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Internet Business Strategies, Application Infrastructure & Software Platforms
by Robert Perry and Robert LancasterEvent Summary
On April 8, Inktomi and Interwoven announced an agreement to cross license and integrate key technologies in the other company's product line. Inktomi will embed Interwoven's MetaTagger in its enterprise search platform while Interwoven will integrate Inktomi's XML search technology.
Market Analysis
After two decades of personal computing and more than 10 years of networked computing, enterprises now find themselves managing deep resources of online information ranging from product specifications, marketing materials, past proposals and contracts, and other forms of intellectual property. The potential of this resource is clear to all, but the goal of extracting the value and identifying in-house expertise still proves elusive.
The agreement between Inktomi and Interwoven demonstrates that these vendors see the opportunity to unify content management and search and retrieval into an enterprise information architecture. With the embedded Inktomi technology, Interwoven users will be able to rapidly search and retrieve content from the TeamSite repository. Using MetaTagger, Inktomi will be able to offer customers a broader information access platform that combines the traditional Inktomi search and browsing with the categorization and tagging essential for personalized content presentation.
Recommendations
As the enterprise information infrastructure evolves, enterprises and vendors should pay attention to product integration developments such as this.
- Enterprise content management providers must deliver an integrated platform for search and retrieval, metadata extraction, and categorization. The most effective way to do this is often to partner with a recognized category leader, such as Inktomi.
- Likewise, enterprise search vendors should assess the benefits of strengthening existing alliances with enterprise content and digital asset management vendors. While full product integration, or embedding, may create industry isolation for vendors, the correct partnership may also create more attractive product sets, not to mention a stronger vendor in what remains for the most part, an emerging and unstable market.
- If not doing so already, enterprise buyers should consider how to equip their knowledge workers to mine the information assets in their organization, and they must consider how the many components of the solution will integrate to provide the optimal return at the lowest total investment.
Technology Management Strategies
by Andy EfstathiouTrend Summary
Oracle announced on April 2 that it would be offering Oracle 9i as an outsourced service. This extends Oracle's three-year-old foray into outsourcing beyond outsourcing applications to database and application server outsourcing. To date, Oracle has grown its outsourcing business to 200 customers and $50 million in revenues, a small business for Oracle. However, Oracle has announced it will be making significant investments in this business by 1) establishing incentives for its entire salesforce to sell outsourcing deals; 2) hiring additional sales representatives to focus on selling outsourcing solutions; and 3) investing $60 million in additional hosting facilities. Perhaps most telling in Oracle's commitment to the outsourcing model is the fact its CFO has said that the company expects to build its outsourcing business to a $1-billion-per-year run rate in five years.
Market Impact
The Yankee Group believes that Oracle is on the right track with this initiative. This represents the convergence of several trends in the software industry that are slowly but fundamentally reshaping how software will be created and sold in the future. Application management and outsourcing would not be such a hot space if they were only about saving money. For Oracle this is really about:
- Changing its method of writing, revising, and deploying software. By making revisions and additions invisible to the user and easier for the vendor, Oracle is positioning itself to become an aggregator of software components for its users' solutions; in other words, a provider of software as Web services.
- Enabling its customers to increase the volume of business among each other based on Oracle acting as a common infrastructure hub. Oracle in its capacity as outsourcer to many will be able to enable interbusiness application integration.
- Changing the sales and pricing model to reflect the reality of Web-delivered software.
- Enabling very limited pools of qualified technical staff to build, maintain, and support Web-based software.
Software vendors that do not retool their business model around Web-delivered applications will be faced with a disintegrating business.
Recommendations
Vendors:
- Develop Web-based application outsourcing models for your business. Do not build the business around large staffs; build it around Web services and interbusiness integration.
- This new business requires both a changed technology model and a changed business model.
Users:
- Ultimately, Web services and interbusiness integration will not be much more than marketing hype without the underlying platform to run them on. Only the Fortune 50 would be able to build such a platform, and even then it would be prohibitively expensive and limited in use. When someone pitches such an offering to you, ask about hosting and management. Realizing the vision requires the solution vendor to outsource the application management to make it cost-effective and robust.
