BriefingsDirect Analysts List Top 5 Ways to Cut Enterprise IT Costs Without Impacting Performance in Economic Downturn

Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 38 on how businesses should react to the current economic realities and prepare themselves to emerge stronger.

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Dana Gardner: Hello, and welcome to the latest BriefingsDirect Analyst Insights Edition, Volume 38. I'm your host and moderator, Dana Gardner, principal analyst at Interarbor Solutions.

This periodic discussion and dissection of IT infrastructure related news and events, with a panel of industry analysts and guests, comes to you with the help of our charter sponsor, Active Endpoints, maker of the ActiveVOS, visual orchestration system. We also come to you through the support of TIBCO Software.

Out topic this week of March 9, 2009 centers on the economics of IT. It's clear that the financial crisis has spawned a yawning global recession on a scale and at a velocity unlike anything seen since the 1930s. Yet, our businesses and our economy function much differently than they did in the 1930s. The large and intrinsic role of information technology (IT) is but one of the major differences. In fact, we haven't had a downturn like this since the advent of widespread IT.

So, how does IT adapt and adjust to the downturn? This is all virgin territory. Is IT to play a defensive role in helping to slash costs and reduce its own financial burden on the enterprise, as well as to play a role in propelling productivity forward despite these wrenching contractions?

Or, does IT help most on the offensive, in transforming businesses, or playing a larger role in support of business goals, with the larger IT budget and responsibility to go along with that? Does IT lead the way on how companies remake themselves and reinvent themselves during and after such an economic tumult?

We're asking our panel today to list the top five ways that IT can help reduce costs, while retaining full business -- or perhaps even additional business functionality. These are the top five best ways that IT can help play economic defense.

After we talk about defense, we're going to talk about offense. How does IT play the agent of change in how businesses operate and how they provide high value with high productivity to their entirely new customer base?

Join me in welcoming our analyst guests this week. Joe McKendrick, independent IT analyst and prolific blogger on service-oriented architecture (SOA), business intelligence (BI), and other major IT topics. Welcome back, Joe.

Joe McKendrick: Thanks, Dana. Glad to be here.

Gardner: We're also joined by Brad Shimmin, principal analyst at Current Analysis.

Brad Shimmin: Hello, Dana.

Gardner: Also, JP Morgenthal, independent analyst and IT consultant. Hi, JP.

JP Morgenthal: Hi. Thanks.

Gardner: We're also joined by Dave Kelly, founder and president of Upside Research, who joins us for the first time. Welcome, Dave.

Dave Kelly: Hey, Dana. Thanks for having me. It's great to be here.

Gardner: Let's go first to Joe McKendrick at the top of the list. Joe, let's hear your five ways that IT can help cut costs in enterprises during our tough times.

Previous downturns

McKendrick: First of all, I just want to comment. You said this is virgin territory for IT in terms of managing through downturns. We've seen in our economy some fairly significant downturns in the past -- the1981-82 period, 1990-91 period, and notably 2001-2002. Those were all major turning points for IT, and we can get into that later. I'll give you my five recommendations, and they're all things that have been buzzing around the industry.

First, SOA is a solution, and I think SOA is alive and well and thriving. SOA promotes reuse and developer productivity. SOA also provides a way to avoid major upgrades or the requirement for major initiatives in enterprise systems such as enterprise resource planning (ERP).

Second, virtualize all you can. Virtualization offers a method of consolidation. You can take all those large server rooms -- and some companies have thousands of servers -- and consolidate into more centralized systems. Virtualization paves the path to do that.

Third, cloud computing, of course. Cloud offers a way to tap into new sources of IT processing, applications, or IT data and allows you to pay for those new capabilities incrementally rather than making large capital investments.

The fourth is open source -- look to open-source solutions. There are open-source solutions all the way up the IT stack, from the operating system to middleware to applications. Open source provides a way to, if not replace your more commercial proprietary systems, then at least to implement new initiatives and move to new initiatives under the budget radar, so to speak. You don't need to get budget approval to establish or begin new initiatives.

Lastly, look at the Enterprise 2.0 space. Enterprise 2.0 offers an incredible way to collaborate and to tap into the intellectual capital throughout your organization. It offers a way to bring a lot of thinking and a lot of brainpower together to tackle problems.

Gardner: It sounds like you feel that IT has a lot of the tools necessary and a lot of the process change necessary. It's simply a matter of execution at this point.

McKendrick: Absolutely. All the ingredients are there. I've said before in this podcast that I know of startup companies that have invested less than $100 in IT infrastructure, thanks to initiatives such as cloud computing and open source. Other methodologies weigh in there as well.

Gardner: All right. Let's go to bachelor number two, Brad Shimmin. If you're dating IT efficiency, how are you going to get them off the mark?

Provide a wide pasture

Shimmin: Thanks, Dana. It's funny. Everything I have in my little list here really riffs off of all of Joe's excellent underlying fundamentals that was talking about there. I hope what I am going to give you guys are some not-too-obvious uses of the stuff that Joe's been talking about.

My first recommendation is to give your users a really wide pasture. There is an old saying that if you want to mend fewer fences, have a bigger field for your cattle to live in. I really believe that's true for IT.

You can see that in some experiments that have been going on with the whole BYOC -- Bring Your Own Computer -- programs that folks like Citrix and Microsoft have been engaging in. They give users a stipend to pick up their own notebook computer, bring that to work, and use a virtualized instance of their work environment on top of that computer.

That means IT no longer has to manage the device itself. They now just manage virtual image that resides on that machine. So, the idea that we've been seeing with mobile devices making a lot of headway, in terms of users buying and using their own inside IT, we'll see extend to desktops and laptops.

I'd just like to add that IT should forget about transparency and strive for IT participation. The days of the ivory tower with top-down knowledge held within secret golden keys behind locked doors within IT are gone. You have to have some faith in your users to manage their own environments and to take care of their own equipment, something they're more likely to do when it's their own and not the company's.

Gardner: So, a bit more like the bazaar, when it comes to how IT implements and operates?

Shimmin: Absolutely. You can't have this autocracy downward slope anymore to be efficient. That doesn't encourage efficiency.

The second thing I'd suggest is don't build large software anymore. Buy small software. As Joe mentioned, SOA is well entrenched now within both the enterprise and within the IT. Right now, you can buy either a software as a service (SaaS) or on-premise software that is open enough that it can connect with and work with other software packages. No longer do you need to build this entire monolithic application from the ground-up.

A perfect example of that is something like PayPal. This is a service, but there are on-premise renditions of this kind of idea that allow you to basically build up a monolithic application without having to build the whole thing yourself. Using pre-built packages, smaller packages that are point solutions like PayPal, lets you take advantage of their economies of scale, and lets you tread upon the credibility that they've developed, especially something that's good for consumer facing apps.

The third thing I'd suggest -- and this is in addition to that -- build inside but host outside. You shouldn't be afraid to build your own software, but you should be looking to host that software elsewhere.

A game changer

We've all seen both enterprises and enterprise IT vendors -- independent software vendors (ISVs) themselves like IBM, Oracle, and Microsoft, in particular -- leaping toward putting their software platforms on top of third-party cloud providers like Amazon EC2. That is the biggest game changer in everything we've been talking about here to date.

There's a vendor -- I can't say who it is, because they didn't tell I could talk about it -- who is a cloud and on-premise vendor for collaboration software. They have their own data centers and they've been moving toward shutting down the data centers and moving that into Amazon's EC2 environment. They went from these multi-multi thousand dollar bills they are paying every month, to literally a bill that you would get for such a cellphone service from Verizon or AT&T. It was a staggering saving they saw.

Gardner: A couple of hundred bucks a month?

Shimmin: Exactly. It's all because the economies are scaled through that shared environment.

The fourth thing I would want to say is "kill your email." You remember the "Kill your TV" bumper stickers we saw in the '90s. That should apply to email. It's seen its day and it really needs to go away. For every gigabyte you store, I think it's almost $500 per user per year, which is a lot of money.

If you're able to, cut that back by encouraging people to use alternatives to email, such as social networking tools. We're talking about IM, chat, project group-sharing spaces, using tools like Yammer inside the enterprise, SharePoint obviously, Clearspace -- which has just been renamed SBS, for some strange reason -- and Google Apps, That kind of stuff cuts down on email.

I don't know if you guys saw this, but in January, IBM fixed Lotus Notes so they no longer store duplicate emails, They were cutting down on the amount of storage their users required by something like 70 percent, which is staggering.

Gardner: So what was that, eliminating the multiple versions of any email, right?

Shimmin: It was the attachments, yes. If there was a duplicate attachment, they stored one for each note instead of saying, "Hey, it's the same file, let's just store one instance of it in a database." Fixing stuff like that is just great, but it points to how big a problem it is to have everything running around in email.

Gardner: You might as well just be throwing coal up into the sky, right?

Shimmin: Exactly. To add to that, we should really turn off our printers. By employing software like Wikis, blogs, and online collaboration tools from companies like Google and Zoho, we can get away from the notion of having to print everything. As we know, a typical organization kills 143 trees a year -- I think was the number I heard -- which is a staggering amount of waste, and there's a lot of cost to that.

Gardner: Perhaps the new bumper sticker should be "Email killed."

