Build vs. Buy In the 21st CenturyAs outdated assumptions begin to break down, pay careful attention to shifting enterprise application vendor strategiesContinued from Page 2 In the IBM world, the next generation of applications will be built using a combination of tools, middleware, and consulting services that IBM feels is its newly acquired birthright. The newness of this view is important: As recently as two years ago, IBM was still trying to become a force in packaged software. But recent business decisions, primarily the acquisitions of enterprise application integration vendor CrossWorlds, development tools vendor Rational Software, and PricewaterhouseCoopers Consulting, among others, support a custom worldview that IBM's aggressive marketing of WebSphere and DB2 reinforces. In this case, the sum of all these parts spells a tilt toward custom software development that, while intended not to alienate the packaged software, partnerships that earn IBM billions in consulting, hardware and software revenues, nonetheless eventually will. It won't be overt competition — IBM's 10,000 salespeople will still be pushing third-party applications as well as custom-built applications. But IBM's sales force will be forgiven if it favors a custom IBM solution over a packaged third-party solution. For the former, the sale is counted toward quota and earns a commission. But for the latter, there's only customer satisfaction: IBM doesn't actually resell its partners' packaged applications, and IBM's sales force receives no compensation for such a sale. Microsoft is also treading a fine line, in this case between its packaged software partnerships, its Great Plains line of packaged software applications, and the rest of its offerings. For Microsoft, the opportunity for custom development comes from a combination of its Office desktop applications and its SQL Server, Exchange Server, Portal Server, and other technology. Microsoft's www.connecttoyourdata.com site invokes the specter of an enterprise applications environment in which critical data and information is "locked away" in enterprise applications. The problems that result are familiar — gaps between applications and business needs, difficulties in data analysis, unrealized ROI — but the solution is decidedly in the "build" camp. Microsoft's composite applications vision links its systems technology, its Office applications, and what it calls Smart Tags to directly compete with a time-honored packaged applications imperative: Connect the "right data to the right people in the right time and format." The Microsoft build vs. buy vision is important for its ability to target the high-end of the enterprise applications customer base, a market that its Great Plains software is currently unable to touch. Microsoft is focusing on the next best thing by steering applications dollars away from packaged solutions towards custom-developed applications based on Office XP and Microsoft technology. IBM and Microsoft are hardly alone in this quest, and the resurgence of build vs. buy doesn't affect just the top-tier applications vendors. The ability to target the next generation of enterprise functionality with custom-developed solutions will also benefit a systems integration and consulting market that has been devastated by the overall slump in IT spending, improvements in implementation speed and the lowering of implementation costs, and the increasing reliance by software vendors on consulting dollars to bolster their own revenues. Most top-tier applications vendors now garner a third or more of their revenues from integration and consulting, a figure that has been growing steadily. For most integration companies, the resurgence of the "build" side is perhaps the only way in which growth can be sustained in coming years. The impact of build vs. buy in the 21st century will also be felt by startups and small- to medium-sized vendors, whose new products and new versions of older products increasingly resemble a composite application that integrates and makes use of existing data, business processes, and enterprise applications. These companies — selling more and more to the installed bases of the top-tier vendors — have always had to fight against the twin threats of an integrator-led custom market and a top-tier, vendor-led packaged software market. The new thrust by Microsoft and IBM only adds to the competitive pressure. The User Perspective: Options and OpportunitiesHow can user organizations make their way through the conflicting messages and strategies of the new build vs. buy competition? Without sounding flippant, the best answer is: Carefully. When it comes to new composite applications, the promise is somewhat ahead of reality for the moment. SAP, undoubtedly in the forefront of the movement with its xApps and NetWeaver technology base, has only just launched the strategy in its entirety this year and will be able to offer a handful of xApps in 2003. While SAP is actively seeding the market for a wide range of SAP and third party-developed xApps, the available xApps won't begin to meet the demand for new functionality any time soon. IFS, the only other company talking about the composite applications market, still hasn't begun the formal process of turning its offerings into a software product. While a packaged solution that genuinely meets a company's needs will almost always be preferable to a one-off, custom solution, that solution may simply not be available at the time it's needed, if ever. Customization may be the only possible solution, which means choosing between the "build" visions of an IBM or a Microsoft, or the toolsets of the packaged vendors themselves. Again, in SAP's view of build vs. buy, any building that needs to be done should be done using its NetWeaver applications platform. That vision leaves open the possibility that a custom-developed solution could become a packaged xApp, but once again, the realization of this vision is still in the earliest stages. Be aware that IBM and Microsoft's vision is also an emerging one. The ink has barely dried on IBM's recent acquisitions, and much time and energy will be needed to turn the sum of these newly acquired parts into a well-oiled whole. Likewise, Microsoft's solution to the build vs. buy problem is also a relatively new strategy, and has yet to stand the test of time. What customers should do is make certain that they know the costs and risks involved in either decision as well as whether the solution — either build or buy — is in the best interests of the customer or the vendor. Basing future functionality on Office XP and Smart Tags, an xApp, or a custom-developed IBM solution shouldn't be about the salesperson's commission or the settling of a market rivalry between two software giants. It can only make sense if it fits into the customer's vision of its future. Customers must take it upon themselves to monitor the messages of the vendors that come knocking at their doors as a new round of buy vs. build marketing hits the industry. In all cases, what's best for the customer may not be what's best for the vendor. The most important thing is to be able to tell the difference between the two. Joshua Greenbaum [josh@eaconsult.com] is a principal at Enterprise Applications Consulting. He researches enterprise applications and e-business and authors the Enterprise Applications column in Intelligent Enterprise. RESOURCESIBM application development: www-3.ibm.com/software/awdtools Microsoft Business Solutions: www.microsoft.com/businesssolutions SAP's xApps: www.sap.com/solutions/xapps
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