Wireless/Mobile Asia-Pacific, Japan Market Strategies
by Naoto NakagawaEvent Summary
At a March 28 press conference in Tokyo, NTT DoCoMo's CEO, Dr. Keiji Tachikawa, hinted that the operator would not discount spinning off its PHS business, which has showed little or no growth compared to its cellular business. The total number of cellular users has grown 5.5% in the past six months to 40.5 million, while PHS, which has less than 2 million users, has increased barely 1% in the same period.
Market Impact
Dr. Tachikawa's musings come shortly after TTNet's sale of its PHS unit to YOZAN Inc., a wireless handset component developer, which will incorporate PHS into its integrated wireless network solution. In the meantime, DDI POCKET, the leading PHS operator, has recently introduced a new wireless IP connectivity service targeting a new market segment, the mobile virtual network operators (MVNOs).
The fact that PHS service operators are either selling off or hinting at selling off their businesses does not bode well for the segment. Looking a bit further, it's easy to see operators making little or no further investment into their networks, slowing development cycles for new handsets and applications, and drastically scaling back budgets for marketing and promotions. None of these measures will help reverse PHS's current downward trend.
On the other hand, as shown by YOZAN's acquisition of TTNet's PHS business, that same trend can provide nimble and innovative entrepreneurs with a well developed network infrastructure, existing customer base, and newly developed services and application platforms to create new business models.
Recommendation/Outlook
- We believe demand for PHS will continue going forward in one form or another. For example, service providers can target market segments, positioning PHS as a cheaper substitute for 2G cellular mobile Internet services. In addition, PHS can be used for mobile-data-specific applications. In this segment we are seeing growing demand for PHS CF-type PC cards for wireless PDA applications. And with its superior voice quality, there will always be users who prefer PHS over PDC or 3G—services that are still in development.
- YOZAN has introduced a new business concept that is more solution-oriented than simply providing wireless access. By combining equipment development and sales, and an integrated wireless solution that combines wireless LAN, wireless ADSL, PHS, and paging, the company plans to provide high-speed wireless solutions wherever the user demands it. Combined with the potential new MVNO-based businesses, we believe a new season is on the horizon for the PHS market.
Small & Medium Business Technologies
by J. P. GownderTrend Summary
Service providers such as AT&T and Qwest are increasingly turning toward channel partners such as value-added resellers (VARs) and business consultants to sell their broadband access solutions. This strategy improves lead generation greatly, since SMBs tend to trust their VAR partners when making decisions about IT spending.
Market Impact
SMB budgets for IT spending during 2002 suggest moderate growth: 43% expect to spend the same amount as 2001, 37% expect to spend more (overwhelmingly, about 1% to 20% more), 9% expect a decrease (typically of 6% to 25%), and 11% aren't certain. In this environment, telecommunications service providers and value-added resellers are finding it mutually beneficial to band together to offer solutions-oriented selling that includes network hardware, broadband access, and value-added and professional services. The solutions-oriented approach is designed to create a convenient bundle of related products and services.
For about three years, AT&T has sold its broadband access through a variety of network integrators. In recent months, the company expanded this program to include a number of Cisco VARs, in addition to working with Tech Data, HP, and IBM agents. The consultative selling approach allows the VARs to sell marketing bundles such as AT&T Managed Internet Service along with a Cisco business-class router.
Qwest is reportedly in talks with potential channel partners Tech Data and Comstor to create similar SMB-oriented bundles around Qwest's broadband access and technology partner Cisco's hardware.
Conclusions and Recommendations
- SMBs consistently rank VARs and systems integrators as the outside parties with the greatest influence over their purchasing decisions for network hardware and data services. Leveraging such channels allows service providers a strong link with SMBs' trusted technology partners. Partnering with best-in-class hardware VARs, such as Cisco, gives AT&T in particular a high-quality channel link to SMB customers.