Open, but not severe

Shimmin: Printing and email killed, right. My last suggestion would be, as Joe was saying, to really go open, but we don't have to be severe about it. We don't have to junk Windows to leverage some cost savings. The biggest place you can see savings right now is by getting off of the heavy license burden software. I'm going to pick on Office right now.

Gardner: How many others do you have to pick from?

Shimmin: It's the big, fat cow that needs to be sacrificed. Paying $500-800 a year per user for that stuff is quite a bit, and the hardware cost is staggering as well, especially if you are upgrading everyone to Vista. If you leave everyone on XP and adopt open-source solutions like OpenOffice and StarOffice, that will go a long, long way toward saving money.

Why I'm down on printing is, the time is gone when we had really professional, beautiful-looking documents that required a tremendous amount of formatting and everything needed to be perfect within Microsoft Word, for example. What now counts is the information. It's same for 4,000-odd features in Excel. I'm sure none of us here have ever even explored a tenth of those.

Gardner: Maybe we should combine some of the things you and Joe have said. We should go to users and say, "You can use any word processor you want, but we're not going to give you any money," and see what they come up with.

Shimmin: You're going to find some users who require those 4,000 features and you are going to need to pay for that software, but giving everyone a mallet to crack a walnut is insane.

Gardner: I want to go back quickly to your email thing. Are you saying that we should stop using email for communication or that we should just bring email out to a cloud provider and do away with the on-premises client server email -- or both.

Shimmin: Thanks for saying that. Look at software or services like Microsoft Business Productivity Online Suite (BPOS). You can get Exchange Online now for something like $5 per month per user. That's pretty affordable. So, if you're going to use email, that's the way to go. You're talking about the same, or probably better, uptime than you're getting internally from a company like Microsoft with their 99.9 percent uptime that they're offering. It's not five 9s, but it's probably a lot better than what we have internally.

So, yeah. You should definitely explore that, if you're going to use email. In addition to that, if you can cut down on the importance of email within the organization by adopting software that allows users to move away from it as their central point of communication, that is going to save a lot of money as well.

Gardner: Or, they could just Twitter to each other and then put all the onus on the cost of maintaining all those Twitter servers.

Shimmin: Nobody wants to want to pay for that, though.

Gardner: Let's go to JP Morgenthal. I'm expecting "shock and awe" from you, JP. What's your top five?

Morgenthal: Shock and awe, with regard to my compadres' answers?

Gardner: Oh, yeah. Usually you have a good contrarian streak.

The devastation of open source

Morgenthal: I was biting my tongue, especially on the open source. I just went through an analysis, where the answer was go JBoss on Linux Apache. Even in that, I had given my alternative viewpoint that from a cost perspective, you can't compare that stack to running WebSphere, or WebLogic on Windows. Economically, if you compare the two, it doesn't make sense. I'm still irked by the devastation that open source has created upon the software industry as a whole.

Gardner: Alright. We can't just let that go. What do you mean, quickly?

Morgenthal: Actually, I blogged on this. Here's my analogy. Imagine tomorrow if Habitat for Humanity all of a sudden decided that it's going to build houses for wealthy people and then make money by charging maintenance and upkeep on the house. You have open source. The industry has been sacrificed for the ego and needs of a few against the whole of the industry and what it was creating.

Gardner: Okay. This is worth an entire episode. So, we're going to come back to this issue about open source. Is it good? Is it bad? Does it save money or not? But, for this show, let's stick to the top five ways to save IT, and we'll come back and do a whole show on open source.

Morgenthal: I'd like to, but I've got to give credit. I can't deny the point that as a whole, for businesses, again, those wealthy homeowners who are getting that Habitat for Humanity home, hey, it's a great deal. If somebody wants to dedicate their time to build you a free home, go for it, and then you can hire anybody you like to maintain that home. It's a gift from the gods.

Gardner: What are your top five?

Morgenthal: Vendor management is first. One thing I've been seeing a lot is how badly companies mismanage their vendor relationships. There is a lot of money in there, especially on the IT side -- telecom, software, and hardware. There's a lot of play, especially in an industry like this.

Get control over your vendor relationships. Stop letting these vendors run around, convincing end-users throughout your business that they should move in a particular direction or use a particular product. Force them to go through a set of gatekeepers and manage the access and the information they're bringing into the business. Make sure that it goes through an enterprise architecture group.

Gardner: It's a buyers market. You can negotiate. In fact, you can call them in and just say, "We want to scrap the old license and start new." Right?

Morgenthal: Well, there are legal boundaries to that, but certainly if they expect to have a long-term relationship with you through this downturn, they've got to play some ball.

With regard to outsourcing noncritical functions, I'll give you a great example where we combined an outsourced noncritical function with vendor management in a telco. Many companies have negotiated and managed their own Internet and telco communications facilities and capability. Today, there are so many more options for that.

It's a very complex area to navigate, and you should either hire a consultant who is an expert in the area to help you negotiate this fact, or you should look the scenario where you take as much bandwidth as you use on an average basis, and when you need excess bandwidth, team in the cloud. Go to the cloud for that excess bandwidth.

Gardner: Okay, number three.

Analyze utilization

Morgenthal: Utilization analysis. Many organizations don't have a good grasp on how much of their CPU, network, and bandwidth is utilized. There's a lot of open space in that utilization and it allows for compression. In compressing that utilization, you get back some overhead associated with that. That's a direct cost savings.

Another area that has been a big one for me is data quality. I've been trying to tell corporations for years that this is coming. When things are good, they've been able to push off the poor data quality issue, because they can rectify the situation by throwing bodies at it. But now they can't afford those bodies anymore. So, now they have bad data and they don't have the bodies to fix up the data on the front end.

Here is a really bad rock and hard place. If I were them, I'd get my house in order, invest the money, set it aside, get the data quality up and allow myself to operate more effectively without requiring extra labor on the front end to clean up the data on the back end.

Finally, it's a great time to explore desktop alternatives, because Windows and the desktop has been a de-facto standard, a great way to go -- when things are good. When you're trying to cut another half million, million, or two million out of your budget, all those licenses, all that desktop support, start to add up. They're small nickels and dimes that add up.

By looking at desktop alternatives, you may be able to find some solutions. A significant part of your workforce doesn't need all that capability and power. You can then look for different solutions like light-weight Linux or Ubuntu-type environments that provide just Web browsing and email, and maybe OpenOffice for some light-weight word processing. For a portion of your user base, it's all they need.

Gardner: Okay. Was that four or five?

Morgenthal: That's five -- vendor management, outsourcing, utilization analysis, data quality, and desktop alternatives.

Gardner: Excellent. Okay. Now, going to you, Dave Kelly, what's your top five?

Optimize, optimize, optimize

Kelly: Thanks, Dana, and it's great to come at the end. I don't always agree with JP, but I liked a lot of the points that he just made and they complement some of the ones that I am going to make, as well as the comments that Brad and Joe made.

My first point would be, optimize, optimize, optimize. There's no doubt that all the organizations, both on the business side and the IT side, are going to be doing more with less. I think we're going to be doing more with less than we have ever seen before, but that makes it a great opportunity to step back and look at specific systems and business processes.

You can start at the high level and go through business process management (BPM) type optimization and look at the business processes, but you can also just step it down a level. This addresses what some of the other analysts have said here. If you look at things like data-center optimization, there are tremendous opportunities for organizations to go into their existing data centers and IT processes to save money and defer capital investment.

You're talking about things like increasing the utilization of your storage systems. Many organizations run anywhere from 40 to 50 percent of storage utilization. If you can increase that and push off new investments in additional storage, you've got savings right there. The growth rate in storage over the past three to five years has been tremendous. This is a great opportunity for organizations to save money.

It also references what Brad said. You've got the same opportunity on the email side. If you look at your infrastructure on the data-center side or the storage side, you've got all this redundant data out there.

You can use applications. There are products from Symantec and other vendors that allow you to de-duplicate email systems and existing data. There are ways to reduce your backup footprint, so that you have fewer backup tapes required. Your processes will run quicker, with less maintenance and management. You can do single-instance archiving and data compression.

Gardner: Dave, it sounds like you're looking at some process re-engineering in the way that IT operates.

Kelly: You can certainly do that, but you don't even have to get to that process re-engineering aspect. You can just look at the existing processes and say, "How can I do individual components more efficiently." I guess it is process reengineering, but I think a lot of people associate process reengineering with a large front-to-back analysis of the process. You can just look at specific automated tasks and see how you can do more with less in those tasks.

There are a lot of opportunities there in terms of like data center optimization as well as other processes.

The next point is that while it's important to increase your IT efficiency, while reducing cost, don't forget about the people. Think about people power here. The most effective way to have an efficient IT organization is to have effective people in that IT organization.

Empower your people

There's a lot of stress going on in most companies these days. There are a lot of question about where organizations and businesses are going. As an IT manager, one thing you need to do is make sure that your people are empowered to feel good about where they're at. They need to not hunker down and go into this siege mentality during these difficult times, even if the budgets are getting cut and there's less opportunity for new systems or new technology challenges. They need to redirect that stress to discover how the IT organization can benefit the business and deal with these bad times.

You want to help motivate them through the crisis and work on a roadmap for better days, and map out, "Okay, after we get through this crisis, where are we going to be going from here?" There's an important opportunity in not forgetting about the people and trying to motivate them and provide a positive direction to use their energy and resources in.

