Wednesday, December 22, 2004

December newsletter II: 2005 predictions, A-Z

Early Indications is published twice monthly by John Jordan. He holds no direct financial positions in any company mentioned. Back issues are currently archived at

2005 Predictions

By now many observers have issued their 2005 predictions, so I decided to follow suit, utilizing an alphabetical format to address some of next year's most intriguing issues. In the spirit of full disclosure, many of these predictions are actually questions.

A is for Apple, which has to address some big questions. Having reinvented the mass-storage maket by equipping the iPod with a great interface and compelling legal content, the leadership must anticipate the eventual margin erosion in the hand-held segment and decide how long to ride the premium-price position in computational jewelry (i.e., what used to be called PCs).

B is for business intelligence, the fancy name for data warehousing. For information to enhance business outcomes, it has to fit more closely into real processes. The MBA analyzing data cubes has far less leverage than the people at the point of customer activity making better decisions in the moment. That objective means that data analysis tools will have to become more industry- and process-specific rather than generic, and they can no longer be so detached from operational systems.

C is for consumer devices, which are gradually having an impact on enterprise systems, which can no longer assume an inside-the-wall, locked-down configuration. Wireless data access is a prime example, but so are things like gaming interfaces, iPods as oversized USB drives, and instant messaging.

D is for distributed development. The issue isn't really India per se, because there will be new low-cost environments for certain kinds of work as India develops inflation, a middle class, and/or heightened political tensions with Pakistan. Managing distributed development is a more general issue than merely signing up resources in India or Spain or Estonia, and the tools for doing so are still genreally immature.

E is for energy, which remains a constraint for everything from mobility, in the form of battery life, to data centers, in the form of heat. Intel recently had to switch over to dual-core processors to maintain its stream of new microprocessor introductions because of heat, and the marketing strategy for Centrino (slower clock speed, better battery life) doesn't immediately translate into a parallel pitch for desktop and server chips that will no longer be positioned solely on speed.

F is for fiber optics, which remain a wild card in the the quest for widespread residential broadband access. Relatively speaking, Verizon is taking an aggressive position with fiber to the premise (rather than the node) in the Keller, Texas trial. Longer term, both capital and regulatory uncertainty loom. Meanwhile, wireless broadband deploys far faster and at lower cost, and it's completely possible that anyone who spends billions of dollars digging up yards in 2005 could be aced out by a wireless carrier within five years.

G is for gaming, in both the Vegas sense (a euphemism for gambling) and the Nintendo sense of the word. It's not clear how long state and federal governments will forego potential tax revenues from Internet casinos: for all the talk about the presidential election's being a contest of values, many states that voted for Bush have aggressively adopted lotteries, casinos, and other betting. Meanwhile, the battle for handheld console supremacy between Sony's PSP and Nintendo DS will have global implications for telcos, movie studios, hardware manufacturers, and other parties.

H is for health record, electronic. In the midst of federal budgeting, President Bush has to balance conflicting promises: to push for better use of digital record-keeping technologies in healthcare, and to reduce the deficit. It's too early to tell how the battle will play out, but to date few legislators have seen support for electronic medical records as a way to impress their constituencies.

I is for industry consolidation. Oracle's takeover of Peoplesoft will by no means end this trend, and 2005 may see such companies as Siebel, BEA, Cognos, Hyperion, and Lawson dealing with acquisition efforts. On the services side, it's less clear that a) bigness equals profitability and b) growth by acquisition works for human assets.

J is for jail. Sarbanes-Oxley section 409 is still being interpreted, but some provisions for timely disclosure took effect in August. The legislation uses the terms "real time" and "urgent" for these disclosures, which will add to the CIO's already substantial compliance burden - and provide tough penalties for failure. "Real time" for some purposes is four days, but retrieving a given e-mail or category of instant messages, for example, within that time is impossible for most organizations.

K is for killer application, or more properly the lack thereof. Intel has suffered as both consumers and business users find it difficult to justify new hardware purchases for such predominant tasks as e-mail, web browsing, and spreadsheets. On mobile platforms, meanwhile, cultural differences drive divergent adoption patterns of everything from mobile messaging to cameraphones to geolocation. Personal digital media management, in the form of iPods and TiVos, has sold well, but not all that well. In a global market, it's worth reflecting on total TiVo sales: 4.6 million for 2003, and probably less than 10 million total worldwide as of mid-2004.

L is for license revolt. Enterprise software buyers uniformly resist the move by enterprise software companies to counter declining new seat sales with increased support and maintenance fees. open source is one strand of the movement to limit the power of the vendors, but there are others: 3rd-party support firms, self-support, and refusal to buy upgrades. With increased vendor consolidation, expect to see the stakes increase, and customer resistance grow more vigorous.

