IT megavendors should see their loss of the ‘Powerhouse’ label as a more than a shift in rhetoric. Many analysts think the emergence of cloud solutions is eroding their market power.
For a long time, high technology analyst firms used to discuss the powerhouse vendors. These were colossal firms, such as IBM, Microsoft, Oracle and SAP. What made them different, however, wasn’t just their scale. It was the additional fact that their solutions spanned across rigid silos that separated software and hardware from each other, and from the consultancy services needed to integrate them.
Powerhouse was a potent word in 20th century America. They were the often ornate, revivalist colossuses that generated energy for the grand cities. In the heart of New York City, for example, the IRT Powerhouse powered the subway and the city’s steam system. Now powerhouses across the developed world are hollowed-out husks, used for events, circus schools or left slowly decaying.
Few analyst firms use that phrase anymore. They now describe firms like IBM and Microsoft as megavendors. Today, a powerhouse is a thing that is somewhat significant, but sometimes one which is powerful in just one market segment, or even a niche of a segment. Indeed, a country might be a powerhouse.
The shift in language is a not only change in vocabulary. It reflects the reality that these organisations, which were once seen as getting strength from their scale, now struggle to convince the market in the same way.
I see firsthand how this decelerates the growth of these firms. In my role at Kea Company, I regularly survey hundreds of the world’s leading industry analysts to see what they think of the world’s 50 or so largest technology solution providers. I ask them how likely they are to recommend them, for example to clients or investors. For a long time, the results were not surprising: they were more comfortable recommending large firms. Now there are many surprises. One of those powerhouse vendors, for example, is one of the firms that analysts are now least likely to recommend. I don’t simply mean that they are in the bottom 50%. They are in the bottom 20%. Perhaps there’s something special happening with that firm, but they are an extreme example, not an outlier.
In the 1980s, there was a management fashion for huge portfolio organisations. It led to giddy rises and falls. A classic example is Grand Met, the hotel company that expanded into catering, dairy, casinos, brewing, tobacco, and holidays. It bought Pillsbury and Burger King. Eventually, it was hard to see where the benefits were in having these businesses under the same headquarters, which often hemmed in managers, drew executives away from customer-facing units, constricted the flow of information and locked distant delay into the ecosystem they had acquired. Everything was sold off, save the drinks business which is now called Diageo.
I don’t think the technology megavendors are like this. I think there’s huge value in having an integrated offer, not the least because there are some solutions, like enterprise hardware, where it’s very hard to make money — but are needed for everything else to come to the market.
Sadly, few large vendors are able to really explain this added value. They have ready-made international communications rhetoric about coherent values and culture. I see the negative impact on sales created when these firms struggle to develop a convincing and candid story about the value they are creating for customers. Business units often seem under too much central control, often preoccupied with toxic internal controls which are quite distant from the concerns of clients’ organisations.
If these organisations can’t show their value, then they will reach the same tipping point as Grand Met. Sadly many of them are so internalised that they can’t accept that the discontent they obviously sense can suddenly tip into customer frustration and shareholder anger.
AWS is the new powerhouse, with it approaching mega-vendor in its scope.