Gardner: They don't want to get laid off these days, do they?

Kelly: No, they don't. Robert Half Technology recently surveyed 1,400 CIOs. It's pretty good news. About 80 percent of the CIOs expect to maintain current staffing levels through the first half of this year. That's not a very long lead-time at this point, but it's something. About 8 or 9 percent expected to actually hire. So everyone is cutting budgets, reducing capital expenditures, traveling less, trying to squeeze the money out of the budget, but maybe things will stay status quo for a while.

The third point echoes a little bit of what JP said on the vendor management side, as well as on using commercial software. Organizations use what they have or what they can get. Maybe it's a good time to step back and reevaluate the vendors. That speaks to JP's vendor management idea, and the infrastructure they have.

So, you may have investments in Oracle, IBM, or other platforms, and there may be opportunities to use free products that are bundled as part of those platforms, but that you may not be using.

For example, Oracle bundles Application Express, which is a rapid application development tool, as part of the database. I know organizations are using that to develop new applications. Instead of hiring consultants or staffing up, they're using existing people to use this free rapid application development tool to develop departmental applications or enterprise applications with this free platform that's provided as part of their infrastructure.

Of course, open source fits in here as well. I have a little question about the ability to absorb open source. Perhaps at the OpenOffice level, I think that's a great idea. At the infrastructure level and at the desktop level that can be a little bit more difficult.

The fourth point, and we've heard this before, is go green. Now is a great time to look at sustainability programs and try to analyze them in the context of your IT organization. Going green not only helps the environment, but it has a big impact, as you're looking at power usage in your data center with cooling and air conditioning cost. You can save money right there in the IT budget and other budgets going to virtualization and consolidating servers. Cutting any of those costs can also prevent future investment capital expenditures.

Again, as JP said about utilization, this is a great opportunity to look at how you're utilizing the different resources and how you can potentially cut your server cost.

Go to lunch

Last but not least, go to lunch. It's good to escape stressful environments, and it may be a good opportunity for IT to take the business stakeholders out to lunch, take a step back, and reevaluate priority. So, clear the decks and realign priorities to the new economic landscape. Given changes in the business and in the way that services and products are selling, this may be a time to reevaluate the priorities of IT projects, look at those projects, and determine which ones are most critical.

You may be able to reprioritize projects, slow some down, delay deployments, or reduce service levels. The end effect here is allowing you to focus on the most business critical operations and applications and services. That gives a business the most opportunity to pull out of this economic dive, as well as a chance to slow down and push off projects that may have had longer-term benefits.

For example, you may be able to reduce service levels or reduce the amount of time the help desk has to respond to a request. Take it from two hours to four hours and give them more time. You can potentially reduce your staffing levels, while still serving the business in a reasonable way. Or, lengthen the time that IT has after a disaster to get systems back up and operating. Of course, you've got to check that with business leaders and see if it's all right with them. So, those are my top five.

Gardner: Excellent, thank you. I agree that we're in a unique opportunity, because, for a number of companies, their load in the IT department is down, perhaps for the first time. We've been on a hockey-stick curve in many regards in the growth of data and the number of users, seats, and applications supported.

Companies aren't merging or acquiring right now. They're in kind of stasis. So, if your load is down in terms of headcount, data load, newer applications, now is an excellent time to make substantial strategic shifts in IT practices, as we've been describing, before that demand curve picks up again on the other side, which its bound to do. We just don't know when.

As the last panelist to go, of course, I am going to have some redundancy on what's been said before, but my first point is, now is the time for harsh triage. It is time to go in and kill the waste by selectively dumping the old that doesn't work. It's easiest to do triage now, when you've got a great economic rationale to do it. People will actually listen to you, and not have too much ability to whine, cry and get their way.

IT really needs to find where it's carrying its weight. It needs to identify the apps that aren't in vigorous use or aren't adding value, and either kill them outright or modernize them. Extract the logic and use it in a process, but not at the cost of supporting the entire stack or a Unix server below it.

IT needs to identify the energy hogs and the maintenance black holes inside their infrastructure and all the inventory that they are supporting. That means ripping out the outdated hardware. Outdated hardware robs from the future in order to pay for a diminishing return in the past. So, it's a double whammy in terms of being nonproductive and expensive.

You don't really need to spend big money to conduct these purges. It's really looking for the low-lying fruit and the obvious wasteful expenditures and practices. As others have said today, look for the obvious things that you're doing and never really gave much thought to. They are costing you money that you need to do the new things in order to grow. It's really applying a harsh cost-benefit analysis to what you are doing.

It would also make sense to reduce the number of development environments. If you're supporting 14 different tools and 5 major frameworks, it's really time to look at something like Eclipse, Microsoft, or OSGi and say, "Hey, we're going to really work toward more standardization around a handful of major development environments. We're going to look for more scripting and doing down and dirty web development when we can." That just makes more sense.

It's going to be harder to justify paying for small tribes of very highly qualified and important, but nonetheless not fully utilized, developers.

Look outside

It's also time to replace costly IT with outside services and alternatives that we have discussed. That would include, as Brad said, your email, your calendar, word processing, and some baseline productivity applications and consider where you can do them cheaper.

I do like the idea of saying to people, "You still need to do email and you need still to do word processing, but we no longer are going to support it. Go find an alternative and see how that works." It might be an interesting experiment at least for a small department level at first.

That means an emphasis on self-help, and in many aspects of IT it is possible. Empower the users. They want that power. They want to make choices. We don't need to just walk them down a blind path, tell them how to do mundane IT chores, and then pay an awful lot of money to have them doing it that way. Let's open up, as Brad said, the bazaar and stop being so much of a cathedral.

I suppose that means more use of SaaS and on-demand applications. They make particular sense in customer relationship management (CRM), sales force, and in human resources procurement and payroll. It's really looking to outsource baseline functionality that's not differentiating your organization. It's the same for everybody. Find the outsourcers that have done it well and efficiently and get it outside of your own company. Kill it, if you are doing it internally.

It's really like acting as a startup. You want to have low capital expenditures. You want to have low recurring costs. You want to be flexible. You want to empower your users. A lot of organizations need to think more like a startup, even if they are an older, established multinational corporation.

My second point is to create a parallel IT function that leverages cloud attributes. This focuses again on what Joe mentioned, on the value of virtualization and focusing on the process and workflows -- not getting caught up in how you do it, but what it ends up doing for you.

The constituent parts aren't as important as the end result. That means looking to standardize hardware, even if it's on-premises, and using grid, cloud, and modernized and consolidated data center utility best practices. Again, it's leveraging a lot of virtualization on standard low-cost hardware, and then focusing the value at a higher abstraction, at the process level.

It's standardizing more use of appliances and looking at open-source software. I also have to be a little bit of a contrarian to JP. I do think there's a role for open source in these operations, but we are going to save that for another day. That's a good topic.

This is another way of saying doing SOA, doing it on-premises, using cloud and compute fabric alternatives, and trying to look outside for where other people have created cloud environments that are also very efficient for those baseline functions that don't differentiate. That creates a parallel function in IT, but also looks outside.

I agree wholeheartedly with what's been said earlier about the client. It's time to cheapen, simplify, and mobilize the client tier. That means you can use mobile devices, netbooks, and smart phones to do more activities, to connect to back-end data and application sets and Web applications.

Focus on the server

It's time to stop spending money on the client. Spend it more on the server and get a higher return on that investment. That includes the use of virtual desktop infrastructure (VDI) and desktop-as-a-service (DaaS) types of activities. It means exploring Linux as an operating environment on the desktop, where that makes sense, and look at what the end users are doing with these clients.

If they're at a help desk and they're all using three or four applications in a browser, they don't need to have the equivalent of a supercomputer that's got the latest and greatest of everything. It's time to leverage browser-only workers. Find workers that can exist using only browsers and give them either low-cost hardware that's maybe three or four years old and can support a browser well or deliver that browser as an application through VDI. That's very possible as well.

It means centralizing more IT support, security, and governance at the data center. It even means reducing the number of data centers, because given the way networks are operating, we can do this across a wide area network (WAN). We can use acceleration, remote branch technologies, and virtual private networks (VPNs). We can deliver these applications to workers across continents and even across the globe, because we're not dealing with a B2C, we are dealing with a B2E -- that is, to your employees.

You can support the scale with fewer data centers and lower cost clients. It's a way to save a lot of money. Again, you're going to act like a modern startup. You're going to build the company based on what your needs are, not on what IT was 15 years ago.

My fourth point is that BI everywhere. Mine the value of the data that you've got already and the data that you are going to create. Put in the means to be able to assess where your IT spend makes sense. This is BI internal to IT, so BI for IT, but also IT enabling BI across more aspects of the business at large.

Know what the world is doing around you and what your supply chain is up to. It's time to join more types of data into your BI activities, not just your internal data. You might be able to actually rent data from a supplier, a partner or a third-party, bring that third-party data in, do a join, do your analysis, and then walk away. Then, maybe do it again in six months.

It's time to think about BI as leveraging IT to gain the analysis and insights, but looking in all directions -- internal, external, and within IT, but also across extended enterprise processes.