M is for management software. Given that headcount remains a large and, thanks to health care costs, growing component of IT budgets, and given that the complexity of the IT shop is still growing despite efforts to rein it in, better tools for running the IT business are essential. Some are in early deployment. Consider that front office, back office, sales force, shopfloor, and field service all have been automated, but the IT organization typically runs on spreadsheets rather than audit-able, robust enterprise systems.

N is for network topology, inverting. Currently, most data network traffic flows outward, from servers to the edge. With the stunning growth in RFID and other sensors, voice over IP, music uploads, and networked games, that pattern is in flux. IDC predicts that edge-in traffic will outstrip inside-out flows in less than ten years, necessitating new approaches to security, reliability, and flexibility.

O is for open source. Linux and Apache are old news; 2005 could be the year that the MySQL database and JBoss application server move out of stealth mode and into more active market penetration.

P is for personalization. Amazon's consumer site is custom-generated on the fly for every registered visitor, representing an integration of cookies, behavioral profiling, databases, dynamic site-serving, and other technologies. That kind of performance and relevance will be expected as the norm in more settings. At the same time, the limits of the username+password model are being exceeded, and new identity solutions will get at least trial deployments in 2005.

Q is for QWERTY, or the keyboard paradox. For years, Bill Gates and others have predicted that voice-recognition and realistic speech synthesis are on the horizon. But a funny thing happened: young users of mobile voice devices have exhibited a preference for text input rather than speech. Demographics, Moore's law, and cultural norms will all shape the next wave of input preferences, but none will be exactly what the visionaries at Dragon and Lernout & Hauspie predicted back in the mid-1990s.

R is for RFID. Retailers already have the business case and many of the business practices in place to exploit the consumer-products and pharmaceutical tags; what will change dramatically are the behaviors and expectations in such places as hospitals, unionized warehouses, and courts. What are the rules for using tags (or automobile "black boxes") as evidence? What are the privacy rights of an employee suspected of theft or even of slacking? How will the black market adapt to the presence of tagged Oxycontin in both legitimate and shadow supply chains?

S is for search. Google's ambition and capability are both formidable: their agreement with leading university libraries to digitize some of their holdings parallels a less-visible effort at the Internet Archive and will be a landmark in information access. Yahoo, Amazon, and Microsoft, meanwhile, are devoting major investment and brainpower to various categories of search challenges. Given the magnitude of information volumes both at rest and in motion, traditional methods for storing, finding, and manipulating data will have to be reinvented - and more layers (in the form of geospatial, audio, and other aspects) are still in the queue.

T is for telephony. Voice over IP is changing the economics of the large national and Bell carriers, it's changing law enforcement, it's changing marketing, and it's changing enterprise computing. How it's changing these various things is not yet clear: regulators, lawyers, taxing authorities, and courts will have much to say about the eventual patterns of adoption. For example, the U.S. federal government took in over $5 billion in telephone tax receipts in 1999. Replacing that stream, along with a probably larger flow to states, will be controversial, more so in an age of deficits.

U is for unsolicited bulk e-mail, aka spam. The volumes keep increasing even in the face of potential penalties, but user dissatisfaction is growing even faster, to the point where e-mail is threatened with obsolescence as users simply give up and rely on voice or instant messenger (even with its obvious temporal limits). Vendors, meanwhile, continue to negotiate about control and related issues. The big issue is trust, a commodity in short supply these days.

V is for virtualization. Enterprise hardware utilization is low, and expensive. Making computing resources more fungible can increase performance while lowering costs. Rhetoric thus far outruns reality, and there remain many engineering and economic issues before this cluster of technologies (pun intended) lives up to its potential. One example: if Oracle charges per processor, how does it figure my bill if I run 11i on a blade server, devoting varying numbers of processors to different tasks as demand rises and falls?

W is for Windows, still the world's most profitable software franchise. Security remains a major question mark, as does the issue of platform extension: how can Microsoft most successfully maintain look, feel, and branding across PCs, cell phones, game consoles, TV set-top boxes, MP3 players, handhelds, and home entertainment centers? Where does extension inhibit rather than enhance entry into new markets?

X is for XML. Specialized variants, including BPEL (Business Process Execution Language) and XBRL(eXtensible Business Reporting Language) are entering the basic toolkit of various professions and task groups. RSS is reintroducing "push" media. We're well past the hype stage and into the gritty details of implementation.

Y is for Yahoo! The fate of this company will dictate and indicate a great deal about the industry dynamics of what used to be called the Internet sector. Structurally speaking, is Yahoo closer to Disney or to Google? Is Amazon closer to Wal-Mart or InterActive Corp? Is eBay a tech stock in any meaningful way? Ultimately, how much of the essence of the Internet will belong to Hollywood or New York and how much to Silicon Valley?

Z is for zero latency, otherwise known as real time enterprise. Driven by compliance requirements, customer requirements, and competitors, often from unfamiliar sectors, businesses often confront "impossible" performance requirements that can't be met simply by tweaking existing processes and procedures. As with so many other technologies, the really tough part of real time is behavioral and cultural rather than engineering.