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Saturday, November 30, 2002

Andreessen on the Future of IT Commoditisation

Netscape founder Marc Andreessen looks at the future of IT, and sees ousourcing big-time. Well he would wouldn't he, his company Opsware (formerely Loudcloud) has selling IT services at its core. But still his argument makes a lot of sense. (My thanks to Brad de Long for putting me on to this one).

Andreessen thinks the reason we're seeing such dramatic across-the-board commoditization now is because of what he calls a "maniac" focus on cost-cutting among customers. "In 1995," he explains, "the reference architecture at companies was Sun/Oracle/EMC/Cisco, or their comparable competitors. That was still true in 2000 when the bubble ended, because people could still afford it. Now they can't."

Now customers are finally taking advantage of the commoditization that had been creeping along largely unnoticed during the boom. All this has created what Andreessen believes to be a one-time "systemic decline" in the cost of tech infrastructure. But of course it costs a heck of a lot more to operate all this stuff than to acquire it. Andreessen says it costs 6 to 8 times more over time. That's why IT staff constitutes, on average, something like 40% of the overall corporate IT budget. Getting rid of all those expensive people is a top corporate priority, because it would be the best way to cut costs.

Meanwhile, customers have been putting an essential task on hold--installing new applications. It's because there's not enough money, and because CIOs feel burned. Says Andreessen: "Most of the software ideas of the late '90s which people tried and failed on--customer relationship management, marketing analytics, supply chain management, B2B procurement--those ideas all made sense and had good business justifications. But the tech wasn't quite there. Many customers who bought early feel bitter. But at some point those things will hit the mainstream and work."
Source: Fortune

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