Thrift: The New Normal

One of the most important questions people ask us at ZapThink is when IT spending will return to normal. We’re gradually pulling out of the economic slump, so the conventional wisdom goes, so it’s only a matter of time until IT spending rebounds. Maybe not in 2003, but by 2004, surely, will the wheels of IT investment turn once more?

IT spending, however, does not flow in lockstep with the economy as a whole. IT investment requires more than just a simple improvement in corporate spending. For tech investment to really pick up, there needs to be something new — a new approach to solving knotty business problems that have heretofore resisted resolution. As a result, IT vendors are constantly looking for the “next big thing” in IT — the magic dust that drives IT spending.

Naturally, many people are betting that Web Services and Service orientation are the “next big thing” that will drive IT this year or next. Since ZapThink focuses on the emerging market for Service-oriented computing, you might think that we’d be first in line to trumpet the power of Web Services to bring back the flow of capital. Well, not so fast.

The Web Services story is not about dramatically increasing capital investment. Web Services are about thrift. It’s no wonder that Web Services have moved from hype to reality during a severe IT downturn — after all, in 2002, most companies using Web Services were applying these new technologies to reduce integration costs. Hundreds of enterprises have already learned that taking a Service-oriented integration approach can reduce the cost of an integration project dramatically — some report cost reductions of as high as 80%. This is one story that executives love to hear.

Thrift, however, means more than simple cost savings. True thriftiness means making do with what you have — squeezing value out of every asset. Now that we’re in 2003, smart enterprises are increasingly realizing that the real value in Web Services is in using loosely coupled, standards-based technologies to build Service-oriented architectures (SOAs). One of the clear benefits of an SOA is that such an architecture helps companies get more value out of existing resources, by wrapping legacy applications in Web Services interfaces and then making those Services available and discoverable on the network. A second thrift benefit that SOAs provide is that they facilitate heterogeneous IT environments. Instead of “rip and replace,” moving to an SOA means building bridges between different systems and applications, rather than throwing them out.

Reworking existing brittle, expensive IT infrastructures into flexible, Service-oriented environments promises substantial cost savings, not just in terms of reduced integration expense and squeezing more value out of existing IT investments, but most dramatically in terms of business agility: IT enabling companies to respond quickly and efficiently to changes in the business environment, and to leverage those changes for competitive advantage.

At ZapThink we cover the markets behind this move toward Service orientation. We definitely predict increased investment in the tools and services that will help companies build Service-oriented architectures. But we’re quite reluctant to paint too rosy a picture. Instead, we believe that IT investment will only grow modestly, in spite of the fact that we see virtually all enterprises moving toward Service-oriented computing infrastructures by 2006. Why the doom and gloom? After all, people look to market research firms like ZapThink for big numbers and growth curves that keep bending upwards. Well, we really don’t see our modest prediction of IT investment growth as being truly pessimistic. Instead, we’re simply painting a picture of the “new normal” for IT investment based upon Service orientation — and that new normal is thrift.

You see, the transition to Service orientation is fundamentally different from the last transition: the one to n-tier architectures we saw in 1996-97. That last build-out heralded the beginning of the dot-com boom, where thrift was the furthest thing from executives’ minds. Internet-related investment coupled with Y2K expenditures created a kind of IT “perfect storm” so dramatic it led to a worldwide stock market bubble. Today, of course, we’ve come to our senses, and this return to business reality is driving the move to Service orientation. Instead of a massive build-out or extensive rip-and-replace, ZapThink believes the secret to adopting Service orientation is one of embracing heterogeneity and squeezing the value out of existing legacy technology. Today’s distributed computing transition, while every bit as significant as the ones that came before, has an entirely different economic model. Instead of “staking out new real estate along the information superhighway” like the good old days, today we’re squeezing every bit of business value out of the technology we already have.

So, what does this return to thrift mean to today’s IT vendors? Basically, the future looks reasonably bright, as long as IT innovation and new market growth are understood within the context of the new normal. Enterprise purse-strings won’t be loosening up all that much, but that doesn’t mean that there isn’t substantial opportunity for vendors with the right solutions at the right time — products and services that help enterprises build, run, use, and manage Service-oriented environments that enable the business agility that companies crave.