It's also good to start considering tapping social networks for their data, user graph data, and metadata, and using that as well for analysis. There are more and more people putting more and more information about themselves, their activities, and their preferences into these social networks.

That's a business asset, as far as I'm concerned. Your business should start leveraging the BI that's available at some of these social networks and join that with how you are looking at data from your internal business activities.

Take IT to the board level

Last, but not least, it's time for IT to be elevated to the board level. It means that the IT executive should be at the highest level of the business in terms of decision and strategy. The best way for IT to help companies is to know what those companies are facing strategically as soon as they're facing it, and to bring IT-based solutions knowledge to the rest of the board. IT can be used much more strategically at that level.

IT should be used for transformation and problem solving at the innovation and business-strategy level, not as an afterthought, not as a means to an end, but actually as part of what ends should be accomplished, and then focusing on the means.

That is, again, acting like a startup. If you talk to any startup company, they see IT as an important aspect of how they are going to create value, go to market cheaply, and behave as an agile entity.

That's the end of my five. Let's take the discussion for our last 10 minutes to how IT can work on the offense. I'll go first on this one. I think it's time to go green field. It's time to look at software as a differentiator.

The reason I bring this up is Marc Andreessen, who is starting a venture capital fund with Ben Horowitz. They were both at Opsware together and then at HP, after they sold. Andreesen told Charlie Rose recently that there is a tragic opportunity from our current economic environment. A number of companies are going to go under or they're going to be severely challenged. Let's take a bank, for example.

A bank is going to perhaps be in a situation where its assets are outstripped by its liabilities and there is no way out. But, using software, startups, and third-party services, as Andreessen said, you can start an Internet bank. It's not that difficult.

You want to be able to collect money, lend it out with low risk at a sufficient return, and, at the end of the day, have a balance sheet that stands on its own two feet. Creating an Internet bank, using software and using services combined from someone like PayPal and others makes a tremendous amount of sense, but that's just an example.

There are many other industries, where, if the old way of doing it is defunct, then it's time to come in and create an alternative. Internet software-based organizations can go out and find new business where the old companies have gone under. It doesn't necessarily mean it's all the software, but the business value is in how you coordinate buyers and sellers and efficiencies using software.

Take something like Zipcar. They're not in the automotive business, but they certainly allow people to gain the use of automobiles at a low price point.

I'd like to throw out to the crowd this idea of going software, going green field, creating Internet alternatives to traditional older companies. Who has any thoughts about that?

Morgenthal: On the surface there are some really good concepts there. What we need are state and federal governances and laws to catch up to these opportunities. A lot of people are unaware of the potential downside risks to letting the data out of your hands into a third-party candidate's hands. It's questionable whether it's protected under the Fourth Amendment, once you do that.

There are still some security risks that have yet to be addressed appropriately. So, we see some potential there for the future. I don't know what the future would look like. I just think that there is some definite required maturity that needs to occur.

Gardner: So, it's okay to act like a startup, but you still need to act like a grownup.

Morgenthal: Right.

Gardner: Any other thoughts on this notion of opportunity from tragedy in the business, and that IT is an important aspect of doing that?

Evolving enterprises

McKendrick: I agree with what you're saying entirely. You mentioned on a couple of occasions that large enterprises need to act like small businesses. About 20 years ago, the writer John Naisbitt was dead-on with the prediction that large enterprises are evolving into what he called confederations of entrepreneurs. Large companies need to think more entrepreneurially.

A part of that thinking will be not the splitting up, but the breaking down of large enterprises into more entrepreneurial units. IT will facilitate that with the Enterprise 2.0 and Web 2.0 paradigm, where end users can kind of shape their own destiny. You can build a business in the cloud. There is a need for architecture; and I preach that a lot, but smaller departments of large corporations can kind of set their own IT direction as well with the availability.

Gardner: We're almost out of time. Any other thoughts about how IT is on the offensive, rather than just the defensive in terms of helping companies weather the downturn?

Shimmin: I agree with what you guys have been saying about how companies can behave like startups. I'd like to turn it around a little bit and suggest that a small company can behave like a large company. If you have a data center investment already established, you shouldn't be bulldozing it tomorrow to save money. Perhaps there's money in "them thar hills" that can be had.

Look at the technologies we have today, the cloud-enablement companies that are springing up left and right, and the ability to federate information and to loosely coupled access methods to transact between applications. There's no reason that the whole idea that we saw with the SETI@home and the protein folding ideas can't be leveraged within the company's firewalls and data centers externalize. Maybe it's storage, maybe it's services, maybe it's an application or service that the company has created, that can be leveraged to make money. It's like the idea of a house putting a windmill in and then selling electricity back to the power grid.

Gardner: Last thoughts?

Kelly: I would add one or two quick points here. Going on the offense, one opportunity is to take advantage of the slowdown and look at those business processes that you haven't gotten to in a long time, because things have been so hectic over the past couple of years. It may be a great time to reengineer those using some of the new technologies that are out there, going to the cloud, doing some of the things we've already talked about.

The other option here is that it may be a good time to accelerate new technology adoption. Move to YouTube for video-based training, or use Amazon's Kindle for distributing repair manuals electronically. Look at what the options are out there that might allow you to remake some of these processes using new technologies and allow you to profit and perhaps even grow the business during these tough economic times.

Gardner: So economic pain becomes the mother of all invention.

Kelly: Exactly.

McKendrick: We've seen it happen before. Back in 1981-1982 was when we saw the PC revolution. The economy was in just as bad a shape, if not worse, than it is now. Unemployment was running close to 10 percent. The PC revolution just took off and boomed during that time. A whole new paradigm had evolved.

Gardner: Very good. Well, I would like to thank our panelists this week. We've been joined by Joe McKendrick, independent IT analyst and prolific blogger. Also, Brad Shimmin, principal analyst at Current Analysis; JP Morgenthal, independent analyst and IT consultant; and Dave Kelly, founder and president of Upside Research. Thanks to all. I think we've come up with a lot of very important and quite valuable insights and suggestions.

I'd also like to thank our charter sponsor for the BriefingsDirect Analyst Insights Edition podcast series, Active Endpoints, maker of the ActiveVOS visual orchestration system, as well as the support of TIBCO Software.

This is Dana Gardner, principal analyst at Interarbor Solutions. Thanks for listening, and come back next time.

Listen to the podcast. Download the podcast. Find it on iTunes/iPod and Podcast.com. Charter Sponsor: Active Endpoints. Also sponsored by TIBCO Software.

Special offer: Download a free, supported 30-day trial of Active Endpoint's ActiveVOS at www.activevos.com/insight.

Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 38 on how businesses should react to the current economic realities and prepare themselves to emerge stronger. Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.

BriefingsDirect Analysts Make 2009 Predictions for Enterprise IT, SOA, Cloud and Business Intelligence

Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 35, on how analysts see cloud computing, SOA, the economy, and Obama Administration in 2009, recorded Dec. 19, 2008.

Listen to the podcast. Download the podcast. Find it on iTunes/iPod. Charter Sponsor: Active Endpoints.

Special offer: Download a free, supported 30-day trial of Active Endpoint's ActiveVOS at www.activevos.com/insight.

Dana Gardner: Hello, and welcome to the latest BriefingsDirect Analyst Insights Edition, Vol. 35. This periodic discussion and dissection of IT infrastructure related news and events, with a panel of industry analysts and guests, comes to you with the help of our Charter Sponsor, Active Endpoints, maker of the ActiveVOS visual orchestration system. I'm your host and moderator Dana Gardner, principal analyst at Interarbor Solutions.

Our topic this week, and this is the week of Dec. 15, 2008, marks our year-end show. Happy holidays to you all! But, rather than look back at this year in review, because the year changed really dramatically after September, I think it makes a lot more sense to look forward into 2009.

We're going to look at what trends may have changed in 2008, but with an emphasis on the impacts for IT users, and buyers and sellers in the coming year. We're going to ask our distinguished panel of analysts and experts for their predictions for IT in 2009.

To help us gaze into the crystal ball, we're joined by this week's BriefingsDirect Analyst Insights panel. Please let me welcome Jim Kobielus, senior analyst at Forrester Research.

Jim Kobielus: Hi, Dana. Hi, everybody.

Gardner: Tony Baer, senior analyst at Ovum.

Tony Baer: Happy holidays, Dana.

Gardner: Brad Shimmin, principal analyst at Current Analysis.

Brad Shimmin: Hi there, Dana, thanks for having me.

Gardner: Joe McKendrick, independent analyst and prolific blogger.

Joe McKendrick: Hi, Dana, and a happy Festivus to all.

Gardner: Dave Linthicum, founder of Linthicum Group.

Dave Linthicum: Hey, guys.

Gardner: Mike Meehan, senior analyst at Current Analysis.

Mike Meehan: Hello, all.

Gardner: And joining us for the first time, JP Morgenthal, senior analyst at Burton Group. Good to have you, JP.

JP Morgenthal: Thanks, Dana, and I'll jump on the Festivus wagon as well.

Shadow IT

Gardner: Let me start with the predictions. It gives me a chance to steal the thunder and get out there first.

My first prediction for 2009 is that spending from shadow IT activities will actually grow, and that the amount of money devoted to shadow IT activities will come from outside traditional IT budgets, from a variety of different sources, maybe even petty cash, and we'll see a bit of growth in these rogue activities.

