Try this nightmare scenario on for size: three of your biggest global customers tell you you're not innovating your technology and your business models rapidly enough or aggressively enough for their liking, so they plan to build their own substitutes for some of your emerging products and, in effect, go into competition with you. And to ensure they get the best prices from you while they're jumping into your business, they're also promising to band together to create a buying consortium to command lower prices from you.
After you regain consciousness and pick yourself up off the floor, what in the world do you do? What can you promise to convince those customers not to take this drastic step, and to make them believe that you'll accelerate whatever needs to be accelerated to meet their needs and desires? How would you try to stop this disaster from happening?
Or, if it's too late to change their minds, how do you try to minimize the corrosive impact of competing with customers that've paid you tens of millions of dollars in the past, and that you'd like to have continue paying you at least something close to that in the future?
So have some pity for IBM, Microsoft, Oracle, and HP, because for them the situation's not hypothetical at all—it's very real and is due to go into effect in less than three weeks.
Fed up with the failure of HP, IBM, Oracle, and Microsoft to deliver industrial-strength cloud solutions at dramatically lower costs, three big global banks are taking matters into their own hands with a plan to build their own global cloud infrastructure and network that will, in effect, put those blue-chip customers into competition with those same IT powerhouses.
So the $64 million question—or maybe the $640 million question—is this: what if anything can HP, IBM, Oracle and Microsoft do to win back the confidence and trust and ongoing revenue from those three big banks? And if it's too late for that, how can those big IT vendors find ways to coexist with their new competitor-customers and prevent many more banks from also jumping ship and turning huge chunks of revenue over to the new global banking cloud?
Or are we witnessing the first highly visible instance of a dramatically new model for how IT vendors and their customers interact—one that's much more fluid and complex and within which a customer can also be a partner and a competitor and maybe even a supplier?
As we reported Wednesday, Commonwealth Bank of Australia, Bank of America, and Deutsche Bank are planning to launch on May 17, according to comments from Commonwealth CIO and group executive for operations and technology Michael Harte.
This one has to be incredibly tricky for HP and IBM and Oracle and Microsoft to navigate (all three companies declined to offer comments on the plan by the three banks), but I think it's safe to assume each company will go to extreme lengths to not just placate the frustrated global banks but also give them great confidence that high-intensity cloud-based innovation is coming—and faster than those leading IT companies would have liked.
However, so that you can gauge the intensity of the displeasure the banks are experiencing, here's an excerpt from our Wednesday column, called Global CIO: Global Banks Form Consortium To Counter HP, IBM, & Oracle:
Playing the maintenance card, the article described Harte's desire to achieve a "step-shift in productivity" by letting the banks to "break free of the expensive annual fees that are the backbone of the infrastructure outsourcing and business software industries." And, it said, Harte has declared that enough is enough:
"We are not doing that any more," Harte told AFR. "We will be effectively buying this stuff [at] spot [prices] at an auction."
The crux of Harte's frustration with the current model, and the motivation for his largely unprecedented effort to begin competing at some level with his primary IT partners, is what he perceives to be their inability or unwillingness to move rapidly and aggressively enough to help Commonwealth and other large organization lower their cost of infrastructure and get out of the crippling 80/20 trap that sees lots of CIOs spending 80% of their budgets on internal operations and only 20% on innovation and growth projects.
"We've got 50 per cent to 80 per cent of all what we spend a year tied up in infrastructure and that infrastructure isn't conferring any strategic advantage, it's just a cost of doing business," Harte is quoted as saying.
The AFR article hammers on that point toward the end of the piece, claiming that one of the reasons that "banks are seeking to radically redefine the terms on which they deal with software companies" is "the opportunity to finally break away from the so-called 'software maintenance' payments that are imposed on customers even after they pay hefty up-front fees.
"Once viewed as an unavoidable cost of technology procurement, big corporations are now taking the fight back to suppliers in the aftermath of the global financial crisis," the article says (end of excerpt).
Well—what to make of all this? Maybe it's all just a negotiating ploy on the part of the three banks—yeah, and maybe the Beatles are getting back together for a reunion. No, Commonwealth CIO Michael Harte is a very serious player and he alluded to his company's intentions in a presentation given last week to the Committee for Economic Development in Australia, and there is no way in heck that banks with the size and reputations of Commonwealth, Bank of America, and Deutsche Bank would engage in public gamesmanship on this scale.
Privately, maybe. But publicly? Fuhgeddaboudit.
What will the big vendors be able to offer to counter this initiative, due to be launched May 17? Or will they decide that they've done their best and they'll just have to let this new consortium make its way in the world?
Whatever happens, it's very likely that the breakaway bank bunch will cause Microsoft and Oracle and HP and IBM to rev up their cloud strategies and rollouts. Whether those companies will also address some of the business and revenue models that Harte and other CIOs find unacceptable is hard to say—but if any gambit can lead to such changes, this is it.
Bob Evans is senior VP and director of
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