Analyst Trick #2: Look Back at History

A History major in college, I've always tried to gain insight into the future by looking back at the past. In my role as an industry analyst, that predilection is extremely useful.

Let's face it--trying to predict what will happen in the future is a task fraught with danger, and industry analysts are not always good at it. A decade ago, back when I was working on the vendor side, I remember amusing myself by reading three-year-old Forrester Research reports and seeing how far off their predictions were.

This isn't to say I haven't committed my own howlers. When I wrote the first analyst report on web analytics back in mid-2000, I forecast that the market would have revenues of $425 million in 2000 (up from $141 million in 1999) and enjoy robust growth for years to come. The $425 million number was actually pretty accurate--however, I didn't foresee the impact of the dot.com bust, which caused revenues to remain stagnant for the next several years. The web analytics market certainly didn't hit my predicted mark of $4 billion in 2004. So that mistake has turned into a history lesson for me: take into account outlier scenarios.

I've worked in high tech long enough that it's easy for me to see that new technologies are often old architectures wrapped in a new vocabulary.  For example, Ajax is another name for client/server on the web. In fact, client/server itself was a repackaging of an architecture used by the Wang VS minicomputer back in the 1980's, when every VS terminal contained a Z80 chip so that graphics could be performed on the terminal without sending an interrupt back to the central CPU after every keystroke. (In contrast, every terminal keystroke went back to the DEC VAX, which is why Wang always beat DEC in high-volume word processing applications.)

My latest invocation of history was in my report on Google Apps, Premier Edition. SaaS-based collaboration and content is a radical shift from the software model that we've used for the past fifty years, so it's difficult to figure out the trajectory it will take. Realizing that, I posited three possible scenarios based on past history:

Unfortunately, there is not a long track record on which to base a go/no go decision: buying GAPE means buying into a delivery model (SaaS), a product (Google Apps), and a company (Google) all of which are less than a decade old. Inevitably, an enterprise will base part of its decision on how the company believes Google and the market will evolve. 

While no one can predict the future with absolute certainty, there some probable scenarios based on previous technology cycles, described in the Previous Technology Revolutions section. They range from success, to muddling through, to disaster. These various scenarios help enterprises look at the wide spectrum of possibilities: making optimists admit that things could go wrong, and making pessimists admit that not all is doom and gloom.

Success Scenario: Google’s Bottom Up Plan Wins, Just Like LANs

In the mid-1980s, IT groups running mainframes and minicomputers were dismayed to see the arrival of network operating systems (NOSs) that linked PCs together via local area networks (LANs). Initially, LANs were toys: security was rudimentary and LANs failed frequently. Yet business users loved the idea that they could get their computer work done without having to call IT all the time. The bottom-up adoption process, driven by end users looking for ease-of-use and increased productivity, ultimately won out over controlling edicts from central IT. This occurred, in large part, because the NOS vendors quickly patched the initial product holes and were thus able to overcome IT’s initial objections.

Ultimately, business users demanding productivity—what Google is trying to foster—won out over stultifying technology supplied by IT. Furthermore, this change occurred quickly, in less than a decade.

Muddling Through Scenario: Creating the Computing Grid

Electricity took at least fifty years (1880-1930) to evolve from the invention of the incandescent bulb to the power grid as we know it today. The shift to “Electricity as a Service” was key to making electricity ubiquitous. It was only when homes and businesses took to buying electricity from the utility company, rather than creating it themselves, that electricity became cheap and adoption soared. 

So while the use of SaaS-based solutions will increase—certainly based on this scenario—it may take many years for the market to fully evolve.

Disaster Scenario: A Netscape-Like Meltdown

Within the space of five years, Netscape went from media darling to high tech shell. Founded in April 1994, the company first released a browser, capturing more than 60% of the then-nascent browser market within two months. Netscape was a maverick, utilizing rapid distribution capabilities and low prices to create a large and loyal customer base. However, flush with its success, the company moved beyond its consumer orientation and began moving into the enterprise e-mail and groupware space, taking on both IBM and Microsoft. Microsoft’s strong reaction to this interloper, coupled with Netscape’s reputation as an arrogant company, sealed Netscape’s fate, and it eventually lost its identity when it was sold to America Online. 

The parallels between Netscape and Google are eerie—initially consumer-focused, eventually going after the enterprise market, and being perceived as arrogant. The good news here is that Google has the Netscape story to learn from; the bad news is that it has already awakened the slumbering giant, Microsoft.

Comments

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Excellent article. Thank you for sharing!