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1/23/2003
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CEO Visions: The Signs Of Change

Your company wouldn't dig a well for its water supply, would it? Then, Salesforce.com's Marc Benioff asks, why deploy enterprise software yourself?

The Internet is the last of the modern ubiquitous networks. Water, sanitation, power, telephony, and cable TV have all come before it. They all yielded pay-as-you-go, subscription-based services that are driven by simple user-oriented appliances powered through a web of networks back-ended by complex systems managed by technology experts. Companies don't build leach fields, dig wells, build nuclear power plants, or set up radio towers when they build their offices. And they'll no longer deploy enterprise software either.

Not since the early 1990s and the introduction of client-server computing has our industry gone through as dramatic a change as it's going through today. As industry leaders, we too quickly forget that it was only 15 years ago that our hardware leadership was dominated by IBM mainframes, DEC minicomputers, and world-class technology from Unisys (remember Sperry and Burroughs?). We exclusively bought enterprise software applications from Cullinet, Mc Cormack and Dodge, ASK, Ross Systems, and MSA. Our E-mail was in many cases IBM PROFS (and most of us didn't have it), and Microsoft Windows wasn't part of any corporate network anywhere. In fact, just 15 years ago, PeopleSoft and Siebel Systems didn't exist, Oracle was a fledgling database company, and no one had heard of a small German software company called SAP.

During the past 15 years, we've used the microprocessor and the PC to rebuild and relaunch our industry with PCs, LANs, and large enterprise client-server systems, and we connected everything together with the Internet. We've strived to use client-server computing to become technology leaders through standardization, enterprise software suites, and globalization. Michael Dell and Bill Gates have replaced John Akers and John Cullinane as the most important hardware and software executives. SAP, PeopleSoft, Oracle, and Siebel are the de facto leaders in enterprise applications. Our employees are empowered with PCs and ce ll phones, and we've taught them to type with their thumbs using BlackBerrys and PDAs. The world has changed in just a decade and a half. Shift happens.

And yet, all is not well in our industry. We've been saddled by failure rates that greatly exceed those of the previous generation of technology. We're entrenched in a new level of complexity that transcends the simpler vertical technology stacks of the past. And our industry is under pressure to show how inordinate cost models create value and productivity. In many cases, CEOs have lost confidence in our ability to deliver on the promises that we've so happily hyped. Chuck Phillips wrote inOptimize magazine that CEOs have overspent by $100 billion to $200 billion on unused enterprise software alone in the last three years. IT advisory firm Gartner has made the point that more than half of all new enterprise systems have failed completely. Is all this a coincidence? No.

Let's look deeper. Industry growth rates are down across the board, software license revenues are anemic, hardware prices are dropping, and yet professional services revenue is way up. Enterprise-software CEOs are more focused on margins than innovation. Layoffs take up more news than new-product introductions. There's no growth at all in license revenues or customer counts. Traditional software companies are looking to sell to their installed bases additional products, upgrades, and updates in a plan to exploit as much revenue from their existing customers as possible. Sadly, it's their only growth strategy.

These trends of high system failures, dramatic increases in services revenue, and lack of growth are symptoms of a greater phenomenon: They're all traditional signs of a dramatic paradigm change, driven now not by the catalyst of 15 years ago, the PC, but by the network itself. Much like Dr. Ian Malcolm in the film Jurassic Park, our industry insists that "life finds a way."

Marc Benioff is chairman and CEO of Salesforce.com Inc. In 2002, members of the World Economic Forum recognized him as a Global Leader of Tomorrow.

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Do tech stars like Michael Dell, Steve Ballmer, and Carly Fiorina see the future clearly? Check out what our complete panel of 32 visionaries have to say here.

Columns By Other Hardware Company CEOs
Craig Barrett, Intel Scott McNealy, Sun Microsystems
John Chambers, Cisco Systems Inc. Sam Palmisano, IBM
Michael Dell, Dell Computer Joe Tucci, EMC Corp.
Carly Fiorina, Hewlett-Packard Dan Warmenhoven, Network Applicance Inc.

Is the author right? Or out in left field? Have your say on this column and the rest of our Future Visions package at informationweek.com/forum/informationweek

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