Constellation's Research Outlook For 2011

Table of Contents Purpose and Intent ............................................................................................................................ 3 Disclosures ......................................................................................................................................... 3 Disruptive Technologies: Growing Enterprise Adoption – And A Few Bumps Along The Way ............. 5 Next Gen Business Models: “Outside In” Strategies Proliferate – With An Eye Towards Pragmatism. . 7 Legacy Optimization: Flat IT Budgets And New Projects Increase Pressure On Legacy Costs ............... 9 About Constellation Research .......................................................................................................... 11 © 2010 Constellation Research, Inc. All rights reserved. 2

Purpose and Intent This document serves as a planning assumption for business technology buyers seeking clarity into disruptive technologies, next generation business models, and legacy optimization efforts. This Research Outlook provides insights into what may occur in 2011. Disclosures Our client’s trust is important to Constellation. As a result, we provide openness and transparency into our financial relationships. With our clients permission, we publish a list of our client base on our website. © 2010 Constellation Research, Inc. All rights reserved. 3

Organizations Seek Measurable Results In Disruptive Tech, Next Gen Business, And Legacy Optimization Projects For 2011 Enterprise leaders seek pragmatic, creative, and disruptive solutions that achieve both profitability and market differentiation. Cutting through the hype and buzz of the latest consumer tech innovations and disruptive technologies, Constellation Research expects business value to reemerge as the common operating principle that resonates among leading marketing, technology, operations, human resource, and finance executives. As a result, Constellation expects organizations to face three main challenges: (see Figure 1.): Figure 1. Innovative Organizations Face Three Main Challenges In 2011 • Navigating disruptive technologies. Innovative leaders must quickly assess which disruptive technologies show promise for their organizations. The link back to business strategy will drive what to adopt, when to adopt, why to adopt, and how to adopt. Expect leading organizations to reinvest in research budgets and internal processes that inform, disseminate, and prepare their organizations for an increasing pace in technology adoption. • Designing next generation business models. Disruptive technologies on their own will not provide the market leading advantages required for success. Leaders must identify where these technologies can create differentiation through new business models, grow new profit pools via new experiences, and deliver market efficiencies that save money and time. Organizations will also have to learn how to fail fast, and move on to the next set of emerging ideas. © 2010 Constellation Research, Inc. All rights reserved. 4

• Funding innovation through legacy optimization. Leaders can expect budgets to remain from flat to incremental growth in 2011. As a result, much of the disruptive technology and next generation business models must be funded through optimizing existing investments. Leaders not only must reduce the cost of existing investments, but also, leverage existing infrastructure to achieve the greatest amount of business value. Disruptive Technologies: Growing Enterprise Adoption – And A Few Bumps Along The Way A flurry of mobile, social, cloud, analytics, and unified communication technologies from the consumer tech world continue to enter the enterprise. Technology buyers can expect that: • IT teams will face device proliferation while hardware vendors will face device flops (@maribellopez). In the mobile landscape, organizations have spent the past decade trying to consolidate everything into a single device that we deemed the “smartphone”. Today, the adoption of devices like the iPad and Kindle demonstrate that consumers and businesses are willing to embrace a device that excels at a singular or small number of functions. IT will soon realize that it will be supporting at least two devices per person, if not three. Why? Tablets can’t replace laptops for most employees; and smartphones while ubiquitous are good for specific tasks. Thus, organizations will see employees using different devices for different apps. A majority of the tablets in use in 2011 will remain employee-purchased which will cause IT to formalize employee-liable policies for security, manageability, and reimbursement. After the successful introduction of the iPad, everyone believes they can build and sell a tablet. Dell, HP, RIM, and others will struggle to compete against Apple as they look for the right combination of user interface and applications to drive demand. Android-based tablets will fare better but only if the OEM has provided significant software wrappers to plug security, manageability and UI issues. • Large enterprises will stall on adoption of cloud for voice communications (@eherrell). Despite announcements by major vendors, the cost model for replacing on- premises based voice equipment will not justify moving voice communications to the cloud in 2011. Cloud adoption will most likely begin to pick up during last quarter of the year, when pricing models become more competitive. • Cloud security will trump on-premises efforts (@fscavo). 2011 will be the year when SaaS providers find the issue of security turning from a perceived weakness of their offerings to a perceived strength. A handful of well-publicized targeted attacks against in-house IT applications, similar to what was seen with the recent Stuxnet worm, will lead many corporate executives to conclude that their in-house IT organizations can’t match the level of security offered by SaaS providers. © 2010 Constellation Research, Inc. All rights reserved. 5

