CA's Kumar: What the customer needs

Dan Farber: Sanjay Kumar says that the partnership between vendors and customers is the key to success.

After listening to recent keynote speeches from industry executives, you can get the feeling that there isn't much in the way of new ideas in the IT world. The executives talk about challenging economic times, the pressure to deliver ROI, on-demand computing, consolidation, virtualisation, Web services and the importance of putting customers at the centre of the universe. Computer Associate's chief executive Sanjay Kumar didn't stray far from the usual script, but challenged the industry to embrace a new business model or face extinction. Kumar was touting CA's success in the last two years with its FlexSelect business model, which allows customers to choose licensing terms ranging from monthly to multiyear contracts. "The partnership between vendor and customer is the future of this business. It's not a fad or temporary measure to get through a period of tight economy and IT budgets. It's a model for the future," Kumar said during his keynote at CA World 2003 in Las Vegas. Several companies are beginning to offer more flexible licensing plans, such as utility-based pricing for server and storage capacity, but most enterprise software companies rely on longer-term contracts and annual maintenance fees. Some of the smaller companies, such as host-based salesforce.com, provide more flexible pricing plans. Kumar's notion of giving the customers a variety of pricing models makes sense. It clearly places more pressure on vendors to satisfy customers and earn their business. Despite the fact that deploying enterprise software can take months and even years (which is another problem), a customer should be able to pull the plug without engaging lawyers to parse complex contract covenants. You will end up paying more on a monthly basis with these flexible pricing plans than with a multiyear licence, but you have added leverage and an ability to move to a longer-term licence if the relationship and project is working. However, flexible pricing models could become as confusing as automobile financing plans, in which you get the feeling that no matter what option you choose, the dealer is going get more of your money than you want. 'Many more consolidations'
Kumar also discussed the wave of consolidation sweeping the market. Indeed, CA was a rapacious acquirer of companies during the 1990s, but pulled back after earning substantial criticism for its post-acquisition tactics and failing to properly digest its prey. "Many more [consolidations] will be taking place in next few years. The large companies will survive and do well and we'll have small tech providers bringing innovations, but the mid-sized will be eliminated," Kumar said. That's not much different from what Oracle's Larry Ellison and others are saying about consolidation, and I would expect CA to join Oracle, PeopleSoft, and EMC -- among others -- in the acquisition sweepstakes for mid-sized companies. I asked Kumar whether CA would go on an acquisition binge. "We will continue to work on small deals that make sense," he told me. "I wouldn't read anything more into it. It's meant more as an industry trend." Nonetheless, CA could simply be pressured into getting in the game so that it doesn't become one of those mid-sized players. Kumar also predicted that integrated software suites would become more important, with point solutions playing "second fiddle." Consolidation and integrated suites both play the reducing complexity card, which is another of the new age IT industry imperatives. "There are way too many products from too many players, and not enough integration," Kumar said. Suites do offer less complexity, but the trade off is dependency on a few vendors who don't necessarily offer best-of-breed products.CA still gets nearly half its revenues from its mainframe line of products, but has invested billions in R&D over the last few years to develop more integrated suites for systems management, storage, and security that run on a variety of platforms, including Linux. However, unless the individual products and support service are more than "good enough," the strategy will fail. For many product categories, such as security, best of breed will continue to trump integrated suites until the quality of the suite components improves. Given that the vendors promise better interoperability among each other's products, there shouldn't be a penalty for using products from multiple vendors to roll your own suite. However, the vendors have not fully delivered on that promise and the cost of integration continues to haunt IT organisations. CA is also talking about on-demand computing as the major transformation occurring in enterprise computing. CA lags behind IBM, HP, Microsoft and Sun in developing on-demand computing services, but it is focusing on what Kumar calls "management on demand." CA's notion of delivering IT as a service revolves around its Unicenter infrastructure management products. In support of that initiative, CA introduced here a new technology, code-named Sonar, which discovers and inventories IT assets across an enterprise and maps them to business processes. This capability could be used to help define policies for optimising utilisation of storage, servers and other devices. Kumar spent several minutes during his keynote addressing how CA is becoming a better partner for its customers. In the past, the company had a reputation as an ogre to do business with, and has lived under a cloud of SEC and Justice Department investigations. Kumar said the company has seen a 27 percent increase in customer satisfaction over the last four years. The company also introduced SupportConnect, a new service designed to improve the support process. Beyond its technology, on-demand strategy and flexible licensing strategy, restoring confidence among its customer base will be Kumar's biggest challenge.