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The Bloor Perspective: Sun's web services progress, Toys R Us e-turnaround and the software slump
In their latest look at recent key developments, Robin Bloor and his colleagues analyse the likely success of Sun ONE, what lessons can be learnt from a major online toy seller, and what the next year holds for software sales

By Bloor Research

Published: Monday 03 December 2001

Sun Microsystems is pushing ahead with its Open Network Environment (ONE) that encompasses the company's vision of architecture, products and expertise to enable the delivery of services on demand. Aside from being a key component of Sun's corporate strategy it is, of course, the latest round in the rivalry with Microsoft, whose .NET framework will also compete for the web services market.

The adoption of web services provides organisations with a number of opportunities - increasingly complex technical environments can be managed more effectively, operational and support costs can be managed, and a scalable and flexible IT architecture can be developed.

Core to the Sun ONE strategy is the fact that applications have evolved into web applications. These, in turn, evolve into web services. It's a case of evolution not revolution.

This evolution has been underpinned by application architectures that have moved from client/server to distributed computing to web applications to web services with the end game being services on demand. In any integrated environment, standards are essential and Sun ONE is no exception with its use of SOAP to enable communication between services, UDDI to act as the yellow pages, and the usual suspects of XML, HTML and Java.

Sun pitches itself as the enabler of a collaborative community, in contrast to the company's view of the Microsoft value as using customer data for its own ends. To support this claim, Sun is one of the key members of the Liberty Alliance Project that has been formed to create an open, federated, single sign-on identity solution for customers using their channel of choice for business interaction.

So when are web services going to happen? Well, at the moment, Sun expects that we'll see the mass deployment of web services by 2003 and following on from that, the use of directories.

Of course, we have to put this into perspective. Sun ONE gives Sun an opportunity to sell products and services, and for all the talk of simplification and standards, it is usually the differentiation of technologies that vendors try to leverage.

For many organisations, mass deployment of web services in 18 months is optimistic. Businesses will still be looking to drive value from their existing IT investment and funding a new initiative will not be at the top of the priority list. In the medium and long terms web services provide an excellent opportunity for organisations - in the short term we can relax and watch another battle between Sun and Microsoft.

*E-tail isn't just for Christmas*

As the window for Christmas shopping narrows, the retail analysis of profit and loss will become increasingly sharply focused. In January, the post mortem will begin. One of the continuing discussions will be on the profits of the online pure plays versus those online retailers which have also have a bricks and mortar presence. The icon of this business model is the dual personality retailer, Toys R Us and Toysrus.com.

Things couldn't have looked worse for Toys R Us. The third quarter loss for the world's No. 8 retailer was $44m or 22 cents a share. The previous year's Q3 loss was $5m. It is generally thought that part of this additional revenue loss is attributable to post-11 September fallout.

Additionally, Toys R Us is attempting to change its mass market image with some major construction and renovation projects. The most notable edifice is the new flagship store in New York's Times Square which it bills as the largest toy store in the world. However, no one is visiting New York City at the moment in spite of the heartfelt pleas of Mayor Giuliani.

It is, however, the toy store's virtual presence which may be its saving grace. Two years ago, Toysrus.com was the MBA's study of how not to do ebusiness. Awash in red ink and customer complaints, it delivered its toy orders well after Santa Claus had made his rounds. It's a different toy story this year. In the third quarter, Toysrus.com experienced 69 per cent growth in sales.

If this year's make or break retail period is equally profitable, Toysrus.com could become the classic dot-com success story, with two factors being the major contributors.

First, there is the alliance with Amazon.com which allowed it to take advantage of Amazon's well-oiled fulfilment operation and well-established customer base.

Second might be the 'right timing' of online business to consumer transactions. Online shopping is mainstream now and has lost that aura of appealing only to internet junkies. There are proven success stories and most reluctant shoppers are now convinced. It will be interesting to see how it all shakes out in January.

*A software slump in 2002?*

Last year IDC had expected the software market to grow at a rate of approximately 12 per cent. However, because of the war and the economic slump, it has slipped. 2001 has only managed to turn in 6.8 per cent growth, almost half of predictions. Next year, however, there will be something of a return to glory as software sales once again run into double figure growth.

2002 was much expected to be another buoyant year for the software industry. It had been hoped that 2002 would see the software market build on the success of the past few years. But as the economy has taken a bite out of optimism, the same has happened to software revenues. IDC had predicted, earlier in the year, that software revenues would surge by almost 15 per cent in 2002. Thanks to the downturn it's more likely to be around 12 per cent, with application development and infrastructure vendors worst affected.

As bleak as this picture may seem the reality of the situation is that it isn't actually that bad. The tech industry is well overdue for a correction having ridden the waves of Y2K and the dot-com explosion. Now the fallout has taken effect and the tech heavyweights have altered their profiles accordingly, it should all balance out quite nicely. And let's not forget, at the end of the day, what else are you going to spend your money on?