• Forecasts in cloud security breaches will call for partly cloudy cloud adoption (@rwang0). Despite the woes in on-premises security and move to the cloud, cyber attacks will force companies to move from public clouds to private clouds in 2011 . Concern about cyber gangs hacking into commercial and military systems leads to a worldwide trend that temporarily reduces public cloud adoption. Hybrid models for apps in the public cloud and data in the private cloud emerge as users migrate from on-premises models. Data integration and security rise to key competencies for 2011. The bottom line – improved data security reliability will drive overall cloud adoption in the latter half of 2011. • Android will become more enterprise friendly by fixing major manageability issues (@maribellopez). Android, while very popular with consumers due to its Verizon relationship, still strikes fear in the heart of IT. Its lack of on device hardware encryption, which even Apple supports, makes it a non-starter for some IT organizations. In general, Android will need to fix its support for Exchange including areas such as 802.1x WPA2 wireless network authentication, corporate proxy servers, Cisco VPNs using certificates, OpenVPN, CalDAV, remote wipe, and managed apps and configurations. Sure, Android is a consumer platform, but consumer phones are now enterprise phones. Google must address these issues or risk losing share in its war against Apple. • Social media landscape transforms into information commerce (@briansolis). The social media landscape will undergo an interesting transformation as it ushers in a genre of information commerce and the 3C’s of social content – creation, curation, and consumption. While blogging typically resides in the upper echelons of the social media hierarchy, new services further democratize the ability to publish and propagate information. 2011 heralds the year of information curation and the dawn of the curator. Curators introduce a new role into the pyramid of Information Commerce. By discovering, organizing, and sharing relevant and interesting content from around the Web through their social streams of choice, curators will invest in the integrity of their network as well as their relationships. Information becomes currency and the ability to recognize something of interest as well as package it in a compelling, consumable and also sharable format is an art. Curators earn greater social capital for their role in qualifying, filtering, and refining the content introduced to the streams that connect their interest graphs. • Enterprise social software migraine (@sameerpatel). On the Technology front, expect a lot of noise and confusion on the social and collaborative front when it comes to customer, employee and partner collaboration. Technology will come from 4 camps: Pure Play Enterprise Social Software Vendors, ERP and CRM providers layering in collaboration and community features, Networking and UC providers adding social networking to VOIP and Online Meeting offerings, and finally, specialist HR and LMS vendors extending their offerings to include collaboration. From a distribution perspective, today’s largely direct sales model will see expansion into Telco reseller providers who have sold managed hosting solutions such as email and messaging in the past, as well as system integrator and strategy consulting providers that are ramping up practices. Due to the nature of rapidly evolving use cases for social software, traditional sourcing mechanisms and criteria that might work for static ERP and CRM system selection will be inadequate to make long term and roadmap decisions on tools and integration for enterprise social software. © 2010 Constellation Research, Inc. All rights reserved. 6

• Tools, networks and services that cater to the role of the curator will emerge (@briansolis). Storify, Curated.by, Pearltrees, and Paper.li break through as the coveted services of choice amongst curators as they not only enable the repackaging and dissemination of information, but also deliver in captivating and engaging formats. Similar to blog posts, curated content represents social objects and curation services will spark conversations and reactions, while also breathing new life and extending the reach of existing content – wherever it may reside. Curators play an important role in the evolution of new media, the reach of information, and the social nicheworks that unite as a result. Curators promote interaction, collaboration, as well as enlightenment. More importantly, services that empower curators will also expand the topography for content creation. Forrester estimates that 70% of social media users are simply consumers, those who search and consume the content available today…but never say anything in public about it. However, the ease of curation combined with the pervasiveness of micro blogging start to entice consumers to share information, converting the static consumer into a productive curator or creator • Social analytics will evolve from ad hoc experiments into refined information services (@rwang0). Organizations will continue to experiment in listening services that filter out noise from the social sphere, identify trends that deliver insight, and create models that support prediction. As algorithms increase in complexity, adapt to regional and cultural differences, and require greater vertical specialization, the end customer organization will no longer be able to support in house efforts. A new breed of information brokers will deliver social analytics at a scale that will support the challenges of big data in heterogeneous systems. Expect vendors such as Alterian, Attensity, Buzzmetrics, Cymfony, IBM, Radian6, SAS, Scoutlabs, Telligent, and Visible to shift their business models from software vendors to information brokers. • “The Cloud” will become the new Social Media (@ekolsky). Always looking for a technology or tool to overhype, the recent announcements from Oracle, SAP, Microsoft, Salesforce and many smaller vendors in the enterprise applications world has placed “The Cloud” as the center of controversy for 2011 and into 2013-2014. The lack of coherence and understanding of “The Cloud” will result in many wasted dollars trying to implement models that are not sustainable, or reliable, for organizations, fees paid to consultants with no real knowledge of the market, and failures that will only serve to reduce the speed of adoption of “The Cloud”. Buyers will still have to wait until 2015+ to see what happens, as most vendors have just begun developing their strategies and organizations have not yet adopted the model in sufficient numbers to justify faster R&D from vendors (with few exceptions). Next Gen Business Models: “Outside In” Strategies Proliferate – With An Eye Towards Pragmatism. Business model innovation will rely more on disruptive technology in 2011. Leading organizations will strive for a better synergy between business and technology. Constellation expects that: • Citizen engagement platforms will get more open despite the emphasis on security (@ideagov). The combination of the blow back from wikileaks; and the Republican takeover in the U.S. House of Representatives will lead to a rash of “military grade encryption packages” that will be stacked on top of many apps and platforms. Whether they work or not will not matter. Conversely expect to see an explosion of citizen engagement platforms striving to be even more “open.” © 2010 Constellation Research, Inc. All rights reserved. 7

