Crystal Ball: The IT Outlook for 2007

Dynamic computing, Windows Vista, outsourcing changes and more in store.

By Shawna McAlearney

The new year will undoubtedly bring new issues and challenges for CIOs. What can you expect in ’07? Will IT “go green”? What’s up with dynamic computing 2.0? Can Vista overcome digital rights management and other obstacles or will older OSes remain the norm? And what will that mean for Macs? Experts across the IT industry look into their crystal balls to see where IT is headed in the coming year and what it means for your business.

Future “Dynamics” of Computing

“2007 is the year when lessons learned around dynamic computing will really pay off,” says Mary Johnston Turner, a vice president at Ovum Summit. “We’ll begin to see virtualization of hardware infrastructure and an increased uptake in service-oriented architecture (SOA).”

While virtualization technologies have largely been used to create logical partitions within servers or storage devices, Ovum analysts predict that the next wave of dynamic computing will take shape around application virtualization, which they say will simplify and reduce the cost of provisioning applications to desktops and laptops, as well as reduce the management burdens associated with application installations, conflicts and security.

Organizations that have embraced dynamic computing have realized reduced costs and increased business flexibility, says Ovum, and have begun to adopt a “services-oriented” perspective for defining IT’s future mission, goals and success criteria. Many adopters are increasingly focused on defining end-to-end service levels and business objectives, and use dynamic infrastructure environments to optimize the way those services are delivered. Use of common management metrics and tools to keep tabs on third-party service provider performance will also increase.

“CIOs will create a new ’converged services’ architectural paradigm to cost-effectively support ever changing business requirements,” Ovum analysts say in their Summit Seven predictions. “Virtualization, service-oriented architecture, management automation and integrated workflow tools will increasingly be coupled with externally provided software-as-a-service (SaaS), utility computing, business process outsourcing and other network-hosted applications and business services to create highly dynamic enterprise service delivery environments.”

Ovum says these environments, powered by sophisticated, automated service brokering and management technologies, will provide flexibility for selecting and combining internal and third-party solutions based on cost and their ability to reliably satisfy real time business service-level requirements. “Some CIOs may even opt to create virtual IT departments which rely primarily on external services monitored and optimized by a handful of internal business-savvy IT specialists,” says Ovum’s 2007 Summit Seven report.

Ovum Summit expects it will take five years or more for dynamic computing 2.0 architectures to become mainstream. Those that “hope to capitalize on the inevitable shift [to dynamic computing 2.0] must manage their dynamic computing 1.0 implementations in a way that will enable them to capitalize on third-party services, should they decide to adopt them in the future,” warns Ovum analysts.

And European analyst firm Butler Group anticipates that legacy enterprise resource planning (ERP) and methodology confusion will hold back SOA progress until new functionality addresses genuine business needs instead of merely offering increased flexibility.

Outsourcing RefinementsCIOs will see many upgrades in outsourced services in 2007, including an increase in security and the popularity of agile development. Other anticipated trends are remote infrastructure management, increased fluency in business language and expansion plans by outsourcing vendors to compete with global leaders.

The use of Agile development methodology in outsourced environments will rise in 2007. Dmitry Loschinin, president and CEO of Luxoft, a Russian IT outsourcing provider, says, “With the right people, project management and metrics in place this highly collaborative approach-traditionally thought to be only for in-house teams-will continue to speed client solutions to market.”

Other outsourcing predictions include:

• All forms of security will be on the shortlist for successful outsourcing engagements, including data, systems, physical, staff and disaster recovery. [Luxoft]
• Companies will increasingly look to near-shore development solutions in Europe, Eastern Europe and Canada to round out their outsourcing portfolios. [Luxoft]
• Pure cost savings will expand to include the ability to deliver complex outsourcing services, relationship quality and measurable ROI with vendors who will become vested in their client’s success. [Luxoft]
• Organizations will move to short-term, multiple vendor outsourcing deals with regular reviews of objectives that require ever-closer vendor-client partnerships. [Butler Group]
• Fluency in specific technologies, industries and methodologies will continue to grow in importance as “must haves” for any serious outsourcing vendor. [Luxoft]
• Outsourcing companies will make expansion plans to compete with global leaders, acquire vertical domain expertise and gain access to global resource pools. [Luxoft]
• Customer relationship management will be in demand. [Luxoft]
• Remote infrastructure management from offshore locations will cut spiraling data center costs by providing up-to-date skills, investment in technology transformation (such as consolidation) and advanced management capabilities.  [Butler Group]

Also see CIO’s 2006 Global Outsourcing Guide.

Going “Green” Will Help Companies into the “Black”

The push toward making every aspect of computing more efficient is now homing in on power efficiency. While “going green” may sound altruistic and is not likely to be a core value for many businesses, it’s really all about the cost savings.

“IT managers facing sky-high energy bills to run their data centers, new and expanding regulations for the disposal of IT products, growing concern about global warming…it’s not hard to see what’s driving this inflection point,” says John Madden, research director and head of Ovum Summit’s Enterprise Services Strategies advisory service. “Hardware vendors will be particularly affected.”

Judging from recent announcements, it appears many IT vendors are trying to differentiate on the basis of their energy consumption. Ovum Summit notes many examples and expects the trend to really solidify in 2007. Examples of note include:

• Intel, in addition to working on more power-efficient processors, has thrown its support behind efforts by the U.S. Environmental Protection Agency to create revised “Energy Star” standards for more energy-efficient electronics.
• AMD, in conjunction with IBM, Hewlett Packard and Sun, launched the Green Grid project to look for best practices that will help customers reduce data center energy consumption.
• Sun Microsystems in October unveiled Project Blackbox, a pre-configured, fully contained data center in a shipping container that Sun says is optimized for maximum density, performance and energy efficiency, and with recyclable parts and components.
• Sun and Dell are introducing new products that use reusable physical components (such as parts from a server chassis) to prevent them from ending up in landfills across the country.

