The information technology market over the past decade has been reshaped by quite a few things. If we had the intelligence to invest in the leaders in these technologies, we would have made billions for sure. E-commerce, social networking, packaged applications etc. have played a role in shaping the markets and our lives in equal measure. IDC (Pending:IDC), the leading IT analyst firm makes predictions every year. Though all predictions do not come true, these are measured observations and most of the stocks in these technologies do become hot and there is enormous potential in these verticals. Last year, we saw everybody talking about Software-as-a-service [SAAS] and Web applications.
Take SAP (NYSE:SAP), Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM) or Oracle (NYSE:ORCL). Each one of them offers applications in the service-oriented model and delivers applications over the web today. Social networking sites like Facebook and Myspace's valuation run into multiple billions of dollars today. Microsoft recently paid $240 million for a 1.6 percent stake in Facebook, putting the value of Facebook at $15 billion. The PE ratio of facebook, if it’s making profits at all, should be in the thousands by this measure.
SAAS, Web 2.0 and Social networking are great markets to invest in today, but what are the markets of tomorrow, according to IDC's analysis. IDC believes that 2008 will see increased investments in emerging markets like India and China, introduction of a raft of new online product and service offerings, the opening-up of closed business models to communities, and innovative new approaches to simple, solutions-oriented packaging. Experts call such technologies - Disruptive Technologies! The term disruptive technology was coined in 1995 by Clayton M. Christensen, who was a Harvard University Professor. A disruptive technology is either a product or service that overturns the existing dominant technologies by its head, because it no longer makes sense or ease! Technologies like mobile phones, Internet, DVDs etc. fall into this category!
IDC is predicting that economic uncertainties and downside risk will dampen IT spending growth in the U.S. and elsewhere. As a result, worldwide IT market growth will be a moderate 5.5-6.0%, down from 6.9% in 2007. IDC expects IT suppliers will "Double Down" on fast-growth, emerging markets and SMBs. Vendors will increase their focus on the "BRIC+9" countries (Brazil, Russia, India, and China plus the next nine important emerging markets), where IT spending growth will remain strong. The SMB sector will get similar attention as suppliers seek out additional pockets of spending.
The disruptive model
IDC correctly points out that to profitably reach the emerging, hyper-growth markets, suppliers must move as many services and products to the Internet, as this will mean lower distribution costs and easier/faster customer adoption. So expect companies like SAP and Oracle to move applications online to win these emerging markets.
IDC also predicts that Internet is shifting players towards adopting large, productive communities of partners/suppliers to create customer and industry specific solutions. This model is disruptive, though, as it means giving up some control to others — sharing development, sharing revenue, and sharing customer relationships — to expand the market. SMBs (and consumers) require simplicity and out-of-the-box utility — they are interested in solutions, not piece parts. This means IT suppliers will be working with ecosystem/community partners to prepackage solutions rather than waiting for customers or channel partners to put the pieces together.
IDC predicts that we will continue to see players moving core offerings to online delivery models over the Internet as a key method for profitably serving high-growth markets — particularly SMBs. SAP last year announced its SAAS ERP for SMBs in 2008. IDC expects IBM to jump into SAAS in a big way this year. Microsoft announced its Dynamics CRM Live in 2006, but there were concerns about a potential channel partner backlash. IDC expects Microsoft to bring the rest of its Dynamics applications online, and leveraging the Microsoft Office Live Workspace as a common portal for SMBs to access the company's on-demand business applications. Google (NASDAQ:GOOG) last year dabbled in applications beyond search — primarily in the personal productivity realm — but it now needs to move beyond, into business applications and services, as that is the glue that will pull in major new streams of SMB-focused advertising revenue.
IDC predicts that Cisco (NASDAQ:CSCO) will take the platform that they acquired with Webex, beyond just Web conferencing and other "collaboration" applications, to become an online platform for a wide range of business applications and services. Among the other IT segments moving online will be: Web 2.0 Datacenter as a service. We have already seen this, with IBM and Google having already announced "cloud computing" offerings this year, which makes online access to Internet-scale computing and programming resources, particularly useful for supporting Web 2.0 applications.
IDC also expects that leading pure-play SAAS players will tie up with hardware players to create prepackaged, Web-connected business application appliances that simplify customer adoption, use the Internet to provide remote support, and simplify access and downloading of new applications and services.
IDC also expects Social Networking explosion to drive new software to streamline information, that will benefit both consumer and enterprise spaces. It also expects sites like Facebook and Orkut to collaborate with IBM, Microsoft and other enterprise players in promoting Web 2.0 information creation and sharing environments.
IDC also sees two key areas where we will see an acceleration in the morphing and collision of industry segments and suppliers. These are: More IT and communications suppliers moving into business/consumer services, and vice versa. This trend is already visible with Apple Computer famously became Apple Inc. (NASDAQ:AAPL) in January. Salesforce.com (NYSE:CRM) changed its identity in 2007 from an on-demand software company to a provider of "on-demand business services." From the enterprise side, IDC expects to see IBM entering the consumer space to maintain its enterprise leadership.
Which companies will be bought out
Based on the predictions above, IDC is predicting a few desirable candidates for acquisition in key areas of market growth in 2008. IDC expects Intuit (NASDAQ:INTU) and Informatica (NASDAQ:INFA) to be acquired for their leadership in information and data integration markets. Given how important the emerging economies are in 2008, and in the next decade, IDC expects companies like TOTVS and Datasul in Brazil; 1C and Kaspersky Lab in Russia; ICICI Infotech, Tally, and Ramco in India; and Kingdee, UFIDA, Genersoft, and New & Grand in China to be very high on the acquisition lists of the major global software vendors.
IDC also sees Independent "Eureka 2.0" companies like Lexalytics, Biz360, Connexor, Attensity, Attenex, and Recommind to be targets for the major "information platform" players. IDC also expects predictive analytics software companies — such as Unica (UNCA), SPSS (SPSS), Zoot, and others — to be great acquisition targets as they provide tools for analyzing data that enables companies to make predictions about their customers' and prospects' behavior.
So the final word about 2008 is clear: IDC expects there to be great investments by organizations in these disruptive markets and business models. So it is prudent for the rest of us to invest in the leaders in these markets as it offers reasonable predictions.