• Organizations will put business back into social business (@sameerpatel). As organizations increasingly start to see the benefits of deploying social and collaborative initiatives to improve employee, customer and partner engagement, they will soon begin to realize that the decade old notion of streamlining repeatable processes made popular by ERP and CRM system-of-record deployments was largely over promised. In practice, customers and prospects have unique questions not answerable in the knowledge base or by marketing; employees living in rigid ERP systems need to constantly find experts who have the best answers and to collaborate with them. And reseller partners are constantly spending time looking for the right answers not available on asynchronous partner portals to keep end customers happy. Silo’d but open collaboration initiatives on activity streams and other enterprise social networking utilities currently being deployed will expose such engagement not historically possible in an ERP or CRM laden design. Consequently, LOB and IT leadership will realize that traditional process approaches and fluid collaborative constructs need to come together to truly accelerate business outcomes. • Sexy will be out for social media (@ekolsky). Organizations will realize that for something (social media) to feel sexy there is a lot of work that needs to happen behind the scenes. Time to pay the piper, as they say, and begin to build integrated platforms that can leverage social channels in constructing healthier, better relationships with customers. Despite the focus on tools and technologies, leaders will begin to realize that it is just about processes and people with support from technology. Want to get ahead? Plan, plan, plan – then roll up your sleeves and start doing, strategically speaking. • Organizations will get serious about mobilizing apps and embrace the platforms to support mobility (@maribellopez). In 2011, firms will deploy enterprise mobility management tools to support multiple device types and operating systems. Companies will also focus IT resources on moving line of business apps to devices. While cloud-based platforms and SaaS gain in importance, a majority of firms (75+%) will turn to in-house resources for development. As a result, firms will adopt mobile enterprise applications platforms and mobility frameworks to help them port apps using existing IT resources. • The distinction between BPO and ITO will blur (@pfersht). Integrated offerings from service providers with broad capability gain market share. With the leading IT services providers all heavily pushing BPO capability, there will be increased blurring of offerings as industrialized process solutions become more popular. Process-only BPO will continue to proliferate across horizontal offerings where there is significant labor arbitrage opportunity, namely finance and accounting, order management and procurement, however within industry-specific process, platform-enabled offerings are the only way providers can develop cost-effective utility models across their clients. • P2P will displace the old notions of B2B and B2C in social business (@rwang0). B2B and B2C will cease to exist in 2011. Organizations will conduct social business through Peer-to- peer (P2P) relationships. Attempts to stove pipe individuals into forced-fit, artificial market segmentations will fail because each individual brings multiple roles to the community. Each role brings a new perspective and a set of expectations in customer experience. Organizations will have to retool to the new rules of business and also move beyond social. © 2010 Constellation Research, Inc. All rights reserved. 8