- While the sale of broadband access via channels is a useful start, some potential for channel conflict exists down the line. For instance, if AT&T wishes to sell a managed VPN service to a broadband customer acquired through the channel, it may come into conflict with the VAR's sale of VPN equipment meant to be used in-house by an SMB. At the same time, SMBs for which a managed VPN holds appeal may not be the same types of SMBs implementing their own in-house VPN solutions. AT&T indicates that it is cognizant of this potential problem and therefore employs careful market segmentation to match the right end users with the right sales channels.
- In an environment of modest SMB IT spending growth, a solutions-based service sold through a hands-on channel partner gives service providers an additional source of lead generation. This approach also provides a much-needed additional revenue stream for hardware resellers that have faced hard times selling equipment alone.
- For SMB end users, buying Internet service plus hardware and professional services offers a time-saving single point of sale plus the assurance that the data access service and hardware will work together.
Wireless/Mobile Europe
by Philip TaylorEvent
On April 3, Japan's incumbent network operator, NTT, announced that it would be writing down ¥1.4 trillion (US$10.5 billion) on foreign investments, including ¥359 billion (US$2.7 billion) on its investment in Dutch mobile operator KPN Mobile.
Market Impact
As with many recent wireless investments, the news brought renewed speculation as to the wisdom of NTT DoCoMo's overseas strategy; and, in particular, the extent to which i-mode, its mobile portal brand, and business concept will succeed in generating greater consumer interest among Europeans than the still-moribund WAP. Since i-mode was launched in mid-March in Germany through KPN-owned E-Plus, the extent to which it emulates its Japanese counterpart can now be visualized. As we expected, the model has been adapted almost wholesale; subscription costs €3 (US$2.64) per month, with packet fees of €0.01 (US$0.09) per kilobyte and premium content fees varying between €0.25 and €2 (US$0.22 and US$1.76) per month. Only the "i-mail" e-mail service is priced significantly differently than the Japanese model at €0.19 (US$0.16) per e-mail, substantially more than in Japan. Clearly, E-Plus does not wish to risk cannibalizing its lucrative SMS revenue stream.
Conclusions
In several respects, i-mode addresses the key problems that have afflicted the takeup of mobile content services in Europe to date. In particular, it represents the first real attempt by an operator to sell a service concept. Early indications are that the robustness and usability of the service are better than WAP over GPRS, an impression no doubt enhanced by the color screen of the NEC 21i handset over which i-mode is available. However, we retain serious reservations as to the European i-mode proposition for a number of reasons:
- The potential profitability of i-mode content providers is affected by the relatively small E-Plus subscriber base, the low availability of i-mode devices, and the fragmentation of content into WAP and cHTML services.
- This is compounded by the i-mode revenue-sharing model, which relies upon extremely high volumes of transactions to achieve profitability.
- The i-mode revenue share model is geared toward low-value content suited to the slow transmission of 2G networks. Owners of the high-margin, unique content envisaged for 3G will not be willing to deal upon these terms.
Application Infrastructure & Software Platforms
by Robert PerryEvent Summary
On April 3, Stellent announced it had acquired Kinecta, a provider of content syndication software. Earlier in the week, FileNET announced its acquisition of Web content management company eGrail. These events follow the earlier acquisitions of XYZFind by Interwoven; Bulldog and Boxcar by Documentum; and Eprise and Open Market by divine.
Market Summary
These consolidating events are a clear indicator of the challenges and opportunities in the content management category. The segment simply has too many vendors chasing too little software spending. The ecosystem cannot support the current population, and the recent series of disappointing earnings announcements demonstrates that even the strong are going hungry. It's time to cull the herd.
Consolidation is an expected stage in the evolution of a product category, though the continuing lack of IT spending is clearly accelerating natural selection. As products broaden, the differentiation among the many content management products is narrowing. After all, isn't a document also content? How differently do you manage one type of digital asset compared to another? And why would you buy one product to manage it and another to share it inside and outside your company? Many of today's smaller players are best described as features masquerading as companies and they are now being rolled into broader offerings.