At the same time, I think we will see a flattening, and in many cases a reduction, in officially sanctioned IT activities, but that the net result will actually be more spending overall across a variety of activities based on services and consulting as much as actual buying of licensed software and hardware products.

The risk is that these rogue applications can make it complex for governance, management, and even security, but that moving into these areas for business development purposes is going to be an overwhelming temptation. There will be more opportunities in the cloud, software as a service (SaaS), applications as a service, and for folks like marketers, business analysts, and business development professionals to take advantage and move in the market.

We're going to be looking at aggressive sales activities and new ways of reaching consumers of all kinds, across B2B and B2C activities.

I expect very little staff erosion in IT, but I think there will be a change in emphasis as to what IT is, defining it differently. Service-oriented architecture (SOA) is going to continue to grow, but Web oriented architecture (WOA) will probably overtake it and perhaps become a catalyst to some of these rogue activities. There will be a blurring between which WOA activities happen inside IT and outside.

So, my second prediction is that inside of traditional IT we're going to find a lot of new ways to quickly cut costs. This is going to be a drill for organizations to not spend money or spend less money. Virtualization will be a big part of that. Hypervisors will perhaps go commodity, and the value-add in the virtualized environment is going to be at the stacks -- virtualized stacks or containers at the applications level.

This could then lead to more direction toward a cloud operating system and a de-facto standard could begin to emerge, which would then spur even more adoption of virtualization.

We're going to see a lot more dumping of Unix and mainframes. We are going to sunset a lot of applications that aren't essential and save on the underlying costs of supporting them. There will be some modernization of applications, but only in areas where there is low risk.

There are still going to be a lot of organizations that aren't going to want to tinker with applications that are important, even if they are running on expensive infrastructure.

My third prediction is around extreme business intelligence (BI). There will be a move in scale, larger sets of data, larger sets of content, and more mingling or joining of disparate types of data and content in order to draw inferences about what the customers are willing to do and pay across both B2B and B2C activities.

We'll start to see an increased use of multi-core and parallelism to support these BI activities, and we will begin to see IT have a big role in this. This isn't something you can do as a rogue activity, but it might end up supporting rogue activities. That is to say, these new extreme BI activities might lead organizations to seek out services outside of IT. They then can execute on what they find through their analysis.

I also predict, at number four, that upgrades will suffer. Were not going to see a lot of swapping out of one system for another, unless there's a very compelling return-on-investment (ROI) scenario with verifiable short-term metrics. This is going to hurt companies like SAP and Microsoft, and Oracle and IBM to a lesser extent, given their diversification.

Trouble for Windows 7

I think Windows 7 is in trouble. People are not going to just run to Windows 7. They're going to continue to stay with XP, and this makes the timing around the Vista debacle all the more injurious to Microsoft. In hindsight, Vista needed to be a winner. Now that we're in a downturn, people are going to stick with what they have, and, of course, upgrades are essential for Microsoft to continue with its back-end strategy on data-center architecture and infrastructure.

This provides more of an opening for Linux and non-Microsoft virtualization, and that will continue. This could mean that Microsoft needs to move to its cloud offerings all the more quickly, which then could actually spell earnings troubles for the company, at least in the short to medium term.

My last prediction is that the role of social media and networks will continue to grow and be impactful for enterprises, as marketers and salespeople begin to look to these organizations from the metadata and inference about what customers are willing to buy, particularly under tight economic conditions.

There's going to be a need to tie traditional customer relationship management (CRM) and sales applications with some sort of a process overlay into the metadata that's available from these Web-based cloud environments, where users have shared so much inference and data about themselves.

So, I look for some mashups between social data and the sales and business development, perhaps through these rogue applications and approaches outside of IT, but IT activities nonetheless, in 2009. Thanks.

Jim Kobielus, you're up. What are your five predictions?

Kobielus: I need to go home now. You stole all my predictions. Actually, that was great, Dana. I was taking notes, just to make sure that I don't repeat too many of your points unnecessarily, although I do want to steal everything you just said.

My five predictions for 2009 ... I'll start by listing them under a quick phrase and then I'll elaborate very quickly. I don't want to steal everybody else's thunder.

The five broad categories of prediction for 2009 are: Number one, Obama. Number two, cloud. Number three, recession. Number four, GRC -- that's governance, risk, and compliance. Then, number five, social networking.

Let me just start with [U.S. President Elect Barack] Obama. Obviously, we're going to have a new president in 2009. He'll most likely appoint a national chief technology officer or a national tech policy coordinator. Based on his appointment so far, I think Obama is going to choose a heavy hitter who has huge credibility and stature in the IT space.

We've batted around various names, and I'm not going to add more to the mix now. Whoever it is, it's going to be someone who's going to focus on SOA at a national level, in terms of how we, as a country, can take advantage of reusing agility, transformation, optimization, and all the other benefits that come from SOA properly implemented across different agencies.

So, number one, I think Obama is going to make a major change in how the government deploys IT assets and spends them.

The maturing of clouds

Number two, cloud. Dana went to town on cloud, and I am not going to say much more, beyond the fact that in 2009, clouds are going to become less of a work in progress, in terms of public clouds and private clouds, and become more of a mature reality, in terms of how enterprises acquire functionality, how they acquire applications and platforms.

I break out the cloud developments in 2009 into a long alliterative list. Clouds will start up in greater numbers. They will stratify, which means that the vendors, like Google, Microsoft, and Amazon and others with their cloud offerings, will build full stacks, strata, in their cloud services that include all the appropriate layers, application components, integration services, and platforms. So, the industry will converge on a more of a reference model for cloud in 2009.

They'll also stabilize the clouds. In other words, they'll become more mature, stable and less scary for corporate IT to move applications and data to. They'll standardize, and the clouds will standardize around SOA and WOA standards. There will be more standards, interfaces, and application programming interfaces (APIs) focused on cloud computing, so you can move your applications and data from one cloud to another a bit more seamlessly than you can now with these proprietary clouds that are out there. And, there are other "S" items that I won't share here.

Number three, recession. Clearly, we are in a deep funk, and it might get a lot worse before it gets better. That's clearly hammering all IT budgets everywhere. So, as Dana said, every user and every organization is going to look for opportunities to save money on their IT budgets.

They're going to put a freeze on projects. They're going to delay or cancel upgrades. Their users, as you said very nicely, Dana, are going to dip into petty cash and go around IT to get what they need. They're going to go to cloud offerings. So, the recession will hammer the entire IT industry and all budgets.

As far as GRC, government is cracking down. If it has to bail out the financial-services industry, bail out the auto industry, and bail out other industries, the government is not going to do it with no strings attached.

Compliance, regulations, reporting requirements, the whole apparatus of GRC will be brought to bear on the industries that the government is saving and bailing out.

Then finally, social networking. Dana provided a very good discussion of how social networking will pervade everything in terms of applications and services.

The Obama campaign set the stage clearly for more WOA-style, Web 2.0, or social-networking style governance in this country and other countries. So, we'll see more uptake of social networking.

We'll see more BI become social networking, in the sense of mashup as a style of BI application, reporting, dashboards, and development. Mashups for user self-service BI development will come to the fore. It will be a huge theme in the BI space in 2009 and beyond of that.

That really plays into the whole cost control theme, which is that IT will be severely constrained in terms of budget and manpower. They're going to push more of the development work to the end user. The end user will build reports that heretofore you've relied on data modelers to build for you. Those are my five.

Gardner: Thank you, Jim. Tony Baer, you're up. What did we miss?

Cost savings, cost savings

Baer: It's going to be hard to top both of you folks, so I'm going to just add some things in the margins. If I were to make one elevator statement on this, I feel like the guy [Kenan Thompson as Oscar Rogers] from Saturday Night Live, the economic expert, who they interview on "Weekend Update." He starts to give all the causes. Then, he just says, "Well, just fix it!"

That's essentially going to be the theme this year. The top five are going to be cost savings, cost savings, cost savings.

That does involve a lot of the strategies that both you and Jim have just described. For one thing, it's going to put a lot more emphasis on using the resources and infrastructure that you already have. It's going to damp down entering into new long-term contracts for anything.

Ironically, one result of that is that for the moment, you'll actually see little less emphasis on outsourcing, because that does imply a long-term contract. The fact is, I don't think anyone is really doing any meaningful projecting beyond Q1. I was just reviewing Adobe's year-end numbers and projections. Normally, they project out for the full fiscal year, and they are only going to project out for the Q1.

I'll just go through a very quick laundry list. For one thing, as I mentioned, it's going to be a lot of low cost, no cost. There will be a lot more use of open source, a lot more. This is definitely the year that the cloud and SaaS come into their own, but with a key qualification.

I think it's going to be managed clouds. Essentially, to take advantage of raw clouds, like Amazon EC2 you have to put in more of your own management infrastructure. I don't see the use of what I would call "clouds in the wild." I see more managed clouds from that standpoint.

For IT organizations, it's going to dictate more attention to IT service management to show that we're not just keeping systems going and keeping the lights on, but more along the lines of, "Here are the services that we're delivering to the business," as they try to justify the system.

On the back-end, it will be "Use more of what you have," and huge renewed investments in BI. So, Jim, I do think you still have a job this year.

