With the end of the year now upon us, it's time for Kinetic Information to dust off our IT market crystal ball and let you know what we expect in the year to come. No doubt, it will be an interesting and challenging time as the economy struggles for respectability and customers continue to demand short-term returns on any technology investment.

Overall, we are relatively optimistic about the market prospects for 2004, as we believe conditions are ripe for moderate growth, creative innovation bred of financial need, and economy-induced, opportunity-focused mergers and acquisitions. Before we get into all that, though, let's see how we fared with our predictions from a year ago.

We also scored with our assertion that platforms would surpass point solutions as the application architecture of choice. As this year approaches its close, the top vendors in storage, data management, content management, and messaging all made moves that allow them to offer modules of services and software aimed at managing business information throughout its entire lifecycle. Never mind the recasting of capabilities within individual product families - e.g., IBM WebSphere - look how many corporate transactions were made with precisely this strategy, and ultimately EIO, in mind (e.g., EMC-Legato-Documentum, Open Text-Gauss-IXOS, FileNET-Shana).

Partial credit may be awarded for our prediction that wireless EIO would burst onto the scene. Though our forecast turned out to be wildly optimistic, we did see plenty of activity in that arena, as the likes of BlueSocket, Certicom, FusionOne, NetMotion Wireless, and Pinpoint Networks all sought to further this objective. However, it is clear that the economy, though improved, the financial woes of telecom carriers themselves, though eased, and continuing concerns over security and compatibility, though mitigated, all conspired to dampen this market's near-term potential. Nevertheless, we still believe wireless EIO will happen, will happen soon, and will happen big, for it will be driven by too many important players in too many important sectors not to: specifically, watch for leaders in networking (such as Cisco), application software (notably Microsoft), and communications hardware and services (e.g., Nokia, AT&T;) to make a splash soon.

1. IT spending will be between 6% and 7% higher than this year. Thanks to an economic recovery that will be modest but sustained, this spending will be done without the dramatic peaks, valleys, and uncertainties of recent months. IT "housekeeping" projects will drive growth in the first half of the year; these include upgrading ERP, storage networks, and other basic systems, and procuring solutions to address specific compliance issues. Later in the year, organizations will start spending to lay the foundation of a few well-chosen strategic initiatives that certainly will include BPM/workflow and EIO.
2. Functional convergence will be the object of $6.2 billion in customer spending. A bit over a year ago, we forecast that the role of converged technology solutions will increase across the face of the whole EIO market, which is comprised of BPM, workflow, portals, and integration tools. Looking back, it appears that functional convergence is proceeding even faster than we predicted, and will drive spending on converged solutions to a lofty $6.2 billion in 2004, a figure that accounts for fully 25% of all EIO spending.

3. The pace of vendor consolidation will accelerate. Right now too many vendors of pure-play solutions (as opposed to converged) are chasing too few customers, especially on the enterprise level, where Kinetic Information has never seen much opportunity. (Was there ever such a thing as a true enterprise application? Or was it just enterprise infrastructure?) At the same time, the protracted economic softness has limited or weakened many niche players who fill an important role, have excellent technology, but simply are running out of momentum. Given that established vendors with only one or a few core capabilities are seeking to grow by adding the functionalities required to be a converged-solution provider, and more versatile firms are looking to embrace EIO technology to better unify their existing product lines, we expect significant numbers of acquisitions to be announced in the months ahead. This activity will be especially evident in the BPM, workflow, Web services, and content-capture arenas, where the likes of AnyDoc, Cardiff, Dell, EMC (they're not done yet), SeeBeyond, and Ultimus may be either acquirer or acquiree.

4. A bevy of new technology startups will be born. No, we haven't forgotten about the dot-com die-off that still is making investors nervous. But productivity-focused innovation and greater economic comfort will attract significant venture capital to a new spate of software startups. The entrepreneurs behind these companies will be technologists far more often than they will be 'e-tail' magnate wannabes, and the most interesting among them will be focused on the creation of next-generation collaborative tools for developing and running business applications. These products will be sold on the basis of speed, flexibility, and Web-readiness, and they will be built by new hires drawn from the healthy pool of skilled labor that was created by the layoffs of the past several years.

