On-demand services delivering a new kind of software

The recent purchase of i2 Technologies by JDA Software has caused a flutter of declarations about the end of an era in software history. At one point in August 1999, i2 had a market cap of US$28.4 billion. In August this year, JDA was able to snap it up for $346 million.

This was only the latest example of a specialised software company being swallowed by a more generalised one. JDA had already in 2006 gobbled up Manugistics, an i2 competitor that for several years cut a dash in the supply-chain management software field. Catalyst International, a software firm specialising in supply-chain execution, rather than planning, was last year bought by CDC Software, a $300m ERP company with roots in China. Vastera, which focused on international trade compliance, was bought by JP Morgan Chase in 2005. You get the picture: many specialised, logistics-related technology firms have been absorbed into larger software companies in the last five years.

It’s the end of an era indeed. But which era? Many see JDA’s purchase of i2 as a sign that it no longer makes sense to sell ‘best-of-breed’ software — that is, software that helps businesses run specific departments such as human resources or, in the case of i2, specialised supply-chain management. Often, these software packages operate in isolation, without easily communicating with other IT systems.

“We’re increasingly hearing from manufacturers that ease of integration is probably more appealing than the extra functionality they might get from a best-of-breed vendor,” says Simon Ellis, an analyst with IDC’s Manufacturing Insights, quoted in a published report. Many industry experts are declaring best-of-breed software to be dead in the water.

But the issue that’s emerging in the wake of the JDA and i2 deal is not one of capability or specialisation; it’s about how that capability gets delivered. The i2s of the software world weren’t wrong in thinking people wanted specialised knowledge to guide their business processes into a perfect state of automation. They were just wrong in thinking that anyone wanted to install and maintain one-time instances of software that didn’t speak to other software. What’s really ending is the dominance of licensed, installed software, making way for the emergence of technology delivered through the web, already translated into the language of your internal computers, and accessible ‘on-demand’ — meaning you get only the firepower you want at any given time, and you pay only for what you use.

Perhaps the more significant news story is the announcement that Salesforce.com — often hailed as the poster child for on–demand services — has replaced Freddie Mac in the Fortune 500.

The new world of on-demand technology is about the death of software as we know it. Software, after all, is simply a technology delivery mechanism, and there’s something much better on offer now to serve firms that need to share information with other firms in order to conduct business. In a logistics industry that’s worth $1.4 trillion, for example, there’s a pressing need to be able to keep track of interactions with a hugely-complex, ever-changing roster of business partners, including manufacturers, buying agents, warehouse operators, freight forwarders, Customs agents, ocean carriers, truck and train transport providers.

These are all companies with varying, unpredictable IT structures of their own that, even when they can offer electronic data to feed into a centralised supply-chain management data bank, will almost certainly not be doing so in a standardised format or language.

It makes perfect sense to use web technology to host constantly maintained data platform where all such information is cleaned and standardised before it enters the mix. That way, any participant in a specific supply chain can, with just a connection to the Web and the right access protocols, track goods all the way from inland China to a distribution centre in Ohio. Further, each company can also call up reports about their interaction with any other company. For example, an importer can monitor whether an ocean carrier is performing well against the prices and delivery times agreed in its contract with that importer.

We call this particular technology delivery model a portal, because each participant uses technology to enter a whole world of useful data that can then be filtered and extracted for whatever internal use it chooses. It is very much an inter-company service — IT that can be enjoyed without the involvement of an internal IT department. Economies of scale are bringing massive technological computing power to a level where companies can get these capabilities quickly and cost-effectively. This is in stark contrast to the old way, where companies needed to go out and build everything themselves, from scratch. It’s like plugging into an electricity socket instead of building and running your own power plant.

For the user, this offers a head-spinning range of advantages, including lowering the risk associated with shelling out millions of pounds before seeing a single iota of benefit; less need for in-house IT; and the ability to pay as you go for what you use. Even better, the onus of service delivery is on the vendor, not some over-stretched internal IT department, for a change. Better still, the revenue model, which means vendors see a years-long constant dribble of fees rather than huge one-time payments, means it’s far less likely you’ll come to rely on an IT provider that disappears overnight.

Nobody needs software for software’s sake. Ultimately, ignoring the need for companies involved in international trade to simply access trade management capabilities without having to worry about behind-the-scenes technical structure is what i2 and the other license-and-install vendors got wrong — they sold generators instead of building a power grid. We are entering an exciting new age where there will be no need to constantly descend to the basement with an oily rag. Instead, enterprise technology now comes out of a modem, DSL or fibre optic cable, tended by an unseen team of expert mechanics, always making it hum.

Greg Johnsen is co-founder and executive vice president of sales and marketing at global trade and logistics portal GT Nexus.

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