Finally, because it's going to take a while for this to unfold -- you just don't regulate overnight -- there will be much greater attention to GRC.

Gardner: Thank you, Tony. Brad Shimmin, you're up.

Shimmin: Thanks, Dana. For my predictions for 2009 I took a different tact in anticipation of a new analytical concern we're starting up here in January. It's going to focus on collaboration. So, everything I did settled on that.

All the predictions I have stem from the themes that you guys have been talking about: cutting cost, such as travel, and squeezing efficiencies out of the IT infrastructure, as well as the users themselves. So, bear that in mind as I go through this.

Collaborative social networks

The first one for me is vendors tackling enterprise-plus-consumer based social networks, a blended view of those. Enterprise-focused vendors are going to do more than simply sink info from public sites like Facebook. They're going to take that information and build into or out from the enterprise into those social networks and drive information from those. It's going to become a two-way street.

You're going to see folks like Facebook, and most notably, LinkedIn, working in the other direction themselves, and with third parties, to develop enterprise-bound social networks. Look for those to emerge next year.

The second thing for me is cloud software, now that it's jumped the shark. I know we've all been talking about it, but it's definitely jumped the shark for me. I see the vendors within the collaboration space settling beyond the small and medium business (SMB) market and looking more toward the larger enterprises that are looking to squeeze more out of their existing IT infrastructure or cut costs.

Folks like IBM and Microsoft have already shown us that they can hit the long tail with stuff like Bluehouse and Microsoft Online Services (MOS) for collaboration. But, you're going to see vendors like Cisco and Oracle take up this challenge with more of a focus on managed hosting services that look more like SaaS, but they are really managed.

That's something that will appeal to the larger enterprises, owing to security, manageability, and other assurances that you get from that, not just pure-play, do-it-yourself SaaS.

The third thing for me is that enterprises are going to move away from a steep hierarchy, or the word might be "oligarchy," of an organizational model internally. This is just about how enterprises structure themselves.

This goes back to what you were saying, Dana, with stuff going off the books, and what Tony was saying about driving revenue from places other than CAPEX. Instead, to become not just more efficient and agile, companies are going to want to self organize to create these internal ecosystems, if you will, where organizations are built around employee experience, associations, interests, and energy levels -- what they want to focus on.

That's going to allow companies to more efficiently harness the users. The people, as Jim was saying earlier, perhaps are going to be tasked with setting up their own BI queries and mashing up their own applications. It's really thinking about those people, giving them the ability to run the show inside of an organization, instead of waiting for everything to come top-down.

The fourth thing for me is -- speaking in terms of communities, both internally and externally -- I am seeing silos breakdown between those.

Gone are the days of consumer-faced social networking and enterprise-faced social networking existing as independent entities, as I was saying earlier. Thanks to user profile standards like OpenID and expansion of APIs, community providers and third-party aggregation and integration tool vendors are going to allow applications and users to flow between what were heretofore closed communities.

For example, you already have vendors moving in that direction with Yahoo's YOS, which now allows the My Yahoo start page to host third-party applications from nemesis Google.

The fifth and final thing for me -- and this might be more of a wish than a prediction; I'm an eternal optimist I guess -- I'm looking for virtual worlds to gain a foothold in the enterprise.

We've seen folks like [Cisco Chairman and CEO] John Chambers use Second Life to do a dog-and-pony show. Those are great marketing tools, but they're nothing compared to the efficiencies and benefits you can gain from using the software for other things. Dana, you alluded earlier to being able to leverage that mechanism for communication with CRM. I think we're going to see that change how virtual networks can be utilized inside the enterprise.

It's not just for marketing and sales, but also to support B2B and B2C communities, where effective communication between your supply channel members is really paramount. To date, nobody has tackled that.

So, we'll see virtual worlds actually make an impact in terms of allowing these global, loosely coupled entities communicate more effectively in 2009. That's it for me.

Gardner: Thanks. Joe McKendrick, how do you see things shaking out?

McKendrick: Thanks, Dana. You guys are a hard act to follow. My first prediction -- are you ready for this -- the government, the U.S. Treasury, is going to swoop in with the Troubled Assets Relief Program (TARP) funds and swoop up all the troubled IT assets across the country -- those IBM mainframes, older mainframes, DEC units, Windows NT.

Then, the Fed is going to come in with zero percent liquidity to help finance it, and that's going to raise all boats.

Gardner: Joe, are you defining a new sector called "Toxic IT?"

McKendrick: Toxic IT, there you go.

Gardner: Joe, April 1 is not for several months.

McKendrick: Okay, just kidding. My other prediction: President Obama is going to make Tony Baer the National CTO/CIO, because he wants to "just fix it," and that's a good philosophy.

It's the economy

Okay, all seriousness aside now. The top issue, of course, is the economy. It's going to dominate our thinking through 2009. But, recession planning is so 2008, because SOA, which I focus on as well as IT, is a long-term process. You need to look three years down the road.

The economy is going to turn around. I see it turning around at some point in 2009. That's what economists are saying, and companies have to prepare for a growth mode and the ability to grow within a new environment.

Let's face it. IT has already been tight. IT has been tight since the dot-bomb era of 2001-2002. As some of us have already been saying, there probably is not going to be a huge diminishment in IT departments, because of the fact that the budgets have been lean, things have already been tight, companies already know, or have been running very efficiently, and IT departments have been overworked as it is.

An interesting sidelight is the whole Enterprise 2.0. JP, you and I have discussed this a little bit. The recession and downturn isn't going to be like it's been in the past. People are more empowered with social networking tools, as employees and as people looking for jobs. They're looking to start new businesses

We have a lot of tools available to us now that we didn't have back in 2000, or we didn't have back in 1991 or 1982, or any of those previous eras. People don't have to be victims of an economic downturn, as they have been in the past. We have the capability to network across the globe. We have the capability to start new businesses.

I've talked on this webcast before about a company that started a business with an $80 investment in IT infrastructure, thanks to cloud computing. I just heard about another company that spent about $200 for its first two months of IT.

Gardner: The question is, Joe, are they getting their money's worth?

McKendrick: I think they are. They don't have to invest in servers. They don't have to go out and buy servers. They don't have to go out and buy disk arrays, and worry about the maintenance, hiring people, and know how to maintain those things. There are a lot of opportunities for companies, and we are going to see that. We are going to see folks -- maybe IT people, or people who work for vendors and have been laid off -- have the ability to start their own business at a very low cost of entry.

On the flip side of that, the whole social-networking and cloud-computing phenomena, companies have these tools as well to employ low-cost methods to reach their markets and to interact with their customers. We're going to see a lot more of that as well.

A marketing campaign doesn't have to cost $200,000 to reach your customers. You can use the social network, the Web 2.0 tools, to interact and collaborate and find out what's going on in your markets at a very relatively low cost.

Gardner: From your mouth to God's ears. All right. Dave Linthicum, we have the entire future before us. What should we expect?

Linthicum: You guys took a lot of my better ideas, but I'll just expand on some of them.

The first thing I'd like to do is throw my firm out there for a bailout from the government. I think a billion dollars. I'm cash-flow positive, but I think I can do a lot with the money, including throwing one hell of a New Year's Eve party. So, hopefully the money will start coming in.

Cloud comes into its own

Number one is that the interest in cloud computing, which I have been focusing on in my career, at least for the last eight years, is finally going to come into its own, like everybody has been saying here. That's rather obvious at this point.

As far as what I can add to what's been said so far, what we're going to see in 2009 is a lot of startups, specifically some cloud-computing startups. You're going to see even more around what I call "cloud mediation." That is guys like RightScale, and a few other folks in the space that sit between you and the major cloud providers. They basically mediate issues around data semantics, performance management, load balancing, and those sorts of things.

One thing that's a big hole in the cloud computing movement so far is that most of the solutions out there, even the database solutions, are proprietary. They use different APIs, different interfaces, and different sets of standards. It's going to be a play for a lot of companies to get in there and provide more reliable infrastructure in and between these various guys out there.

I'm aware of one startup a week, and they're coming in through the funders, not necessarily through the entrepreneurs, which is unusual.

The links to social networking will be there. They're not going to be quite as pervasive as everybody thinks. Social networking is going to have its place, but once we figure it out, it will be, "Okay, yeah." It's going to have its value, but we're just going to move on as far as this revolution goes. I don't think that's going to happen in 2009.

People are going to use it as a marketing opportunity, just like they used email, Web sites and those sorts of things, and now blogging opportunities, but eventually it's just going to fall into place.

There will be a huge explosion in the rogue cloud movement, as you mentioned, Dana, and also the platform-as-a-service (PaaS) space. The architects and CIOs out there are going to be scrambling around trying to figure out how to place governance around that.

Everybody is going to be building applications, typically using free platforms like Google App Engine. They're going to start launching these things into production, and there is going to be no rhyme or reason around how they fit into the existing infrastructure. That's happening now and it's going to happen more in 2009.

In switching gears to SOA, there's going to be a larger focus on inter-domain SOA technology. The focus will still be on the short-term tactical and the ability to provide quick value in the SOA space to justify it, so you can get additional funding.

As we start building these things, people are going to look at the departments that are implementing their SOA projects and try to figure out how to bind these things at an enterprise level. I call this the micro domain versus the macro domain.

