates are served by the major banks like Mellon and Bank of America.  On the consumer side, banks offer online banking for competitive reasons and to drive customers to use less costly transactions.

There is a large under-served market with small and medium business (SMB) that represent a very profitable area for banks to gain valuable deposits transaction fees.  Combining Intuit's expertise and name recognition with SMBs, with Digital Insight's online banking base, could help them become a leader in this under-served market.

Analysis: Intuit has been the most successful software and technology services provider focused on the financial management needs of small and medium businesses.  They have demonstrated that they understand the market and know what they should and should not be doing.  If they had any notion of becoming an online bank themselves, they quickly figured out that it is a very different business from software and technology services.

Digital Insight has been successful being very focused on online banking services.  This is a crowded field but their reputation as an innovative, reliable leader is well established.

Intuit's acquisition of Digital Insight and these new product announcements are particularly interesting because they represent an opportunity for banks to expand their service offerings and integration with their SMB customers.

Banks are looking for more deposits and transaction fees.  SMBs do not have the same financial technical infrastructures as their larger corporate competitors, and are far behind with their capability to manager their finances with advanced technology.

Banks that can reach out to this market and have their SMB customers more integrated (and reliant) on the services provided will become more loyal and profitable customers.  In turn, Intuit can become a leader in providing these technology solutions to banks as very high margins.