Tuesday, September 16, 2008

IT Hype and the valley reality distortion field

One of the problems that I have in my job is the problem of IT Hype, most especially the huge distortion field that appears to fall over Silicon Valley. When I'm working with companies who are going through a procurement phase its amazing to see this field spread across the globe via the blogosphere. Its the sort of field that tends to ignore companies like IBM or SAP because they just can't be encompassed within this idea that everything must come from the valley. So how do you get around that problem and make sure you make a smart decision?

Now its certainly true that the valley does have a disproportionate impact on IT, its a pretty small strip of land to have given birth to the likes of HP, Sun, Oracle, BEA, eBay and Google. That is damned impressive. The problem is that when you are looking for really good small companies to work with I'd argue that the bullshit to content ratio is never higher than in the valley.

Recently I've been looking at companies in a few spaces recently, which unfortunately I can't go into, and I've started to come up with a valley weighting system of how to score a company before you even go and see them, this is for the small guys not the established guys
  1. Current Revenue
  2. Current Customers
These two numbers give you the base line for the company, divide revenue by customers and this gives you an average spend, what you are looking for here is companies that appear reliant on a single customer. i.e. if they are talking to you about $40,000 spend and the average is $100,000 then either everyone loves it, or they've got a big marque client who they care the most about. Very common in finance this problem.
  1. Projected Revenue
  2. Projected Customers
This gives you where they are expecting to get. Again divide the two to see what the future spend per customer is, also look at current/projected for revenue to see the growth path.

Now we factor in the valley factor
  1. In the valley - Bullshit factor = 5 year growth projection * 0.5 (i.e. if its 10x growth in 5 years, bullshit = 10)
  2. West Cost - BF = 5 years *0.3
  3. Mainland US - BF = 5 years * 0.25
  4. Europe - BF = 5 years * 0.2
  5. India - BF = 5 years * 0.15
This gives you a basic financial BF which should then be weighed against the hype. Basically for each post on Digg or Slashdot add another 0.1 to the BF. Then look at the length of time the company has been around and not cash positive, add 0.2 BF for each year, finally look at the length of time the company has been around and not grown at similar rates (i.e. they are predicting a hockey stick graph after ten years of solid 5% growth), add 0.3 for each year of growth that just doesn't fit the projection.

The final BF then gives you the amount of convincing you should take in order to believe anything they say. If they have a BF of 1 then they need 1 reference for every point they make. If they have a BF of 5 they need 5 references.

Part of the reason for doing this is that these new companies often look shiny and its important not to get caught up in the hype. As an example of hype v reality its quite funny now to look at transmeta and ARM now. Back then in 2000/2001/2002 they were the darlings of the Slashdot crowd and when I went to the valley the talk was about how they were going to completely dominate then chip market. Meanwhile a tiny company in the UK which had been doing chips for years and growing strongly continually had made a move into licensing IP and moving into the mobile phone market. Now in 2008 their results look a bit different, revenue for transmeta in the 2nd quarter failed to break $400k revenue while expenses nearly hit $2m, ARM meanwhile struggled by with $128.1m revenue and a healthy pot of cash.

What has this to do with SOA? Well really its to do with T-SOA, WOA and all the other things out there. When you are looking at companies as part of a long term strategy you need to know that they are going to be around in 10 years time and still helping you evolve, otherwise you are doing something as a point solution and will accept that support and maintenance is your own problem. You also need to figure out whether that wonder technology really is amazing or is just some empty hype, the more amazing the claim, and the growth predictions, then the more evidence you should be asking for.

The other point is that what you are saying is that if you think their business model doesn't stack up but the technology does that you will need access to the technology when they go bust. This is why lawyers invented escrow if you want the tech but don't trust the model then make sure you get the rights to access the code (or other tech) for your own purposes if (when?) they go bust.

This is part of that shift about moving IT away from technology and into a business frame of mind, it means not following the hype but following the numbers.

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