Technology doesn't scale typically to that point, as people are finding, and it's going to take a different set of technologies and a different set of architectural skill sets to solve that problem.

On the downside, the jig will be up for poor SOA technology out there. Guys who haven't been able to get acquired or haven't been able to hit that inflection point and are still stumbling along -- typically making $2-$5 million a year and burning about that much in cash -- are going to eventually just going to have the plug pulled. And, 2009 is going to be when it's going to happen. They're just going to run out of steam.

We have a few of them right now. Ultimately, they're going to have lots of cuts, start hemorrhaging cash, and they're just going to go out. Some of them may be bought on the cheap, but the majority of them are just going to shut their doors.

Decline of the SOA buzzword

Finally, the SOA buzzword out there is going to diminish in relevancy. I'm talking about the buzzword, not necessarily the notion of SOA. SOA predates when the buzzword was created, and it's going to postdate when the word "SOA" was created. It's going to morph into different things, and the cloud computing movement is going to get into it and define it in different directions.

Enterprise architecture had a chance to get in there and figure out how SOA relates back into their world. They're been fairly successful in some aspects of it, but they have been too slow in moving. The whole SOA movement is going to be more defined by the cloud. That's good for me and probably for everybody on this call.

Gardner: You predicted a couple of years ago, Dave, that SOA would get subsumed into enterprise architecture. I assume that's what you are talking about?

Linthicum: Yeah, that's what I am talking about. Most SOA is going to get practiced in '09 and '10, at least the new stuff, in the cloud-computing movement, even though it’s still SOA. Basically, It's going to encompass cloud resources. Enterprise architecture will ultimately morph with SOA, and they'll become fundamentally the same concept.

SOA, which has always been an architectural pattern under the domain of enterprise architecture, will be subsumed by enterprise architecture and will be an architectural pattern under enterprise architecture. But, we're not going to be talking as much about SOA in '09.

Gardner: Just one quick follow-up. In terms of startups, you don't seem to think that there is going to be much funding left, no IPOs to speak of. What's the business model for these startups that you're seeing, the ones that can take advantage of PaaS with low upfront costs? How do they get funded? Do they need funding? And, what's their end strategy as a business?

Linthicum: They do need funding, but they don't need as much as funding as a company a couple of years ago, just because of everything you can get on demand. The strategy for the business is basically to glom onto the cloud-computing movement.

Some of the larger enterprises out there, some of my clients who are moving into the cloud-computing space by leaps and bounds, are realizing there are huge holes in the area, such as monitoring, event management, security, data mediation, all these sorts of things that aren't built into the larger cloud providers out there.

They have an immediate demand right now, a pent-up demand that's being created by the desire to lower cost, and driving a lot of these enterprises out into cloud computing. They're seeing these holes, and they are looking for solutions to make these happen. Both the entrepreneurs and the funders have realized that these things exist, and they are scrambling around trying to get them up and running.

As far as funding goes, it doesn't take that much to get a company, the assets, and the infrastructure up and running. Most of these solutions you will find will be leveraging on-demand platforms themselves. So, they'll be coming out of the cloud, providing services to clouds.

Gardner: They might actually find some engineers to hire from all those other startups that went away.

Linthicum: There are a lot of them on the streets right now.

Gardner: All right. Mike Meehan, there must be something we've missed so far.

Meehan: I don't know if there's anything you really missed, but I am going to pretend like you have and try to get some stuff in there.

The first three have to do with the economy, because obviously everybody is dealing with what we expect to be a down economy.

Rise of the 'Yankee Swap'

The first one is going to be a blast from the recent past. If everybody remembers back in 2001, when that recession hit, all of a sudden you could buy wonderful amounts of gear on eBay for next to nothing. I remember talking to one guy who was smiling like a Cheshire Cat, because he had replaced $45,000 worth of Unix with $500 worth of Linux. I think you are going to see a lot of that.

People are going to be shutting down data centers. That's going to cause a glut of servers and storage gear and network gear, and you are going to be able to get it cheap and affordable. That's going to hit the storage and network and server companies.

New sales are going to be tough to come by, because you're going to be able to get previously owned gear at affordable prices.

Gardner: So, a great disruption to the existing channel then?

Meehan: Exactly. It's really going to hit the channel vendors. CIOs are going to be able to come in and say, "Hey, look, I'm genius. I bought all of this stuff for next to nothing." And, there are going to be other CIOs who come in and say, "Hey, you know what. I was able to get some money by liquidating our assets." That financial pressure is going to affect everybody in the hardware market.

Gardner: They use to call it a Yankee Swap. Didn't they?

Meehan: Yeah. I think you are going to see a big international Yankee Swap. So that's going to be out there.

The next one is license wars. The CIOs are coming in, they are going to be asked to cut budget, and there is only so much flesh you can cut out before you have to deal with that maintenance license budget. I think every company in the world is aware of the fact that they pay more in licenses than they want to. They have always theoretically wanted to lower those costs. The pressure now is going to be too great for them to not consider options.

This is going to be great for open source companies, which are going to be able to come in and say, alright, you don't have to pay me a rolling license, here is my support cost, see how much its going to lower your license.

It is going to be bad for Microsoft, because again, to a degree they are becoming commoditized across their portfolio, and that's going to hit them right in the breadbasket.

Gardner: Do you agree with me that in hindsight the fact that Vista didn't live up to its potential is really going to hurt them?

Meehan: Absolutely. There are still companies out there working on Windows 2000, and those companies are going to be looking to switch, that they haven't gone to Vista just makes them a free agent. And this is going to also apply to Office.

Gardner: Whoever that architect was on that Vista project, he's fired, right?

Meehan: I think he's long gone. I think he is running the charitable foundation. They not only missed it, but they reinforced every negative perception of Microsoft when they came out with Vista: The inability to meet a product deadline; the security flaws that have been long associated with Microsoft; you need a zillion patches just to get it to work and do basic things.

Everything that they were supposed to have addressed, they failed to address, and then they reinforced that. Now, companies are just sitting there asking, "Why am I paying this much money for bad software?"

Bad year on the sell side

Gardner: So, it will be a really a good year, if you are a negotiator on the buy side, but a terrible year if you're on the sell side.

Meehan: I'd think so. This should hit some enterprise resource planning (ERP) vendors too. Anybody who can sell SaaS in the ERP market is going to be doing better. I think you are going to see some erosion on the SAP and Oracle side, as far as enterprise apps go.

"Make my life easier or go away." That basically means, users are going to need productivity and ease-of-use integration. You're going to see those in requests for proposals (RFPs). If they're not stated explicitly, they will be there implicitly.

Referring to SOA projects, for example, don't come in and tell me how much work I'm going to have to do to make all of this come together. Come in and tell me how this is going to make my life easier on day one. The companies that can deliver that will be the ones making the sales. The ones who are telling you that you're going to need to do eight months of work to get this up and running are going to be pushed to the back burner.

I really think that's the lure of the Web-oriented stuff. I take issue with the notion of WOA, because I don't necessarily buy into the architecture portion of it, but I do buy into the notion that it makes your life easier. It makes things easier to do. If you are a developer, it can get your stuff up and running quickly. If you can do that in some sort of organized governable fashion, then go with that.

What you're going to see in a lot of the SOA projects out there in particular is, "All right. Make it easy for me to assemble an application. Make it easy for me to reuse my assets. Make it easy for me to modify my existing applications. Make it easy for me to integrate different applications and even information between different divisions of my company."

Gardner: When you say "make it easy," are you talking about governance?

Meehan: I'm actually just talking about the mechanical process of doing it. You almost want it to be governable on the fly. What you really want is that you don't have to dedicate too much time and resources to undertake these functions. Users aren't going to have that much time or that many resources.

For example, imagine I'm a financial-services company and I've picked up a good loan portfolio from a distressed corporate loan company that had to sell their good loans off, because they were distressed, because they had made bad private loans. I got a good package of corporate loans from them. I need to integrate that quickly into my system, otherwise I am not going to be able to effectively govern that. I'm also not going to be able to effectively create the future programs around those customers, which is what I am looking to do.

So, how quickly can I do things now, as opposed to how thoroughly can I do things? You're going to want to be thorough to an extent, but really it's going to be speed to market and speed to end of project that's going to be a determinant in there.

Telecom shakeup. The U.S. government is going to start treating telecom like its our national road system, and you are going to see some serious investment in that area. That's going to become one of the key points in the economic stimulus package that you're going to see.

I also think you are going to see European telcos begin to encroach, either through acquisition or just through offering services into the U.S. market.

The last one, HP buys Sun. Somebody is going to get bought this year, somebody fairly big. I'm saying HP is buying Sun.

Gardner: They don't need to buy them. They can just replace all their servers in the marketplace.

Meehan: Basically.

Gardner: JP Morgenthal, you're up. The predictions swan song. We must be missing something?

Morgenthal: The funny thing is, I have had you on mute, listening to everybody, and struggling, because while this was going on, I had a visit from my media-services-in-the-cloud provider. He had to come set up my new entertainment in-the-cloud service box. We still need people is the point there. So, I found that very interesting and humorous to be going on when everyone was talking about clouds.

Age of reformation

Gardner: You're talking about the cable guy?