• "Componentization" is scaling up. As standards-based, modular software architectures - the platform play mentioned earlier - continue to gain traction, features and functions are being reconciled across an ever-broader spectrum of systems and applications. Increasingly, new capabilities are being supplied as individual components that can be added only when needed, and readily recognized by the other application elements. In one sense, this model may be described as "plug and play on a macro level," for the idea is to be able to add new functionality to a business solution the way a new device is added to a desktop PC.

• Performance-based pricing is extant. Analysts at Gartner Group have opined that economic recovery will boost the previously discounted prices on enterprise software. We respectfully disagree, at least in one important aspect. Customers have now gotten used to demanding "ROI insurance" from vendors, and they're not going to stop. The mindset still is "if I can't achieve payback in one year, then I can't buy it now," and the continuing push for operational excellence will keep it so for a good long while. Vendors therefore will have to tie their compensation to the business value they not only promise, but actually deliver, and many already are utilizing such mechanisms as automated usage monitoring and ironclad service-level agreements to clarify the advantage they are providing. Vendors will get paid well for good work, but they will have to wait longer to collect and likely will have to take their money in smaller chunks.

• The need for collaboration is intensifying. Financial concerns have compelled customer organizations to do everything they can to ensure their people not only work better, but work better together. As a result, productivity in the United States stands at near-record levels, and the economic slowdown was not nearly as bad as it otherwise might have been. But even though the pressure now seems to have eased, business managers, 'knowledge workers,' and developers have all seen what enhanced collaboration can do for them, and are favorably disposed toward those technologies that have process improvement at their center.

• Pragmatic messaging is on the horizon. There will always be hyperbole in the selling of software and services, as vendors try to out-shout their competitors. But as purchasers - and their bosses - get smarter about the true relationship of technology to daily business performance, vendor messages will become more targeted, more bottom-line and customer-service focused, and far more verifiable. This will shrink the cognitive gulf between vendors' marketing departments and engineering departments, to the eventual betterment of both in terms of a shorter sales/acquisition cycle and time-to-value.

• Brand reconciliation is on the way. Just as different sets of features and functions can be used to solve common business problems, so do various divisions and subsidiaries of major vendors tackle the same customers. Consequently, organizational charts will have to be dramatically reconfigured so individual business units can better meet an overarching customer need. EMC is trying to accomplish this in the name of what it calls "information lifecycle management"; at IBM, it's "on-demand computing." There will, of course, be bumps along the road, and gaps between claim and delivery, but eventually, we should see a small number of IT "superbrands" that are organized - as in the retail industry - around perceived qualities of customer experience and not categories of technology.

• Users want ubiquity and security. There's no question that customers want to have it both ways. On the one hand, they want their IT infrastructure to support an unlimited number of customers, suppliers, and employees anywhere in the world, through a user interface that is easy to use and supports transactions and collaboration in real time. On the other hand, they also want their data and systems to be protected at all times from hacker attacks, misuse by disgruntled or ignorant users, and service failures caused by spikes in network traffic. Meeting both needs at once is one of the market's primary current conundrums, and some opportunities - wireless EIO, to name one - are heavily dependent on its eventual accomplishment.

• Users want single-source accountability and openness. Another contradiction stems from the critical importance of IT to today's businesses, government agencies, hospitals, and utilities, and the requirement that many complex systems be kept running smoothly and synchronously. In many cases, these entities work with a vendor or service provider that essentially plays the same gatekeeper role as a primary-care physician in a health maintenance organization. But these users also need to stay competitive by embracing new technology and controlling costs, and they fiercely resist any relationship that limits the kinds of databases, operating systems, content management, messaging, or security system that they can use. The trick as a vendor or service organization is to somehow provide accountability with openness, a goal that is getting to be achievable thanks to standards work being done by groups like W3C, WS-I, and WfMC, and to the convergence trends described above.

• Users want thorough evaluation and rapid time to implementation. With multiple platforms, data repositories, back-end systems, and front-end applications to support, customers can't spend months or even weeks getting new technology up and running. But they also want plenty of time to kick the tires of a new product before writing a check! These two seemingly contradictory expectations actually can complement each other if the pre-sales process leaves buyer and seller fully ready to implement and use the product. Hence, well-trained sales professionals, robust evaluation processes, and sound customer references are getting to be hugely important to quickly moving from product research to product purchase to product implementation.

Kinetic Information is always eager to hear your opinion, too, so please let us know what you think – send us an email, give us a call, or start a conversation in our Client Forum: visit our Web site at www.kineticinfo.com and choose News & Views – KI Client Forum. Thanks!