ANALYSTS FROM HURWITZ GROUP SHARE THEIR THOUGHTS
by S. Ward, T. Thorne, et al

Analysts from Hurwitz group share their thoughts on the upcoming year with a focus on enterprise business applications, e-services and sourcing, and security.

TOP TRENDS FOR 2001, ENTERPRISE BUSINESS APPLICATIONS
by Sharon Ward, director, and Tracy Thorne, analyst

Midmarket explosion

Evolution of customer-centric business: The customer owns the customer. The Year 2000 saw a growing awareness of the midmarket as a viable target; 2001 will see an explosion in this space as companies scramble to adopt newly available offerings targeted to them. Hurwitz Group believes that this explosion will be marked by a continued evolution of suite applications. The key consideration for solutions that serve this market is the level of integration.

The existing arms-length partnership strategies will not suffice in terms of depth and functionality. Companies will need to reexamine existing partnerships to see how they can be deepened. Acquisitions will accelerate, and in many cases acquisition strategies will replace partnership strategies. Coupled with the continued failure of some niche players, this will result in a shrinking number of competitors and also lead to price reductions to suit the leaner budgets found in the midmarket.

Although short implementation timelines have been a key differentiator recently, quick implementation will now evolve into an expectation as vendors are forced to adopt more concise methodologies to meet customers' business needs and budgets. Differentiation will shift toward a focus on vertical niche market solutions, with solutions targeted even down to the individual SIC code. This microvertical strategy has been adopted by PeopleSoft and SAP, along with Frontrange and several others.

Customer-centric business initiatives will evolve beyond the initial realizations of this past year. The convergence of CRM, personalization, and collaboration that began in 2000 will continue rapidly as a result. In terms of customer relationships, growing sophistication around the metrics of customer acquisition and retention will replace a sense of "one size fits all" solutions that fail to differentiate between key customers and less valued customers. Companies will look for tools that provide a full picture of the customer, whether in the context of marketing, sales, support, or partnerships.

Access to information from all business processes and communication channels will be considered vital for every customer-facing employee, whether engaged in pre or postsale interaction with customers and prospects. Companies must prioritize customers to maximize returns and utilize the information across functional areas. Just as the lines between analytical and operational CRM blurred in 2000, the lines between the three pillars of CRM -- sales, marketing, and support -- will blur in 2001 as marketing initiatives feed into the sales funnel and spur interaction with the company via support. Also, support technologies will service marketing and sales initiatives, and sales tools will seamlessly facilitate opportunities for marketing and service.

The automated personalization frenzy will be followed by a return of the human touch to business processes, such as marketing campaigns, content delivery, and support. Personalization will be subsumed into any CRM initiative in the forms of guided selling, interactive dialogs, and multiple touchpoint communications with a greater sense that selling and relationship management are not merely technologies, but a process and practice.

In 2000 the message around personalization focused on how it helped the seller; in 2001 personalization will be judged by its ability to service the customer. This will be personified by such offerings as Siebel's OnLink, or Finali's "socially engineered" guided conversations with inanimate yet extremely likeable and lifelike characters. Configurators will also evolve in this direction and move away from strict rules-based offerings into more conversational models that guide the customer to an appropriate solution.

The word "customer" will continue to expand in its usage beyond a mere end user sense to include partners and suppliers. This expansion will add fuel to the drive toward collaboration, which up to now has been manifested mostly as a portal user interface. 2001 will see the emergence of true collaboration applications. These applications will go beyond the mere passing of information between entities to real functionality that enables customers, suppliers, and partners to access information from each other's business systems quickly and to transact business seamlessly. The first applications to manifest this strongly collaborative approach will be supply chain applications (e.g., Worldchain) and partner relationship products such as those from InfoNow, Marketsoft, and Channelware.

E-SERVICES AND SOURCING STRATEGIES
by Bill Martorelli, vice president, e-services and sourcing strategies

Top trend for 2001

With such a tumultuous year behind us, what can we look forward to in 2001? For one thing, the free flow of venture capital that sustained dot.com enterprises and the e-Services companies that served them has slowed to a trickle, along with immediate IPO prospects (pending a change in the market environment). The result of this will be a year of rationalization and consolidation amidst a continuing search for sustainable, profitable operating models. Specific manifestations of this macrotrend include the following:

e-Business Integrators: Focus, Focus, Focus

Many e-Business integrators were able to thrive prior to the dot.com slowdown, even though they sold virtually indistinguishable services. Going forward, however, only the best managed firms with a clearly identifiable value proposition and effective differentiation will manage to rise from the ashes, leaving the rest as fodder for consolidation or worse.

Those that succeed will have to achieve effective focus, whether in terms of the specific service lines that they provide, or through qualitative differentiation in terms of how they provide them -- most often a combination of these two dimensions. Demand for e-Business services will reemerge, although its character has changed irrevocably. From now on, specialized expertise, including vertical industry skills and significant integration capabilities, will be the focus of customer demand.

