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Monday 5 November 2007

Think Liquidity.

Professional investors understand liquidity. They understand asset backed securities, and they understand the risks when assets subsequently emerge to be poorer quality than they were represented to be. Sub-prime assets can be embarrassingly illiquid and career changing.

In the world of enterprise IT investments, customers have likewise yearned for liquidity. Lock-in to assets available solely from any single vendor implies significant risk to the purchaser. Bad investment decisions into IT assets which subsequently emerge to be poorer quality than they were represented to be, can be embarrassing and career changing – particularly if the assets are illiquid and difficult to replace.

Financial markets have been driven by liquidity. However by contrast, purchasers of IT assets have found it challenging to be able to subsequently replace and substitute alternatives when desirable.

Until now.

Today, I believe that the software and hardware industries are fundamentally changing in favour of liquidity. Software is increasingly componentized. Software has increasingly recognized industry standards which facilitates substitution of alternatives. Open source provides liquidity through lowering the cost of change.

Enterprise software vendors should be trusted partners in providing and maintaining tailored solutions. The ability to successfully integrate a variety of components from a variety of sources to an enterprise level of service is valued. The ability to scalably manage multiple configurations, and evolve them dynamically over time, is valued. Tailorable, personalized solutions for specific customers, partners and staff, but all as part as of the holistic enterprise, are valued. Dynamic systems enable liquidity amongst software assets – no matter from which particular vendors specific assets are obtained.

New, and sustainable, business models are emerging from software vendors who deeply understand technology liquidity.

Single, monolithic, vertically integrated silos of software stacks is thinking from the last century. Integrated stacks are illiquid if any specific components or layers cannot be readily substituted by better alternatives on the market today, or which may emerge tomorrow, from any vendor.

It does not take an oracle to foresee what will happen if BEAS are purchased by ORCL. Overlapping products – portal servers, application servers, service busses, Java development platforms, whatever – will be culled: “synergies” throughout the two organizations will be executed. ORCL will attempt to cross sell its own offerings into the BEAS client base and migrate them away to ORCL alternatives.

Professional investors understand liquidity. Even if they are new to investing in IT equities, they therefore should have little difficulty in understanding that enterprise IT customers likewise yearn for liquidity of technology assets. In the past, enterprise vendors have been slow to offer liquidity. Now, the IT industry is changing fast, and the potential upside for investors in IT is vendors who understand and are executing on technology liquidity: vertically integrated illiquid stacks are from a former and sub-prime era.

Think liquidity.

1 comment:

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