Stock prices are depressed but "cash is king" to a small player wondering how to finance expansion when software investors are scarcer than software buyers. As a result, the stronger companies are seeing and seizing the opportunity to extend their product lines at bargain basement prices. Over $40 million was invested in Bulldog before Documentum acquired it for a little over $10 million. Kinecta's technology, which Stellent now owns for $2.5 million, cost over $30 million to develop and deliver. And, FileNET paid $10 million for the eGrail software assets.
Recommendations
- Software providers must carefully determine their fit in the complete product. Vendors that don't cover the sufficient range of the solution must make the build, buy, or be bought decisions we're seeing in the market.
- Yet, focus is still critical. Fire sales tempt the weak to buy outside their competencies and focus. The integrated solution will span the content lifecycle and be sold to similar buyers.
- Enterprise software buyers should carefully consider their needs today and into the future. Buyers must select products from economically viable vendors that share vision and partners.
An upcoming Yankee Group Report will define the complete content solution and analyze the current consolidation in more detail.
Internet Strategies Asia-Pacific
by Aditya PuriEvent Summary
Hanaro Telecom and Korea Thrunet, South Korea's second- and third-largest broadband service providers, respectively, announced on April 1 that the merger discussions in which the companies have been engaged for the past several months have failed.
Market Impact
The apparent catalyst for the dissolution was Thrunet's intimation to sell its corporate leased line service operation to South Korean mobile services juggernaut SK Telecom. Hanaro claims that it had been misled by Thrunet, which allegedly signed a "secret" preliminary agreement to sell the operation without disclosing it to Hanaro. Thrunet, on the other hand, felt that adequate disclosure had been made since it had publicly affirmed (in the past) that it was planning to raise capital by selling assets.
Hanaro has quite emphatically stated that the merger discussions would not be revived unless the leased line service business is included as part of Thrunet's overall assets. Thrunet still stands by its asset sale commitment to SK Telecom; however, it is amenable to other combination alternatives.
Recommendations/Conclusions
- South Korea's government has been actively pursuing a rationalization strategy in the telecommunications sector as evidenced by the privatization of the erstwhile PTT, Korea Telecom (now KT Corp.), as well as the tender solicitation for stakes in Powercomm, the cable network arm of the state-owned utility Korea Electric Power Company (KEPCO). The unraveling of these merger discussions are a setback to government's plans; however, as things stand now, it does not imply a complete derailment. Thus, there is a strong likelihood that there will be some form of government intervention to jump-start the discussions and facilitate a consummation of the deal.
- The rationalization posited by the government is necessary for the longer term stabilization and betterment of the telecommunications industry as a whole, and more enhanced options for end users. The telecommunications landscape in South Korea is dominated by KT and SK Telecom, and, as discrete entities, Hanaro and Thrunet do not offer significant competition. An amalgamation, on the other hand, does yield an entity of adequate heft that can challenge the leaders' dominance resulting (hopefully) in better opportunities and services for end users.
Wireless/Mobile Technologies
by John Jackson and Sarah KimEvent Summary
Sharp announced on April 4 that it would begin shipping its Zaurus SL-5500 Linux PDA in the United States.
Market Impact
To date, the PDA platform war, particularly in the United States, has been a two-horse race between the Palm OS and Pocket PC platforms. Sharp's decision to support Linux is a first for the emerging PDA market. Built on Intel's StrongARM technology, with 64-MB RAM and a 240 x 320 color display, it ostensibly resembles competitive products from the Pocket PC camp. From the perspective of an enterprise end user, however, the success of Sharp's Linux strategy remains questionable.
In the near term, fewer third-party applications are available for the SL-5500 as compared to the Pocket PC or Palm platforms. Furthermore, the substantial installed base of Pocket PC-based, and to a greater extent, Palm-based devices, does not favor the entry of another operating system into the market.
