Competition in the Changing IT Management Space
Yesterday I discussed CA’s move into SaaS-based IT Management. Today, a Forrester Research shared with me a new report their firm also released yesterday (How Big Is SaaS In IT Management Software? by Peter O’Neill) on the predicted ascendancy of SaaS solutions in IT Management.
A couple of comments caught my attention.
Forrester has developed a market forecast model for IT management SaaS that shows that SaaS will grow from making up just over 1% of the $18 billion IT management software market in 2008 to 10% by 2013, by which time many of the brand SaaS providers could be well established.
Based on increased interest in IT management SaaS from Forrester clients — who are typically at larger enterprises — plus direct feedback from the SaaS operators, Forrester anticipates that enterprises with more than 1,000 employees will account for half of the SaaS installations in 2009.
I had a lot of interaction lately with a great CIO who is definitely open to more IT Management outsourcing and SaaS-based IT Management. He’s a respected colleague who’s even made CIO magazine’s list of top 100 CIO list. His rationale for doing so appears to be:
• He’s not going to get additional IT staff yet the number of applications, the amount of hardware, etc. they must support continues to increase. Letting someone else manage these hardware resources while his team focuses on more strategic activities seems to be a better business strategy than doing it all in-house.
• Now that many other firms, several large ones in fact, are going this route, he is less concerned about being another firm’s proof of concept guinea pig. Many of the early bugs have been ironed out and it’s safe to enter the space.
Forrester analysts see the market moving and they’re right. Markets are never stationary, unmoving and unchanged. I particularly like the Michael Porter Five Competitive Forces model to explain competition and changes therein. Porter essentially defines five kinds of competition:
Traditional Competitors – These are the usual suspects in a given space. They are easy to spot as they frequently take pot shots at one another and they make a lot of noise. They are also well-entrenched and often difficult to dislodge. These firms use FUD to keep customers away from new or different solutions.
New Entrants – These are new competitors to the space. They may actually offer a very similar solution as the traditional competitors or offer it at a lower cost.
Substitute Products – These solutions are materially different in some key respect. In IT Management, these are SaaS-based IT Management offerings, managed services outsourcing solutions and IT BPO solutions. These represent a different way of getting the same value. By their definition as ‘substitute’ solutions, they will possess different economics, risks and value propositions. They are also highly disruptive to a sector. This may the window of opportunity for new IT Management solutions.
Customers – Sometimes solutions buyers opt to develop their solutions and not buy from third parties. This happens all the time when firms develop custom, strategic applications. But in IT Management, those types of enterprising customers are fading away quickly.
Suppliers – In some markets, a supplier to one of your solution providers may choose to bypass or disintermediate your integrator, outsourcer, reseller, etc. and go direct to you the buyer. For now, I expect firms like CA, BMC, HP, IBM and others to continue to sell their IT Management products both to outsourcers (e.g., Accenture) and to CIOs.
The IT Management space is ripe for disruption. CA's announcement yesterday was interesting as it came from a traditional player/competitor who is also offering a substitute solution as well. This will make the space an interesting one to watch and one where customers will have more choice, more options and more ways to achieve the value they need.
If you’d like to read the Forrester report, it is free for Forrester clients and available for purchase for non-clients.