• Sustainability software will lead to global starvation (@dahowlett). Sustainability software will conclusively prove that cows are the biggest contributors to greenhouse gases. The ensuing bovine cull will ensure population starvation on a massive scale thus solving our climate change issues. Those flogging carbon solutions will be put out of business. Legacy Optimization: Flat IT Budgets And New Projects Increase Pressure On Legacy Costs Between 66% and 75% of most technology budgets go towards supporting legacy systems. In order to make the shift to support new business models and disruptive technologies, leaders will have to find ways to optimize existing investments. Leading organizations can expect that: • Corporate IT spending will barely keep up with dollar inflation (@fscavo). Corporate IT spending in the US and Canada will increase a small 2.0% at the median, after two years of flat budgets. In addition, although most IT organizations are not currently adding to staff counts, we do see a significant upturn in initiation of new major projects, extended work hours for IT employees, and increasing use of IT contractors. This will lead to an improved IT employment picture by mid-year. • Technology refresh cycles will accelerate through 2011 (@ekolsky). The recent 2-3 years “nuclear winter” in enterprise applications, which coincided with the advent of social channels and social technologies, will give way to a massive acceleration of technology refresh channels – especially in Customer Service departments – leading to large-scale adoption of both new technology related to social media as well as new technology that was scheduled for later adoption. This large-scale adoption will result in several smaller vendors with innovative offerings gaining a sizable presence in Contact Centers and a disruption of the model for old- technology vendors that cannot adapt quickly to the changes we are seeing. • Organizations will cautiously recommit to BPO (@pfersht). Business Process Outsourcing uptake will creep back throughout 2011, as the recovery stutters and buyers pull the trigger on sourcing initiatives, however, many of the deals for the first-time buyer will be small in scope. Many businesses paralyzed by the Recession have been operating a “wait and see” strategy through 2010 regarding their Business Process Outsourcing (BPO) options. However, a slowing recovery and a growing pressure to meet budgets will drive a steady wave of increased BPO evaluation and contract signing in 2011, especially in Finance and Accounting and Procurement. HfS demand-side research has pinpointed a strong interest from buyers to increase scope in existing BPO contracts, and close to one-in-four businesses in the mid- market ($1bn – $3bn in revs) are expecting to investigate their first steps into F&A BPO. Moreover, many BPO services providers are more determined than ever to “penetrate and radiate” customers with initial small-sized contracts, due to the shortage of attractive captive acquisitions and affordable competitive acquisition candidates. © 2010 Constellation Research, Inc. All rights reserved. 9

• Organizations that reevaluate their IT strategies and contracts hand in hand will save the most money. (@rwang0) Most technology procurement strategies fail to align with IT strategy and vice versa. Consequently, buyers end up with extra device capacity and shelfware. As organizations consider their legacy optimization strategies, successful teams will bring enterprise architects, IT leaders, procurement teams, and business units together to identify waste to pay for innovation. Two -tier ERP and third party maintenance will prove to be examples where alignment can be achieved to create win-wins for IT and line of business leaders. • Organizations held hostage by high and useless software maintenance contracts will lead a massive backlash (@rwang0). Organizations faced with market pressures to create strategic differentiation amidst the burden of legacy systems will need to find a way to pay for innovation. Software maintenance fees will come under attack as user groups and leading organizations will spearhead efforts to renegotiate existing enterprise software vendor contracts. Existing software vendors caught off guard will suffer through a PR disaster that will cost them significant future sales. Third party maintenance vendors will continue to emerge to combat vendor-lock in and maintenance hegemony. © 2010 Constellation Research, Inc. All rights reserved. 10

About Constellation Research We are a next generation research firm. Our analysts bring real world experience, independence, and objectivity to our clients. In a world of fluffy and trendy buzzwords, our clients seek our advice in achieving sustainable and pragmatic innovation. Clients expect our research agendas to span cross-role, cross-functional, and cross-industry points of view. We serve the needs of buyers and end users who seek insight, guidance, and advice in dealing with a dizzying array of disruptive business models and technologies. We provide the bridge between legacy optimization and future innovation. We help sellers understand the buyer’s point of view and how to deliver value to their customers. Our technologies team covers hardware to middleware to software to services. We advise the entire ecosystem of buyers, partners, solution providers, and vendor clients. We look forward to building a partnership with you. You and your organization’s success is our mission. Warmest regards, R “Ray” Wang Principal Analyst & CEO Website: www.ConstellationRG.com Twitter: @ConstellationRG.com Contact: info@ConstellationRG.com Sales: sales@ConstellationRG.com Andalucia | Boston | Chicago | Colorado Springs | Cyprus | Geneva | Halifax | Irvine | London | Los Angeles New York | Sacramento | San Francisco | Sedona | Tampa Bay | Tokyo | Washington D.C. © 2010 Constellation Research, Inc. All rights reserved. 11

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Constellation's Research Outlook For 2011

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