Conclusions
- Despite certain advantages offered by an open source system, the device will have limited appeal to the mass market at $500/unit.
- Enterprises with large FFA or SFA structures are starting to look seriously at deploying mobile computing solutions. The U.S. mobile-device market is unsettled on many levels, but the OS is not one of them. Given the momentum behind the incumbent mobile platforms, enterprises will probably fail to consider advantages Linux may offer.
- Clearly, Sharp—a PDA powerhouse in Japan—is testing the U.S. waters with this product. The Yankee Group believes that, while costly, Sharp will gather some competitive intelligence about the U.S. market, and gain valuable insights to improve later releases. By way of example, recall Sony's less-than-spectacular entry with the early CLIÉ.
E-Networks & Broadband Access
by Joe GaganEvent Summary
In the third and fourth quarter of 2001, Vertical Networks, a server-based next-generation phone system vendor, averaged 23,000 phone system extension shipments per quarter. To put the numbers in perspective, the Yankee Group estimated that there were 1.14 million total IP PBX or server-based PBX shipments in the United States for 2001. This would give Vertical Networks close to 10% market share for next-generation phone system shipments if it were to continue at the same pace relative to its competition. Because the Yankee Group expects penetration of next-generation phone system line shipments to go from 10% to 25% out of the whole phone system marketplace in 2002, Vertical Networks must ramp up significantly to maintain its current position. The fact that Vertical Networks, however, went from an average of 7,000 extension shipments per quarter in the first two quarters of 2001 to 23,000 per quarter in the last two quarters is significant in that a host of start-ups that have tried to enter the phone system marketplace in the last five years have gone out of business.
Market Impact
Even if Vertical Networks does not continue at its current market share pace, but maintains a steady ramp up, from where it now stands based on the last two quarters, it estimates that its model makes it profitable by the beginning of 2003. Vertical Networks believes it can now leverage its experience in developing server-based phone systems to take more cost out of the engineering process as well as exacting lower cost from component suppliers. The important issue is that a company like Vertical Networks, created during the technology mania of the late nineties, has been able to transition its company in the direction of a sustainable business model. This is a major achievement considering that the majority of the companies created during this era have been unable to do so.
We know that the value proposition of IP PBXs and hybrid server-based solutions makes sense for the end user, as is proven by vendors such as Vertical Networks and the success of 3Com. It is quite clear, however, that it does not matter how good your product is, if you do not have a strong channel strategy and execute on it you will lose. Vertical Networks and 3Com both have excellent channel strategies—3Com with the traditional voice channel, and Vertical Networks leveraging relationships with WorldCom and AT&T.
Recommendation
- The bottom line is that the telecom business is a service intensive business that will put the vendors that have the best sales and service strategies at a distinct advantage. Vendors that have emerged from the pack, like Vertical Networks, must now leverage their channel penetration and base of reference customers to bring their company to the next level.
- The two most important components for success for vendors are the channel and the end user. The most important message to remember when vendors address these two groups is that the channel will push your product if you prove you can make them money, and the end user will buy your product based on referrals from other satisfied customers.
Convergent Communications Asia-Pacific, Japan Market Strategies
by James WalshEvent Summary
On April 1, VoIP service provider, Fusion Communications (Fusion) announced plans to introduce a full IP telephony service, which will run over broadband access circuits as well as Fusion's own IP backbone network. Before the start of commercial service, Fusion plans to conduct trials with various hardware and software vendors, including Mitsubishi Electric and Yamaha to test the interoperability of different platforms. The trials will run from May 1 to the end of July 2002.
Market Impact
Already, a number of broadband operators, including cable companies and Usen Broad Networks, an FTTH operator, are providing limited voice services to subscribers. Fusion is by far the dominant player in the consumer VoIP market and has been offering call services since April 2001, as one of the candidates in the MYLINE pre-subscription scheme. While its subscriber base is still modest compared with its PSTN rivals, Fusion has nevertheless surpassed expectations, garnering 1 million subscribers by mid-December 2001, three months ahead of its own target. Currently, the carrier offers its service by interconnecting with the incumbents, NTT East and NTT West, and aggregating, packetizing, and forwarding the IP packets on its own IP backbone network. By doing so it has been able to offer inexpensive charges for domestic long-distance and international calls. Although Fusion has not yet announced tariffs, however, the new service to go into effect this summer should enable it to reduce charges even further by circumventing the incumbents' local loops.
