May 8, 2014 Leave a comment
After considerable thought and discussion, we decided to publish an investment guide (pictured above) for Kyield Enterprise that includes product descriptions, a price list, and a table of benefits. This was not a decision that was as easy as it may appear, so I wanted to share some thoughts on the macro challenges of price transparency and interoperability relative to the decision making process. While we’ve been debating this for some time, more experience with our still new system has helped refine our internal process, which influenced timing. Boris Evelson at Forrester Research also deserves credit for consistently bringing this issue out in the open (see my comments), as have other industry analysts.
The challenge for customers in enterprise software and IT is establishing an accurate estimate of the total cost of ownership (TCO), which is necessary to forecast the overall return on investment (ROI); not a trivial task, requiring as much accurate information as possible. We assist by working collaboratively with customer teams to develop a deeply tailored scenario, which represents a considerable commitment and time investment.
Everyone involved with enterprise systems and networks must deal with a complex cauldron of components that are different in each organization, often including a mix of custom code, legacy software, unsupported open source software (OSS), outdated proprietary software, poorly structured data for current needs, BYOD, and of course massive amounts of unstructured data, among other issues, such as whether appropriate hardware and supported software need to be expanded for a system install. Some have reasonably argued that estimating TCO can best be achieved by privately quoted projects on a case by case basis only after an assessment of the enterprise mix, which of course should be done, but that doesn’t prevent transparency, the lack of which invites abuses across the industry.
Many companies and organizations have cited lack of functional IT systems and interoperability for bankruptcy, while others have won large law suits for being misled by consultants and vendors (usually settled subject to a gag order–not much transparency in those cases). In recent years we’ve observed multi-billion USD projects cancelled due to cost overruns that never resulted in a functional unified system, so entire massive projects were abandoned prior to delivering the first penny towards an ROI (DoD & state healthcare sites among others). While it is true that customer organizations are sometimes their worst enemies in decision making and procurement, it’s also true that the industry has had a very serious problem that hasn’t been resolved due to conflicting interests, sales quotas, growth mandates, and pressure from investors in both public and private equity.
While the lack of interoperability and related complexity have caused strong demand for IT staff, system integrators, consultants, agile developers, and data scientists, resulting in extremely large well-compensated ecosystems, the situation has also corrupted relationships and models. The result is a toxic stew that has contributed to many of the largest problems facing society and the global economy, such as poor outcomes in R&D, stagnant productivity, and failure to prevent systemic crises. This is why some of us have worked towards interoperable standards and systems since the commercialization of the Internet and Web.
In order for any interconnected system to function properly—and achieve sustainable economics, it’s critically important to have a threaded plug and play architecture. I’ve long argued that to meet the enormous current and future needs of our planet, the information revolution must adopt independent standards similar to plumbing, electricity, and transportation during the industrial revolution. This is finally occurring now, led by regulated industries, but lobbyists, entrenched incumbents, and many other conflicted parties are fully engaged at every step of the process. While the impact any single company can have on such a large systemic challenge may be minor in the near-term, unless having dominant market share of course, we can have a big impact in crafting better system design and working collectively with others to improve upon the macro situation, which is what we’ve attempted to achieve with Kyield all along.
Now I’d like to drill down a bit into some of the specific challenges in pricing from the board governance perspective in large organizations, which is our core customer. As the service and integration sector has grown along with open source, the actual cost of software licenses, subscriptions, or IP has become less of the overall problem, especially given increased support for data standards and wide deployment of APIs. It isn’t clear to me that this is sufficiently understood by many boards.
For example, while open source (OSS) and commoditization has had a very positive impact in driving down consumer prices, enterprise costs have increased dramatically overall, in part due to market power of incumbents and lock-in, but also due to the unhealthy relationship in services, which range between 1x to 10x the cost of the software alone. So while the cost of software licensing is certainly important, many are not focused on the most important issue—impact of system design on TCO, and most importantly—what ROI can be reasonably expected?
CEOs, boards, CIOs, and CFOs need to be acutely aware that OSS and low cost computing only truly becomes a powerful driver of ROI for organizations with the ability to differentiate and create a sustainable competitive advantage, which is precisely what we’ve pursued throughout the Kyield voyage. In order to achieve the best of both worlds—low cost commoditization and sustainable advantage—and realize the potential of the technology investment, it frankly requires the brains of the system running on top of the tech stack to be designed in a very specific manner, with interoperability essential, and functionality determining ROI. It’s probably not surprising that I think the optimal system looks a lot like Kyield Enterprise, which was driven by evidenced-based R&D. Kyield Enterprise can in some scenarios make the difference between success and failure. It’s possible in some sectors to provide a positive ROI for the entire IT budget for a century, upon preventing just one major crisis, accelerating the discovery of a single blockbuster drug, expediting innovation, or assisting in an important invention.
In conclusion, while I’m pleased to contribute to industry price transparency, and believe it’s probably good for our business to do so—despite the risks, I also plead with thought leaders, journalists, analysts, CIOs, and boards to keep one eye on the component details and the other eye on the broader impact of IT architecture on the needs of each entity in customer organizations relative to the global economy.