“Being ’green’ is certainly more top-of-mind going into 2007-particularly when a customer is deciding between two equally matched vendors,” says Madden. “There’s a direct correlation between rising energy costs and marketing efforts tied into social responsibility.”

Vista on the Horizon for EnterprisesSome analysts speculate that Windows Vista won’t be a big hit with businesses this year-in part because of digital rights management (DRM) software embedded in the OS.

“Annoying DRM features in Microsoft Vista will prompt some users to hoard older versions of operating systems that lack DRM,” says a release by analyst firm In-Stat. “Windows XP, Windows 2000, maybe even Windows 98SE will make a comeback. Virtualization will make it easier to maintain multiple OS installations on one PC and switch between them.”

“Macintosh will gain market share as people realize that Intel-based Macs can make better Windows PCs than many Windows PCs,” In-Stat adds.

However, Ovum Summit analysts believe that’s far from likely. “DRM won’t be a big issue in the business world,” says Dwight Davis, a vice president at Ovum Summit. “I wouldn’t be surprised if the rollout outpaces other OS rollouts from Microsoft because of the business features. In the grand scheme of things, the OS is in many ways more tuned to a business audience then ever before.”

“When XP rolled out, you had to practically beat Microsoft with a stick to get them to talk about its relevance to a big business audience, but Vista is all about security and business features,” adds Davis.

European analyst firm Butler Group predicts that SharePoint-based solutions, not Vista, will exceed all expectations. “Microsoft’s apparent commoditization of the enterprise content management (ECM) market could well start a price war amongst established vendors as they try to up-sell and compete with Microsoft,” says Richard Edwards, senior research analyst for Butler’s Desktop and Client Strategy practice. “Vendors with large ECM product portfolios will consider discounting their document and records management modules in the hope of securing more business down the line. Consumer-oriented Internet- and Web-based technologies will continue to infiltrate the workplace, and these will cause many CIOs to re-think their information worker strategies.”

Focusing on the CustomerA number of analysts believe 2007 will be dominated by an increased customer focus.

Ovum Summit predicts that this year, vendors will increasingly attempt to differentiate themselves by helping their customers innovate by making changes to how they view and run their businesses.

CIOs can capitalize on this anticipated trend by asking vendors to collaborate with them, their partners and suppliers to develop actionable plans and solutions for IT and other businesses challenges.

While some focus on innovation, others believe that retention is the key. “Clients want stable and vested vendor teams working on their engagements,” says Dmitry Loschinin of Luxoft. “In 2007 they will increasingly demand that vendors meet-and preferably exceed-industry retention rates as a requirement of winning and doing business.”  

You Get What You Pay For

So-called free technology services and applications are likely to face competition in the coming year from pay services that offer more convenience. For example, analysts at Deloitte say that spam is expected to represent more than 95 percent of all of e-mails sent in 2006-more than 60 billion messages each day-which may “ultimately represent the death of e-mail as we know it.”

Free e-mail is estimated to have cost consumers approximately $7.8 billion over the last two years to repair or replace PCs infected by malicious code and spyware. By contrast, Deloitte analysts say, “paid-for SMS [offerings], on which consumers spent over $185 billion in 2006 alone, were relatively junk-free, most likely because the economics of spam simply do not work in such a highly commercial setting.”

Instant messaging (IM) and voice over IP (VoIP) are expected to suffer similarly as spim and spit (spam targeting those respective avenues) vastly increase.

“There’s an increased level of acceptance to pay for services, such as satellite radio, to avoid hearing a million and one ads or buying an iPod to have what I want when and where I want it. And there’s plenty of evidence that people are willing to pay,” says Eric Openshaw, lead partner for technology at Deloitte. “The cost of ’free’ is the loss of security and control, and a lack of choices.”

More Assorted Crystal Ball Gazing for 2007

An Eye on Biometrics

Biometric security, based on physical characteristics such as a person’s iris, fingerprint, palm veins, voice and hand geometry, will see a major uptake in adoption for a wide range of applications, says Deloitte. Analysts say the increase will be driven by falling prices, rising performance of key technologies such as processors and digital storage, and a growing public willingness to pay more for biometric security.

The value of physical and digital property will make the case for biometrics increasingly strong, but initial deployments are likely to be small scale to secure buildings or homes. A government mandate to use biometrics in all identity cards is also likely in 2007, according to Deloitte analysts.

The sound of fixed mobile convergence (FMC) “Either through the use of private GSM [Global System for Mobile Communications] networks or Wi-Fi, mobile phone usage is about to undergo a radical change, which will at last hand control back to the organization and bring a new degree of flexibility and innovation by providing the ability to integrate mobile phones into the enterprise network,” predicts Mark Blowers, senior research analyst for Butler’s mobile and wireless computing practice.

ROI on ITDetermining the business value enabled by IT will take on increased importance for the CIO, making it essential to establish a formal frame of reference for describing business value, and for agreeing on the appropriate metrics by which individual projects should be measured, says Tim Jennings, Butler’s research director for the IT policy and strategy practice.

Are these predictions on the money? Drop me a line at smcalearney@cxo.com and let me know your views on these predictions as we move into 2007.