IT business: Up and down

Zatni Arbi, Columnist, Phuket, Thailand, zatni@cbn.net.id

Do you still remember how companies started to use information technology in the early years?

Back in the 1970s, large corporations took pride in having a separate, bulging EDP department full of nerds working endlessly in front of their monitors.

EDP professionals also felt a distinct sense of pride being EDP professionals, as only smart people could understand those super-intelligent machines called computers.

And then things went out of control.

Companies, banks, airlines, telcos, etc. suddenly realized they were spending too much effort, time and cash on their IT systems although their core business was not IT.

They had to worry about choosing the right computer products, about installing and maintaining them, and then about proposing to the Board the upgrades that seemed to be unendingly necessary.

In the meantime, major IT companies, which had been enjoying a lot of profits from selling boxes, suddenly found themselves in the company of a growing number of competent competitors, as everybody wanted to be in the game.

They suddenly realized that they should do more for their customers than just sell products. The idea of providing IT services and end-to-end solutions then came into the scene.

But business organizations still had to allocate a lot of budget on the IT that they were using. The headaches were still there. In the beginning, building and managing their own IT infrastructure seemed to be the ideal thing, because it would mean a total control of their own "strategic asset."

Besides, these companies believed that their IT infrastructure, which had cost them a fortune to build, also served as a barrier to entry.

It would not be easy for competitors -- particularly smaller ones with restricted budgets -- to enter their market. But, as time passed, owning their own IT infrastructure became a heavy liability.

At the same time, the world became more and more connected. The Internet served as a conduit for communications, flow of information and transactions. IT companies came up with a brilliant idea: Why not provide services over this huge, global network?

From ASP to e-sourcing: First, companies use more or less the same applications. So why not "rent" these applications to them based on use?

A new type of service began to be offered by IT companies, which called themselves Applications Service Providers, or ASP. The model was still struggling to find a real market.

In the meantime, more and more IT companies began to provide their services to companies with no intention nor capability to build their own systems, data centers, intranet, extranet, Enterprise Resource Planning systems, data warehouse, etc.

These companies would still be able to operate their business, but all these IT requirements would then be "outsourced."

The term "outsourcing" became an everyday word in the IT industry. It was an attractive proposition, as it now enabled startup companies to compete with the big guys, using capabilities that they no longer had to manage on their own.

As companies rely more and more on IT for the operation of their businesses, and as bandwidth become more and more affordable, they also need more storage, more applications, more agility to respond to market changes.

With outsourcing, they would not have to worry about selection of the most reliable products with the best total cost of ownership. They would not have to bother themselves with the task of hiring and retaining good people to maintain their systems.

It was then that Big Blue, which has been the main proponent of the e-business idea, i.e., using the network to integrate the entire business process and bring suppliers and customers together, coined another term: E-business on Demand.

This was one of the main topics discussed in Phuket, Thailand, last week, where around 220 Big Blue's major customers and 15 IT journalists from the ASEAN and South Asian countries got together and listened to presentations from IBM's top executives-including my favorite Tom Kendra and Per B. Larsen, two VPs at IBM.

IT as utility: Today, if we live in the city, chances are we do not use our own generator set to generate electricity for our homes.

There is a power line that comes into our houses, and we pay the electric company for the amount of electricity that we use every month. Most people in the urban centers are not likely to dig their own wells for water-except perhaps when they live in Jakarta.

They get their fresh water supply from the city's water company. In a lot of places around the world, gas is also distributed into the houses through the grid and people use it for heating and cooking and pay based on the amount of that they use every month.

Come to think of it, the telephone, the TV broadcasts and even the Internet have also become part of the utility piped into our homes. And then the idea of the Internet being a utility came into being.

Currently, paying for IT services as a utility have become a model that IT industry researchers and experts such as IDC, Gartner Group, Yankee Group believe how companies fulfill their IT needs in the future. IBM grabbed the idea, and gave the name e-Business on Demand to this e-sourcing model.

As a core for its business in the future, IBM wants to sell IT infrastructure as well as business processes as services. Its customers just buy the capacity and functions-data storage, Web hosting, e-procurement, business intelligence, etc.-that they need, and IBM will make sure that everything will be available when required.

Like outsourcing in general, the plus points for the users are very low upfront investment, much less headaches usually involved in managing skilled human resources, the flexibility in getting more capacity as business grows or paying less for reduced capacity when business unexpectedly slows down, and low total cost of ownership as the resources were shared with other people.

Clearly, IBM is not going to be the only company to offer the e-business services as utility. Others, including local companies, have also begun to aggressively market similar services, although perhaps in a much smaller scale.

The key success factors for e-sourcing are known to everybody: It has to be based on accepted standards, and it has to be scalable and secured.

One thing to note is that, the bills for your next credit card may not be coming from its issuing bank, it may be coming from one of IBM e-business on Demand operations.