Morgenthal: Exactly, the cable guy. The cable guy was here setting up my TiVo box. I'm going to preface my five by saying that I see we're entering into a modern age of reformation, and there are some really interesting things that are going to start occurring this year, moving forward to 2012. I know. It's my own prophecy, and it's out there, hanging on a limb.

My first prediction is that we're going to see a greater focus on the business process. Not business process management (BPM) per se, although initially people will target that thinking they are doing business process, but eventually they will get it.

I think SOA is dead, and I believe companies have no stomach for IT initiatives that cannot immediately be attributed to a value. They're going to do some small-scale business process re-engineering, they're going to get tremendous value from it, and they are going to get it.

They're going to see that simplification is the way to go. Why are we doing all these complex things -- this hooking to that, hooking to this, hooking to that? I can just go into this one box and get everything done there. I don't care that it's not sexy, okay.

The age of disposable computing is here. We have had disposable electronics, disposable cars, and disposable appliances. The age of disposable computing is here.

Number two: The backlash of social networking. We're just on the precipice. Everyone is getting into it, having a little fun. Certain ones of us are on the leading edge. We're already getting bombarded and tired. We're already fried and overloaded from these social networks. The new people think it's a great new toy.

Give it a couple of years and you are going to see a tremendous backlash. You're going to see a rise of firms that will get paid to get people off the grid -- people who made big mistakes in thinking they were having fun during their early social networking experiment.

Gardner: This is sort of like tattoos, but in the cloud?

Morgenthal: Exactly. Angelina Jolie has got to get Bobby off her butt, and it's going to cost her. We're going to start to see that. We'll see the real backlash come into effect in 2010, but we'll start to see forms of it in this coming year.

Third, the pain from the economy is going to impact the open-systems market. We're seeing the rise of what I call the "anti IT." You hit upon that. You read about people reaching into petty cash, doing things on the cheap, finding other ways to get things done.

The one that's going to be the biggest impact is that people are treating open source like free software. That will destroy the open-source market for sure. It's the death knell. It's the stake in the vampire's heart.

People don't get it. I remind every one of my customers of that, when I talk to them, and they ask about an open-source solution. I've got to put my warning out there. Open source is not free software. You're either contributing dollars to the team that's doing it, or you are contributing your time and effort. It's not free software. You just don't take it and use it. That will be the death knell for open source for sure.

Gardner: Wait a minute, a death knell for open source or death knell for commercial open source as a business model?

Morgenthal: That's a good question. I won't differentiate at this point, because I'm looking at it from the perspective of the event horizon, where people are treating it like free software. There is no free lunch. Somewhere it's going to take hold. There's going to be a lack of support or a lack of desire to continue this thing, if people are abusing the system. It happens all the time. Nothing will drive greater abuse of open source than a bad economy, where there are no dollars.

Gardner: Okay. What else have you got?

Morgenthal: Number four: the millennial workforce is starting. This is going to change everything, and it's starting to already. These people have attitude that I haven't seen in a workforce since marketing people came out in the dot-com era.

They definitely feel like, "I want my toys. I want to be able to use my phone at work. I want to use my computer at work. I want to be able to access my sites at work." I see companies dealing with this issue in a unique way.

Their attitude isn't, "If you want a job, then you have to deal with it in our way." It's, "I'm scared. I don't know where I am going to get my workforce for the 21st Century, and I don't know how to deal with these people." Their first inclination isn't to push back with the old adage and the old way of talking about it, saying, "Hey, it's our way or the highway. We've got the money." It's "Okay, what do you want?"

This is going to really change things. How? It's yet to be seen, but clearly the introduction of a much more mobile force, more telecommuters.

Gardner: Most of us.

Morgenthal: That's a lifestyle choice. Yeah, it's pretty interesting. The millennial workforce is going to change things dramatically.

Shift in patent landscape

The last one is that there's a big change coming in Digital Rights Management (DRM) and patent and copyright. It's being lead by this initiative out of Harvard with the Recording Industry Association of America (RIAA). RIAA may have just started a war for everybody in the industry who has any copyright or any patent infringement suit. The judge in case said, "All you people, you big companies with big lawyers and big money, are taking on these poor little schnooks, and it has got to stop. They are coming in here and they don't even know what their legal rights are."

Gardner: Do you think this what Nathan Myhvold is up to?

Morgenthal: I didn't see his name associated with it. It was actually a Harvard law class, I believe, represented by a Harvard law professor [Charles Nesson], backing it. They're representing it as unconstitutional. So this case could be landmark for DRM, copyright infringement, and patent infringement.

Gardner: So, the basic message is kill all the patent trolls.

Morgenthal: It could be, and it would have a tremendous impact going into the potential for a startup economy. Dave talked about the startup economy, where downtime is a great time to start a new company and a great time to get out there and get your technology done early.

Landmark cases like this will do a lot to further the opportunities of these firms to go out there and build something without worrying, "Am I going to get taken out by Microsoft? Am I going to get taken out by Apple? I can't afford that." It's really interesting what could happen, given the cases like this are now falling on the side of the small guy, and not on the side of big companies.

Gardner: Right. Big companies were the victims of the patent trolls, now they are becoming patent trolls themselves.

Morgenthal: Yeah. They're hiring companies to go eat these things up, and then they are going after the small guy. We had multi-million dollar lawsuits over patent infringement for technologies that people hadn't even built or owned. I really think that the greed of Wall Street is also going to see that backlash, and it's going to lead to more of the same, or at least help those cases significantly.

People who have made big money pillaging the system over the years, in the age of reformation, are the ones that are going to get hung in the next two to three years.

Gardner: We're just about out of time. Let's go quickly down our list for any last synthesis insights.

Jim Kobielus, senior analyst at Forrester Research, thanks for joining. What's your synthesis of what you have heard?

Kobielus: My synthesis is that we are living in a very turbulent and volatile time in the industry. Things are changing on many levels simultaneously, and a lot of it will just be hammered by the recession. Approaches like cloud, social networking, and everything will be driven by the need to cut cost and to survive through fiscal austerity for an indefinite period.

Gardner: Tony Baer, senior analyst, Ovum, what's your takeaway?

Baer: It's hard to know where to start, but if there is one way to look at, it's back to basics. There are a lot of complex issues, and I think it's all going to be resolved locally, which in the long run, is going to present a huge governance challenge.

Gardner: Brad Shimmin, principal analyst, Current Analysis, what's your current analysis?

Shimmin: Currently, I'm thinking that the millennial generation and the down economy are converging like a perfect storm to wipe away what we have known for the last 10 years, and then ushering either perfect terror or a great new economy. I'm not sure which yet.

Gardner: Joe McKendrick, independent analyst and blogger, what's your toxic IT prediction?

McKendrick: We're definitely at a turning point. I agree with what everybody is saying out there about growth mode. Dana, I like your observations about the rogue or the shadow IT. You're going to see a lot more of that. It's been predicted for quite a few years actually that IT is going to be less of an entity onto itself and more of a function that's built into business units.

Business people are getting more involved in IT. Business people are getting more savvy about IT. JP talked about the millennial generation. They're very savvy about what IT and the power of IT can provide. We're going to see less of IT as a distinct area of the business and more part of the business, an enabler of the business. This year is going to accelerate that.

Gardner: Dave Linthicum, founder of Linthicum Group, what are you seeing from what you have heard and what's your net-net?

Linthicum: I think it's going to be one of the most exciting couple of years in IT. Just by sheer cost pressure, we're going to have to get down to simplifying and solving some of these issues, and not just playing around with technology. Things are going to get more simplistic, more effective, and more efficient than they have been over the last 20 years of building layer upon layer of complexity. We just can't afford to do that anymore, and now we are going to have to go fix it.

Gardner: Mike Meehan, senior analyst, Current Analysis, any additional takeaways?

Meehan: There's a lot of panic out there, and in keeping with one of the great holiday traditions, I think the winner is going to be Mr. Potter. The future belongs to warped, frustrated old men.

Gardner: He's buying up all those mortgages for pennies.

Meehan: Exactly.

Gardner: Alright. JP Morgenthal, one last go. What do you see from what you have heard on a high-level takeaway?

Morgenthal: Opportunity and fear -- and it's a matter of which one is stronger. I have no prediction as to which will win out. They're both equally powerful right now, and it's going to be, as Dave said, exciting to watch these two clash and see which one wins.

Gardner: I guess my takeaway is that we don't know how long it's going to take, but we will come out of this period. Survive anyway you can, but be mindful that on the other end it's going to be something quite new, with a lot of opportunities, and it's going to look a lot more like Internet time, and the clicks will mean more than the bricks.

Well, thanks all very much. Have a great holiday season. Please take a few days off and relax with your families.

I also want to thank our Charter Sponsor for the BriefingsDirect Analyst Insights Edition podcast series, and that is Active Endpoints, maker of the ActiveVOS visual orchestration system.

This is Dana Gardner, principal analyst at Interarbor Solutions, thanks for listening. Have a good year in 2009, somehow.

Listen to the podcast. Download the podcast. Find it on iTunes/iPod. Charter Sponsor: Active Endpoints.

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Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 35,on how analysts see cloud computing, SOA, the economy, and Obama in 2009. Copyright Interarbor Solutions, LLC, 2005-2008. All rights reserved.