Build vs. Buy In the 21st CenturyAs outdated assumptions begin to break down, pay careful attention to shifting enterprise application vendor strategiesContinued from Page 1 Enabling The Next Generation of ApplicationsThe reemergence of the build vs. buy debate is grounded in a rivalry over who builds and delivers the next generation of applications. These applications will have three important characteristics: They'll make extensive use of existing enterprise applications and treat those applications as a business process infrastructure; they'll require significant integration and connectivity resources, including Web services; and they'll have a relatively smaller technological footprint and be more solution-focused than ERP, CRM, or the other broad, horizontal applications on which the next generation will be based. In the emerging parlance of the market, this next generation of applications is called "meta-applications" by some, "composite applications" by others (among them Sweden's IFS), and xApps by SAP. Regardless of the name, the reasoning behind this new imperative is warranted: These applications will become nothing less than the future of enterprise software. The business benefits of these new applications are manifold. Most large and midsized companies already have made significant investments in enterprise applications and related technology and are loathe in these uncertain economic times to consider anything resembling a big bang, large-scale implementation. Meanwhile, their enterprise applications have been able to automate a significant but far from complete set of business processes. With budgetary constraints dictating caution, IT spending is shifting toward line-of-business managers who can, given the right ROI scenario, buy highly focused applications that can meet well-defined business needs. Those business needs are likely to require interaction between different users and applications, making tight integration with the existing applications environment an absolute necessity. Two important technological factors are also at play. First, Web services, XML, and other integration technologies are becoming sufficiently mature as technology platforms for solving business problems. The critical mass of functionality in Web services and integration technology is beginning to be sufficient to support this new generation of applications. The second key technology factor is that the packaged software vendors themselves have embraced heterogeneity as a major strategic thrust. They're embracing it for all the right reasons (because their customers demand it) and for their own selfish purposes: to keep account control over an installed base that's generating as much as two-thirds of their license revenues. The result is that packaged applications, particularly as they evolve to support Web services and XML, are acquiring the technological wherewithal to function as infrastructure platforms for the next generation of applications. This last point is a tricky one for the vendors. Infrastructure by definition tends to mean commodity pricing, and if the packaged software vendors are ready to concede that their applications are becoming the infrastructure of the next generation, then they have to be prepared for the fact that their main lines of business will become commodities. Indeed, this trend is already in progress. Financial functionality such as accounts payable and receivable have little differentiation among vendors, and as stand-alone functions they exist largely as commodities. The trend for many applications and their functions, most vendors will admit privately, can only continue toward increased commoditization. Behind The Build RationaleThe increasing commoditization of existing packaged software functionality is exactly what's behind Microsoft's and IBM's custom applications push. Both companies see an automation gap between what packaged applications can do today and what customers need to be further automated, and the two companies sense an enormous opportunity. While each spins that opportunity to its own unique abilities, the similarities between the approaches outweigh the differences.
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