Megatrends from the 2008 Regent Conference
The Regent Conference is always a good event to gather one's thoughts on the sector and the outlook for the next period. For those of you who don't know, the Regent Conference is run by Intellect and sponsored each year by M&A boutique Regent Associates. This year, the 13th, speakers included representatives from Forrester, Google, Symbian, Garlik, Regent and Arete. These were our conclusions from the day.
Things are getting tougher unless you are in the right place
The general view both from the stage and conversations we had with delegates was that things were going to get tougher this year for most companies operating in the industry. As always, there will be some bright spots and we have summarised our thoughts on the main ones below. Views on the outlook beyond 2008 were more difficult to pin down, however. The Forrester analyst suggested that, following a blip in 2008, growth would return to double digits in 2009. The rationale for this forecast was that the industry is entering a new phase of innovation following the period of 'bedding down' after the excesses of the dot com boom. Whilst this idea may work on paper, in practice, we feel that it will prove to be optimistic and that growth in 2009 and 2010 will be no better than 2008 and, potentially, could be a lot worse. So where are the islands of growth?
SaaS is not just a buzz word
Software as a Service, On Demand computing, Utility Computing, call it what you will is clearly the most important megatrend for the software and IT services industry. The move to hosted applications for the majority of organisations now seems to be a case of when and not if. That said, we disagree with some who say that SaaS will send shock waves through the tier 1 end of the market. We feel that, in organisations where enterprise software has penetrated the whole organisation already, the move to SaaS will be gradual and relatively painless. For the large enterprise software vendors such as SAP and Oracle, there will clearly be a significant impact on their business models, but we do not see a huge amount of scope for new entrants into the top end of the market resulting from the move to SaaS. For us, the area of the market where SaaS will have greatest impact on companies and vendors alike is in the SME space.
The SME's day has finally come
For years the IT industry has struggled to work out the best way to address the SME market and, whilst some have been successful such as Sage and obviously Microsoft, many have failed. However, we believe that, whilst in the tier 1 space SaaS will be evolution, in the SME end of the market, it will lead to revolution. We believe that the advent of relevant, inexpensive, easy to use business applications that work with very little IT knowledge or support cost will result in the computerisation of the SME at long last. When you consider that the Facebook generation, which has grown up using SaaS applications (after all, that is what Facebook is), will have no worries about hosting data remotely or not having applications in house. This is why in his speech, Peter Rowell, Executive Chairman of Regent, noted that growth in SME IT spend is expected to be 8-10% over the coming years - well above the underlying rate. One note of caution though, for the reseller community - one fundamental tenet of the SaaS revolution is that is employs a direct sales model and, in our view, resellers that do not change their approach, risk being disintermediated over the medium term.
Build with BRICs
Another clear theme from the conference was the disproportionate growth rates in IT budgets in the BRIC countries - Brazil, Russia, India and China. The size and economic growth of these territories can no longer be ignored by European vendors and we believe that those vendors with a well developed strategy for addressing these territories will significantly outperform their peers over the medium term.
Mobile Internet + SaaS = Ubiquitous Computing
As the arrival of GPRS (2.5G) and WiFi enabled the first phase of the mobile computing revolution, so HSDPA (3.5G) and the upcoming implementation of WiMax will enable the second phase. There has been much talk of the advent of the revolution to come in the mobile Internet but, on one level, we feel that there is a lot of hype in the idea of mobile Internet. For us, the mobile Internet is simply... the Internet. Sure, you may access it on a different device and you may use it for a different range of activities but its essentially the same utility whether you are on the move or at your desk. This blog of often written on the mobile Internet (we are having a love-in with our Vodafone 3G data card running on HSDPA) which clearly makes it more timely, but it doesn't fundamentally alter anything else.
For us, it is the combination of these leaps forward in mobile data traffic speeds with the advent of SaaS, that creates the real megatrend - ubiquitous computing. Ubiquitous computing is the idea that you can access all of your data and communicate with your peers on any device at any time from anywhere. Higher mobile bandwidth only leads to truly ubiquitous computing if you are able to take the applications and data off the device thereby enabling smaller, lighter devices to do the job of a laptop or desktop. Equally, having mobile SaaS is no use if bandwidth is restricted. So the two together make for a genuine step change in computing use. Going back to the analogy of this blog, we chose to write it on a (rather heavy) laptop, but because the blog data and application is hosted, we could just as easily write it on a smartphone. So in the world of ubiquitous computing, the choice of device is about form factor (size of screen and keyboard) and battery life and not so much about processing power and storage space.
Having said all of this, whilst the move to ubiquitous computing is surely a megatrend, we do not see it creating obvious growth opportunities of the European SCS community. Application vendors will need to make their software available on some new operating platforms such as Symbian, the cost of which may or may not be covered by upgrade revenues. Other than that, we see the move ubiquitous computing in the corporate environment as a natural evolution and not a phenomena that is going drive massive growth for most European SCS companies. On a positive note for European SCS vendors, as with SaaS, we do not see the advent of ubiquitous computing as a disruptive force to the competitive status quo. Instead, the big battles will be played out between Microsoft and the handset vendors, as represented by Symbian, for dominance of the operating system or between the mobile operators and the fixed line players for dominance in the network.
There were many other topics of conversation at the conference - Internet TV, green computing and on-line identities to name but a few, but these, we feel, are subsidiary to the megatrends outlined above. So, thank you Regent and Intellect of another excellent conference and we look forward to doing it all again next year.
