If suppliers can save firms money they should be grinning from ear to ear, says IT industry analyst Richard Holway in the wake of a report that predicts a deepening slump in sales of hardware and software.
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Many hardware and software companies, particularly those used to large sales of licensed products, face a buyer's market looking for cheaper alternatives, said Holway, chairman of TechMarketView.
"Companies like BP are asking their suppliers to cut costs by 10%, so firms like Capgemini are asking their contractors to accept a 15% rate cut, and it's exactly the same in government he said.
New sales of hardware will be devastated, dragging down the market by 1% or 2% this year, and 3% or more next year. But as 80% to 90% of IT budgets go on systems that are only a year or two old, many suppliers will survive.
Those that make profits will be suppliers who can save firms money, said Holway. These include netbook makers like Acer and Asus, who are taking market share from firms like HP and Dell. Holway predicted netbook sales will rise from zero in 2007 to 150 million in 2009.
The margins on these sales will be tiny, he said. "Microsoft is used to getting about $85 from the sale of a notebook PC. But it will get only $10 to $15 for XP because Vista doesn't run very well on netbooks. However, Microsoft might not get anything [there] because a lot of netbooks run open source software like Linux. That's going to hurt."
Other survivors would be firms like Capita, which is twice the size of its nearest competitor in the UK business process outsourcing (BPO) market, said Holway. He added that Capita's skills in saving customers money ensured a growing flow of business.
Holway said new technologies such as virtualisation and cloud computing are the way forward for many users. "Salesforce.com is now the world's biggest CRM platform - this from nothing in 1999," he added.
Holway said users were less and less concerned about the platforms that drove their applications. "We trust three platforms," he said, "Windows, Apple and open source like Linux. Most users don't care about this as long as they like it, and it works for them."
Holway said he was not predicting the demise of firms like Microsoft or HP or SAP or IBM. But he said it had taken IBM 10 years of pain to turn itself from a seller of products to a supplier of services. "People underestimate the time and pain needed to change," he said.
Holway suggested the best way forward for Microsoft was to buy Facebook and to turn it into the portal for everything Facebook customers used. This is similar to Google's approach with Google Docs, Picasa and other applications.
He said notwithstanding Facebook's recent reversal over ownership of personal data on its site, Microsoft's pursuit of Yahoo was wrong. "Why chase yesterday's company when you can get tomorrow's, and probably for less than you'd pay for Yahoo?" he said.