State of Business Technology: A Trillion Dollars Up For Grabs

This post is part of a series in which LinkedIn Influencers analyze the state and future of their industry. Read all the posts here.

Every day, people can plainly see the epic changes roiling the world of consumer technology. Smartphones are taking over PCs as our main computing device, Internet applications like WhatsApp are replacing traditional communications and garnering massive valuations, and new categories like wearables threaten to disrupt seemingly unchangeable technologies like your eye glasses.

But an equally big if not more tectonic shift is shaking up the formerly stable world of business technology. The stock market is starting to recognize this disruption as old companies struggle to make earnings while new players like Salesforce.com get rewarded for delivering strong if profitless growth. Still, it's hard for people to see the shift because a lot of it is taking place behind the scenes, where engineers are cooking up new ways of delivering technology to companies.

Yet at every layer of the market, major changes are brewing that threaten to undermine the franchises of long-established business technology players such as Microsoft, IBM, Oracle, SAP, Hewlett-Packard, Dell and EMC. Even if the giants move to embrace these changes they will likely cannibalize their own sales. Better to cannibalize yourself than let others to eat your lunch.

“This is the biggest and most disruptive cycle of enterprise technology I’ve seen in my career,” said Scott Sandell, a general partner of Silicon Valley venture capital firm New Enterprise Associates who joined the firm in 1996. “There’s something like $1 trillion of value up for grabs.”

The most fundamental change is known as cloud computing, a new delivery method for computing that is sapping sales of computer hardware. Instead of buying servers, more and more companies are renting computing power from cloud providers like leader Amazon.com or followers such as Microsoft, Google, or IBM's SoftLayer unit.

When Amazon.com beat IBM last year to provide cloud computing to the Central Intelligence Agency, many observers deemed that an inflection point for new cloud providers. Now, the new guard could snatch away customers from the old giants that for decades controlled the technology of corporations and governments.

If that was not enough, yet another new radical movement is gaining steam that could disrupt not just servers but also storage and networking technology—the other two pillars of data centers.

That movement is called Open Compute. Started by Facebook more than two years ago, Open Compute is a growing community of engineers whose mission is to create energy-efficient open standards and specifications for computer servers, storage and networking as well as designs of data centers.

Open Compute is very young, but it is gaining devotees. The board of the foundation that runs the project currently includes executives from Intel, Goldman Sachs and Rackspace.

At the operating system level, Linux continues to take share from proprietary computer server systems. Meanwhile, Android, the open operating system for mobile devices, has acquired a dominant position as the top software for mobile devices, deeply wounding Nokia and Blackberry. And as more people use mobile devices, that replaces time spent on Microsoft's proprietary system for PCs, Windows.

At the software infrastructure layer that sits on top of operating system, there's another open system with even more traction than Open Compute. It's called Open Stack, and its growing community of advocates is trying to develop a software system that will manage the computing hardware in data centers.

Adrian Ionel, CEO of Mirantis, a company that creates software and services that supports Open Stack, says the system is a substitute for expensive data management programs made by Microsoft, VMware, IBM, Computer Associates and Amazon.com. OpenStack is also young, but nearly every major technology company has launched a project to explore and support it.

In software applications, the uppermost layer of the technology stack, Internet-based software is rapidly replacing programs companies previously managed on their own servers or data centers.

Salesforce.com pioneered the movement and now commands a market valuation of nearly $40 billion. Other broad-based software providers such as Workday followed in its footsteps. Workday went public in 2012 and is now worth almost $20 billion even though it does not make money.

Now, a second wave of more-focused online software companies is starting to flourish and command multi-billion dollar valuations that may be hard to sustain. The companies have unfamiliar names like Veeva Systems, Cvent, and DocuSign, and are tackling specific industries such as health care and hospitality or slices of the market such as marketing and project management.

Technologists tend to over-hype trends in the short term yet underestimate their power in the long term. That was the case with the Internet and e-commerce.

Now, after a decade of unfulfilled hype, we are starting to see the real value of cloud computing. Take note because there’s a trillion dollars of value at stake that is likely to shift to a new class of companies over the next five to ten years.

Photo: SDubi / shutterstock

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