January 13th, 2006
By Brent Holliday
Greenstone Venture Partners
“She doesn't give you time for questions
As she locks up your arm in hers
And you follow 'til your sense of
Which direction completely disappears.”
– Al Stewart, Year Of The Cat
a funny day to be doing an “outlook for 2006” summary, given the publish
date of this column is Friday the 13th. When you add the 27 straight days of
rain, the fact that I have to get a filling replaced, the Vancouver Centre
choice(?) between Hedy and Svend,
the lack of consistent goaltending for the Canucks and the unfortunate news
that my current venture fund has done its last “new” investment, you’d
think this would be a grumpy outlook.
I have been scouring the wires and the pundits to synthesize for you the
collective spirit going into 2006 about information technologies and, well,
despite my personal discomfort in having to chew only on the right side…
things are looking pretty damn good! You can read on for more detail if you
want, but that’s pretty much the gist of it.
the very highest level, businesses look to be back buying technology at a
5-6% increase over last year. For
instance, Goldman Sachs upped its targets on all big, public enterprise IT
companies this week based on a rosier outlook for IT spending and its
positive effect on earnings. The
increase will be largely driven by many of the same forces of 2005, VoIP, security, storage and mobility. Interestingly, despite the launch of
Microsoft Vista this year and Office 12 shortly thereafter, most pundits
agree that the impact on 2006 spending will be minimal. Not because Vista, and all of
the 3rd party applications built for it, won’t dominate the
software spending, but simply because it won’t be released until near year
end. Notebook sales continue to
grow, with the unit volume passing that of desktops in 2005. The long awaited upgrade cycle for PCs in
the enterprise is finally upon us, despite us all wishing for it in years past.
SMBs and consumers are the new nirvana for target
markets. The big enterprise still
seems a little sluggish to adopt and, more importantly, upgrade their core
software and hardware. Sure, big
financial services and technology companies themselves continue to drive
innovation through earlier adoption of next generation hardware and
software, but the bigger manufacturing, government and health care sectors
are still not setting the world on fire.
We have all seen the hype in the consumer technology area, with the
digital home and the personal wireless/media devices dominating the
are the area to concentrate on because they will spend money to save money
in 2006. With the overall economy
pretty good, unless you make cars or car parts for a living, the mood is
rosy among the faster growing smaller and medium businesses out there. Without huge legacy investments in IT
that need to be integrated into any decisions, they look for the new, low
cost of entry and low cost of maintenance solutions. For example, new IP PBXs for VoIP and other call management features are hot. Also, on-demand (FKA software as a
service, FKA ASP) software is huge with the SMB markets right now for the
aforementioned reasons. As always,
the challenge for a company is how to sell to the SMBs
without killing yourself with cost of sales.
lot of pundits have tried to pick the specific product categories that are
moving (or have already moved) from hype to reality for 2006. Companies with products to address these
areas may have an opportunity to reap large market share as these
categories move from early adopter to widespread use:
- Service Oriented
Architecture (SOA) implementations – The model for constructing and
assembling network services and the common accessibility to data
across the network will turn this hype to reality this year. Get ready for big re-engineering of
IT processing and storage using XML and open standards. Effective implementation of SOA
means that business processes become more extended and more efficient.
- Converged Network – IP
PBXs went from nearly zero to a billion dollar market in 2005 as
companies look to run their all of their communications over IP, not
because of the neat features that you can add to simple voice and
e-mail exchanges, but because the whole things costs less. Skype has
led the charge for even cheaper peer-to-peer PBXs and the inexpensive
reality of video conferencing over IP, video messaging and other new
ways to interact.
- Broadband Wireless – New
3G (EvDO) and fixed broadband (WiMax) networks are turning on across North America and the world. Although the truly
disruptive mobile version of WiMax (which
will drive service providers nuts as it rivals their “pay” 3G networks
with free spectrum use and municipal roll-outs) probably won’t be out
in 2006, the broadband adoption will skyrocket this year. Starting with the new Treo 700w, people will enjoy new functionality and
utility from handhelds. Mobile TV will be the next killer app in the
consumer world (even though TV won’t use the data networks directly)
and video messaging on a cell phone will be commonplace in 2006 thanks
to the new networks.
- Ad-Supported On-Demand
Software Applications – Selling software per seat is dying. It is still there for the big
enterprise IT buyers, but, as mentioned, the SMBs
are not buying it as much any more.
New developments in Web software allow sophisticated
applications with user-friendly (or “rich”) GUIs thanks to AJAX and other
new tools. The SMB enterprise
will love custom developed on-demand applications for business
processes like CRM and knowledge management (sophisticated
search). But the exciting
development in 2006 is Microsoft (“Live”), Google and Yahoo as they
all move to the new portal play… great software applications for the
masses supported by ads. Social
networking apps, communications apps (talk and video), productivity
tools, blogging tools and of course,
emerging search tools are all being built and paid for by ads.
big trend that will continue in 2006 is mergers & acquisitions
(M&A). From the mega deals like
AT&T/SBC to the quick flips of new web 2.0 companies, the IT and
telecom worlds will be busy consolidating again. The service provider market is intriguing
because they will all start to suffer from identity crises. The wireless companies are making tons of
money, while wireline is getting more and more
squeezed. The cable companies are
doing voice and the telephone companies are doing TV. At the end of 2006, will they all just be
“communications” companies? How does
that affect regulatory issues? How
does that affect company culture?
Does the consumer win?
is like some huge new black hole in the universe. Its extreme gravity is pulling everyone
into the Internet craze again.
Companies are getting funded at record paces (if not amounts) again
and filling new “hot” categories with twenty competitors before anyone even
has a beta release. It is unhealthy
to be thinking that old “land grab”, “first-to-market” mantra again, like
we did in 1999. But Google itself,
THE story of 2005 (apologies to Apple and Skype),
is facing a serious challenge in 2006: it will be hard pressed to follow
its mantra of “do no evil” as it throws its significant weight around to
stomp competition and continue its growth.
How long before the Google Maps mash-ups start getting charged
royalties? Will its search services
become tiered as it competes with Yahoo and MSN? Will it try to win the
desktop from Microsoft?
cheer up when you think about the days ahead in 2006. It can’t rain for the entire year… can
it? The Canucks will get a
goalie. The Liberals will not be in
charge, at least for a little while.
And once my tooth’s fixed, I will be able to smile again. According to the pundits and analysts out
there, opportunity abounds in IT to make some serious hay. Now all you have to do is go and sell. Good
What Do You Think? Talk Back To Brent
Something Ventured is a bi-weekly column designed to supplement the T-Net British
Columbia web site with some timely, relevant and possibly irreverent
insight into the industry. I hope to share some of the perspective and
trends that I see in my role as a VC. The column is always followed by
feedback (if its positive or constructive. I'll
keep the flames to myself, thanks).