NonStop - A Running Commentary - October, ‘08

The opinions expressed here are solely those of the author
and shouldn’t be viewed as reflecting any views
of his current or past employer

It’s the economy, stupid! It seems we cannot go anywhere these days without being subject to headlines screaming out the news of the worldwide economic meltdown. The only one who seems to be escaping it is Warren Buffett, again, and he’s picking up rock-solid corporations for chump-change. When JP Morgan bought Bear Sterns, one headline I saw blurted out “JP Morgan Buys Bear Stearns For Pennies On The Dollar … from the bubble-bursting-or-economic-collapse? Department!” In the past you could always find companies selling travel for pennies on the dollar but now it has spread to land, houses, and even to large financial institutions. 

Against this developing background I attended ACE in Scottsdale and sat through the key presentations on Monday and mingled with the attendees at the Sunday and Monday night receptions. I have reported my observations in three blog postings that you can read at www.itug-connection.blogspot.com – look for:

September 15^th, 2008: ACE is the place! 

September 18^th, 2008: The Blues! 

September 25^th, 2008: Beautiful sunsets, aren't they?

 I don’t plan on revisiting the material I covered in these postings but rather, look at the impact of the economic collapse we are all witnessing. I was living in Raleigh, N.C. in 1987 when Black Monday occurred and where the Dow Jones Industrials Average plummeted 508 points, losing greater than 20% of its value on just that one day of trading. And I will always recall the volumes involved and how trading in many of the stocks was delayed, and even halted, as the frenzied specialists tried to keep up with their customers demands in real time. Some of us may even recall how the scalability of NonStop was really put to test and where additional processors were added to the NonStop systems in real time and without requiring any downtime – a major endorsement of the architecture of NonStop and unmatched by any other server or mainframe of the day.

But out of this collapse we are seeing the reshaping of the financial services landscape. When I awoke this morning, I was told of the sale of Wachovia to Wells Fargo at a fire-sale price yet energetically endorsed by the board of Wachovia. This is of huge significance for Wells Fargo as they had lacked access to the US Eastern Seaboard. It had the same feel about it as was evident when JPMorgan Chase bought Washington Mutual, pretty much as a bankruptcy salvage transaction, and gained immediate access to the rich American West Coast – a deal it happily pursued only weeks after the Bear Sterns bail out. And let’s not forget Bank of America scooping up Merrill Lynch either! 

I have no doubts when this all winds down, we will see in the US a core of only four or five major banks with broad branch and ATM networks spanning the whole country in much the same way as we see today in places like the UK, Canada, Australia, France, and Germany. The model of small, independent, regional banks that emerged out of Black Tuesday, 1929, has been obliterated from the financial landscape. Instead, a small set of mega data centers will emerge and the data that they collect in real time will become even more valuable and in need of even more protection than ever before. Indeed, as one of these deals closed, within 24 hours one provider of security middleware products was contacted by both companies independently to see if the same product was installed on the others’ systems!

But there is a dark side to all of this – particularly to those that continue to maintain close ties to user communities. Consolidation on this scale is certainly going to have an impact on how many users remain – no matter who the vendor is. When I chaired my first ITUG Board meeting in 2004, I gave a brief update on membership. To illustrate my own findings, I traced the histories of three companies – one each from financial services, the telco marketplace, and retail. Between the three of them, they had consumed 28 former users of NonStop technology that had participated in ITUG events only five years earlier. In other words, 31 users were reduced to just three and even though the transaction volumes, and hence the systems deployed, grew materially – all good news for the primary vendor, of course, but damaging all the same to the rest of the technology ecosystem dependent on a much broader community. In today’s climate, I have no idea how many former users would be under the umbrella of the financial behemoths referenced earlier in this article.

And there’s a darker side for application vendors who were building their future business around Software as a Service (SaaS). All too recently this was the buzz with the understanding that many companies in the financial services market could benefit from the reduced costs of SaaS. But if the middle tier is fully consumed by the big banks, the only market that may remain is that of very small, financially-strapped, local banks. Not an altogether appealing proposition. Already, we have seen JPMorgan Chase CEO, Jamie Dimon, , following the merger between JPMorgan Chase and Bank One, tear up the huge outsourcing agreement the banks had with IBM.. One commentator observed how Dimon believed that “The recent merger between JPMorgan Chase and Bank One created a new firm with significantly greater capacity to manage its own technology and infrastructure”. And Fortune magazine, only a few weeks ago, reported one of Dimon’s execs as saying “When Jamie came, he ended America's biggest outsourcing deal with IBM because he considered tech a core competency."

Companies expecting new revenue sources from these new big mega banks are going to come away with empty pockets, as truly tech has become the core competency. As Sami Akbay, Vice President of Product Management and Marketing at GoldenGate explained to me, “banks have evolved to become the ultimate IT organizations – if it weren’t for the suits and ties disguising them, you could never tell them apart from other high-tech businesses. Today’s transactions are bits and bytes, whether using magnetic striped cards and EFTs or Paypal; exchanging completely digitized information; in pajamas over the Internet, buying and selling (virtual) securities, traded in electronic markets. With the exception of ‘banknotes’ that people occasionally exchange these days; everything in banking is about technology. ‘Technology’ companies sell banks the parts; wires, networking equipment, servers, software components, services but banks are applied technology businesses. As the dust settle, the competition will be fierce because the few ‘buyers’ remaining will now have larger infrastructures, deeper pockets and more leverage; a deviation away from competition and, potentially, heading towards oligopoly.”

User groups will have to rethink their business models to remain viable. And perhaps they will need to get by on pennies on the dollar. But more significantly, ISVs will need to adapt – particularly those in the application marketplace – or they could be gone. As I talked with users at ACE during the evening receptions, it was very obvious that they were all very nervous and uncertain where the developments in the weeks ahead would lead. While, just those few weeks ago, we didn’t comprehend the full extent of the meltdown, looking back at the companies being talked about has become very sobering. Wachovia? Gone! Washington Mutual? Gone! Merrill Lynch? Gone! Lehman Brothers? Gone! Bear Sterns? Gone! And so the roll call continues, even as I write this. And I wonder, as did other participants at ACE that I talked to, will ACI be greeted with the same fete? Gone! Picked up for pennies on the dollar?