Conclusions/Recommendations
- While the cost benefits of VoIP are clear, it has yet to gain widespread popularity in Japan. Doubts about the sound quality remain one of the major barriers to adoption. Ultimately the success of VoIP in the consumer market will depend on its being wholly transparent, and providing the same quality and value-added features as conventional PSTN voice services.
- As VoIP starts to gain acceptance in the consumer market, there is a significant opportunity for the vendors of hardware and software used in devices such as IP phone terminals, gateways, and gatekeepers. These companies should market attractive solutions to potential VoIP providers, including carriers, broadband operators, and ISPs.
Internet Strategies Latin America
by Augusto CardosoEvent Summary
On April 3, Terremark Worldwide Inc. and Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP), the State of São Paulo's (Brazil) Research Support Foundation, announced the creation of "NAP do Brasil." Terremark currently manages the carrier-neutral NAP of the Americas in the Technology Center of the Americas (TECOTA) facility in Miami, Fla. The NAP do Brasil represents Terremark's entry into Latin America's largest Internet market.
Market Impact
Since 1989 FAPESP has been providing NAP and network services to connect Academic Network at São Paulo (ANSP) to the Internet. As the Internet was commercialized in Brazil commercial, first movers joined FAPESP to jump-start their businesses. Currently, most of major Brazilian Internet players are FAPESP customers utilizing NAP services.
As the NAP grew, FAPESP had to divert attention away from its core research functions, while facing budgetary and upgrade issues better managed by a for-profit entity. NAP do Brasil will continue to be a carrier-neutral NAP, but will now provide more than just NAP services. Terremark's experience in building and administering the growing Miami peering point will allow the NAP do Brasil to become a highly efficient exchange point.
Initial plans are for a US$15 million capital investment in infrastructure in the first year of operations. NAP do Brasil will offer current FAPESP customers two years of free peering and exchange services. However, additional new services such as monitoring, network management, collocation, storage, caching, new ports, or expanded bandwidth will generate additional charges.
FAPESP will benefit with a cut of Terremark's income over the next 20 years and will have its infrastructure upgraded for enhanced Internet2 for research by accessing universities via NAP of the Americas.
Conclusions
- The NAP will now be able to offer new services that FAPESP would or could not have provided. This is an advantage for current players peering and interconnecting at the NAP do Brasil. It is also an important milestone for Terremark, which has leapfrogged competitors such as Diveo and OptiGlobe, and has attempted to build a NAP at their hosting facilities from a customer base of zero.
- As the physically constrained NAP facilities are expanded, new hosting, transit, and transport opportunities will multiply, and Terremark should strive to deepen and build the customer base. As Brazil's domestic Internet traffic grows, the Terremark FAPESP facility is well positioned to serve a market with needs that have matured far beyond "transit only" offers.
A Look at Canadian BtoC E-Commerce
cmsv6n4, Report, April 2002, by Tosia MankaThe Bottom-Line Impact on Optimizing Your Channel Partner Network
crmv4n5, Report, March 2002, by Sheryl KingstoneGlobal Communications Liberalization and the World Trade Organization, Part 1: Asia-Pacific, Europe, and the Middle East
grsv2n2, Report, April 2002, by Dianne Northfield and Koji OkiGlobal Communications Liberalization and the World Trade Organization, Part 2: Africa, Latin America, and North America
grsv2n3, Report, April 2002, by Dianne Northfield and Koji OkiSME Survey Results: Examining Mobile Behavior, Needs, and Concerns
wmev6n3, Report, April 2002, by Declan LonerganBack to Table of Contents
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