ASPs: Survival Strategies

Without ready access to capital or "low-hanging fruit" in the form of emerging dot.com enterprise customers, ASPs will be concerned principally with survival during 2001. The limits of operating leverage afforded by direct, horizontal ASP models have already become apparent. Can ASPs succeed in penetrating the enterprise market with incremental strategies that can coexist with existing IT capabilities? Further, can the ASP market avoid the impact of more high-profile failures? If so, the ASP may achieve a "soft landing" with regard to excessive expectations, and the real promise of the ASP model may finally be realized.

The ASP market will continue to be highly diverse. Among other things, successful ASPs will pursue well-conceived, vertical, industry focused, and business process-oriented ASP models. Hosted solutions for intra and interorganizational business processes as supported by Asera and Collaborex will grow in customer appeal.

Hosting Market Continues to Emphasize Managed Offerings Amidst Continuing Consolidation

The hosting industry will continue its consolidation dance amidst the gradual shift from colocation to managed hosting models, with the likelihood of several high-profile acquisitions remaining very high. The progress of preconfigured infrastructure offerings from suppliers like Loudcloud in the enterprise market will be telling in 2001. The idea of preconfigured, packaged infrastructure promising significant time-to- market advantages was an idea originally conceived in a dot.com oriented environment. Hosting providers will continue to emphasize value-added services, including fully managed hosting services in the search for higher EDITDA and ultimately, profitability. However, the key question will be which companies succeed in selling these managed services to enterprise accounts in a way that minimizes or circumvents potential IT resistance.

PSA Goes Mainstream

Faced with weakness in the IT professional services sector that helped spawn the PSA movement, PSA suppliers will accelerate their efforts to expand their product lines into other vertical industries, including law, public relations, government, and other service enterprises. PSA vendors will also seek to emphasize the applicability of their solutions to the enterprise market. In this market, utilization is not much of a driving factor to service firms, compared to the potential importance of improved resource management.

2001: The Enterprise Customer Is King

Like the rush to the center in American politics, the collapse of the dot.com segment has contributed to a rush to the enterprise customer. Those e-Services companies that best address the desires and concerns of this customer category will thrive best in 2001. But what will drive them? The reduced threat of being outflanked in the Internet economy along with current economic conditions is surely influencing buying behavior. So far, enterprises are willing to pay premiums for time-to-market advantages, and cost pressures for e-Services appear manageable. A sustained economic downturn might broaden outsourcing's appeal, but in a way that emphasizes cost savings as opposed to business opportunity. In any event, the enterprise segment will continue to favor those suppliers capable of extending a mature service provisioning philosophy, as well as those capable of addressing their typically extensive integration requirements.

SECURITY STRATEGIES
by Pete Lindstrom, senior analyst; Bob Lonadier, director, security strategies; and Rich Ptak, vice president, systems and applications management

Top trend of 2001: Managed security services

As we move into 2001, organizations have been spurred into action by a need for a much stronger sense of security, particularly in intrusion detection. Unlike firewalls, intrusion detection systems do not merely prevent activities from occurring, so they can't just be configured and forgotten. Intrusion detection systems are like the puppies some will receive for Christmas this year -- they start off as a great and popular idea until it becomes apparent that they require a significant amount of "care and feeding" if there is to be any hope that they will accomplish what is expected of them. The demand for managed security services will be driven by this realization and will be reinforced by the recognition of the existence of a couple of other "missing ingredients":

• Scarcity of security expertise -- the ability to hire and retain professionals who can (and want to) read logs and evaluate the security implications.
• Requirement for intense focus -- the ability to dedicate resources to the monitoring of network traffic without distractions.

The Hurwitz Take

Security functions and their implementation are highly sensitive to the idiosyncrasies of each organization. This means that any and all outsourcing decisions require careful deliberation. Although operations and daily monitoring of devices and network traffic can be outsourced, the ultimate and final responsibility for activities and decisions about such issues as risk assessments, security architecture, configurations, and incident response must stay firmly within the organization. In fact, one of the best benefits of outsourcing security services is that these other activities must be performed to ensure that an SLA (service level agreement) has been developed that is specific enough to truly protect an organization's interests.

Managed security services represent an excellent alternative for organizations unable to establish and fully staff a security operations center to operate 24x7 to monitor security. This solution can provide a company with the dedicated resources necessary for proper monitoring of network traffic as a means of identifying and responding to potential attacks.

A number of challenges loom over managed security services that must be dealt with in 2001. These challenges include:

• Determining a mutually beneficial pricing model
• Understanding and articulating clearly the multiple aspects involved in the delivery of different security services
• Integrating the managed security service decision with the many other outsourcing decisions being made within an organization
• Selection of an MSP from the many that are cropping up -- with everyone from local systems integrators to security boutiques and the "omnipresent players" attempting to position themselves as the dominant solution provider.

All of these points must be considered, but in the end, it boils down to one thing: The word "trust" will be used frequently in the year to come.