Thursday, December 3, 2009

The New Fundamentals for the Future

The Endeca Discover 2009 conference started with an enlightening and spirited keynote from Paul Sonderegger, Endeca’s chief strategy officer. Entitled “The New Fundamentals for the Future,” the keynote produced a number of eye-opening facts, starting with the fact that 56 percent of US household wealth is in real estate and stocks assets. Thus, on average, since mid-2007, US household wealth has been severely undermined by over 20 percent.

But these worried and broke ordinary folks are not exactly helpless, since they are at least “wired.” The bestseller book “Groundswell” by Forrester analysts Charlene Li and Josh Bernoff defines “groundswell” as follows:

“A social trend in which people use technologies to get the things they need from each other, rather than from traditional institutions like corporations.”

For most brick-and-mortar retailers, there have been notable decreases in same-store sales, year over year, for the first three months in 2009. According to the listing of reported monthly same-store sales at and Endeca’s research, there were 66 percent, 63 percent, and 71 percent of stores reporting decreases in January, February, and March of 2009 respectively (over a year ago).

Similar negative trends have been seen in the predicted US advertising spans. Namely, the initial Carat’s prediction from August 2008 was a 3.1 percent growth in advertising; then the forecast was sharply revised in March 2009 to a 9.8 percent decline. Along similar lines, ZenithOptimedia predicted a 2.6 percent in June 2008, and revised the forecast to a 6.2 percent decline in December 2008.

However, both online retail sales and advertising spend continue to grow. Given the abovementioned groundswell effect of connected and informed consumers that can easily pass a verdict and disseminate news of any product or brand, there are the three new fundamentals for the future that every retailer, manufacturer, and software vendor has to keep in mind.

The first is the atomization of user experience. Namely, according to the Long Tail theory, companies will compete on ever-smaller and more specific product footprints and capabilities to satisfy ever-smaller niches, and all in a plug-and-play manner. Think of Apple iPhone OS applications.

Certainly, some of these are seemingly frivolous or ridiculous like the slew of fart applications or those that follow girlfriends’ menstrual cycles (and moods). There was even a despicable and eventually condemned and discontinued baby shaker application. On the other hand, there are some neat and useful applications like Shazam that lets the iPhone users identify music tracks from the radio, find them on iTunes Store and buy them from there, and share the tags with friends.

The second core principle revolves around innovations to facilitate IT operations. To that end, one should expect even more use of the concepts like virtualization, cloud computing, and service-oriented architecture (SOA).

Last but not least, there is the BT or “business technology” core principle coined by Forrester. Namely, BT denotes a pervasive technology use by casual users and end users, increasingly managed outside the direct control of IT departments. In other words, like in the abovementioned groundswell phenomenon, ordinary folks vie to “control their own destiny,” and require the use of technology with minimal (if not even zero) training. The recent post on the Forrester Blog for the CIO site says:

“How does BT show itself? Employees, customers, and partners are bringing Web 2.0 and social computing technologies into business processes; business leaders are directly contracting for online solutions and business process outsourcing; and users are configuring their own business solutions, using ERP applications from vendors like SAP or IT-provided platforms built from technologies like business process modeling (BPM).”

Part 2 of this blog series will explore how SAP is adapting to the outlined fundamentals above. One concrete example will be the recently unveiled SAP BusinessObjects Explorer product.

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