The Bloor Perspective: BPM, software industry consolidation and Google’s monopoly?

This week the team at Bloor Research talk process, process and more process, enterprise software and how Google’s success will draw scrutiny…

Campaigners in the Clinton era had a saying - "It's the economy, stupid" - to emphasise that the economy was the most important issue facing voters. For the IT industry, it's the process. Only by improving business processes can you deliver tangible business benefits.

Business process management (BPM) has had a chequered past. Initially, it was a low-level activity carried on by operational analysts. With low budgets and even less influence, the most that these analysts could do was to measure carefully and optimise the existing clerical processes.

It was this sub-optimisation that was roundly castigated by Michael Hammer in his seminal work 'Re-Engineering The Corporation', as ‘Paving the cow path’ or 'Rearranging the deckchairs on the Titanic'.

Michael Hammer's approach was much more ambitious - targeting fundamental changes in the way the organisation developed and delivered its products and services. Unfortunately, this high-risk high-reward strategy was not always successful. A major reason was that many would-be business process re-engineering consultancies did not have the right combination of strategic vision and change management skills to conceive and deliver these tricky projects. Too often business process re-engineering projects became mindless cost reduction exercises.

BPM is too important an idea to be ignored for long. Today, the focus is on information worker productivity and BPM is the key to unlocking tangible benefits from this area.

Enterprise content management (ECM), web content and portal vendors are all rapidly converging their products to deliver BPM solutions. Vendors as diverse as FileNet, Open Text, Plumtree and Tridion are developing capabilities to design and deliver business processes.

These types of vendors have an advantage over traditional enterprise integration and workflow vendors because they can deliver ‘rich business process management’, based on their content management and portal roots, that provide the full integration between people, processes and all types of information.

For example, FileNet can enrich business processes with access to all the unstructured documents and images that relate to a particular process transaction. When exceptions have to be handled with manual intervention, the user can initiate an instant collaborative conference to resolve them while the facts are still fresh in everyone's mind. These high-level business processes can be fully integrated with the underlying enterprise applications because the integration task has been much simplified with the increasing availability of portlets and web service interfaces.

*And then there were, er, how many exactly?*

According to a recent article in McKinsey Quarterly, many small and mid-sized enterprise software companies will suffer a shakeout this year. This is already evident in the enterprise content management sector as a relentless series of mergers are transforming the landscape into a small number of the players providing a soup-to-nuts range of capabilities.

The shake-up is caused by large organisations reducing the number of suppliers with whom they deal. Variety has long been recognised as a major driver of IT costs and the recent ferocious cost pressures on IT departments have brought this factor into the forefront of purchasing decisions.

The market network effect has also contributed to this consolidation. The market network effect makes a service become more valuable as more people use it thereby encouraging ever-increasing numbers of adopters. The software industry has high development and low manufacturing and distribution costs so that the bigger the vendor the more they can spend on development. (This statement must be qualified by the proviso that not all software companies spend wisely and well.)

Of course, these market realities have long been recognised and many an ambitious software developer has made it their long-term goal to be acquired by a large vendor seeking to fill a gap in their product range or gain access to a unique and patented technology.

Not all small software vendors make an attractive acquisition target. A target acquisition needs to be a good fit in terms of products, architecture and customer base to outweigh the cost of integration and deliver real value to the acquirer. According to McKinsey, vendors that are not acquired have two main options. The first option is to emphasise and preserve their unique features while tailoring their offer to survive within the ecosystem of a larger vendor's market space.

To succeed in the first option the vendor must "stick to their knitting" and maintain a ferocious concentration on the niche where they have an unassailable advantage. This is a high-risk strategy but one that, when done well, promises good rewards. These vendors will need a very good understanding of how they can add value to the ecosystem they are seeking to enter. Organisations with specific industry expertise are likely to do well by providing the owner of the ecosystem with valuable industry knowledge.

The second and less attractive option is for vendors to defend a niche outside the major vendor ecosystems. This may mean following in the footsteps of companies such as ICL and Unisys and deriving more of their revenue from services such as consulting and implementation than from sales of software licences. This option is considered by software vendors to be less attractive because the quality and leverage of the earnings is reduced.

Nonetheless, the major consultancies have been very successful in becoming increasingly involved in software implementation.

The shakeout in the industry affects software customers as well - these need to be aware of the market dynamics when they make software selections. In making selections they need to understand and to evaluate the richness of the software vendor ecosystem that they are buying into in terms of supporting products, available skills and knowledge specific to their industry. They also need to understand the strategic options that face their selected vendors and how these will affect them.

*Google monopoly?*

Subject to any niceties and distinctions of the purists, there is broad agreement that Google controls almost 80 per cent of web search requests. What threats and risks does that situation pose, if any?

Google remains a privately owned company, whose technology is available at no cost to end users. However, Google does record and store, as no doubt do other search engines, by individual details of everything searched through the Google engine. This may be released where legally demanded or to satisfy national security or other state interests but that is a separate issue altogether.

Its revenues derive primarily from licensing its technology to a number of web-based service providers as well as sales of text advertising, the often irritating paid for listings which accompany web search results.

How should we view this apparent monopoly? In a strict commercial sense it seems that Google has got there through its own merits. It has not threatened or stifled competitors. Search engines seek to differentiate themselves. Some do it technologically and this is the route by which Google has become so prominent and, of course, others suggest that superior technologies are coming to market, which will outshine Google, thus providing that competition. Of course, if Google goes for a public offering of its shares, certain to be a very popular offering, one of the risks could be that the relevant national competition and anti-trust will take a more intrusive look in the nature of Google's monopoly.

Two areas of 'monopoly' which do concern commentators and commercial organisations are only indirectly commercial.

In one sense, although it is a search engine, Google has some of the powers of a major newspaper or periodical. It does and can exercise editorial control and influence. Some this is understandable, if only to avoid exposure of itself and others to action for defamation by the more aggressive organisations that use the instrument of litigation to suppress critical comment. So it may and has edited out links and content of this nature.

Unless competition authorities view search engines as 'media companies' akin to newspapers or television it is unlikely they will be subject to investigation on this count.

Second, the power and use of online purchase is growing. Google, and other search engines for that matter, have more power to influence the selection, availability and immediacy of purchases in the way it sets the so-called algorithms for prioritising and selection of websites, bringing distinct commercial advantage to some and disadvantage to others. Much of that will invariably be determined by the commercial power of advertising revenues. This could trigger investigation by competition authorities.