Mercury and Points Offshore

By David Rubinstein

October 15, 2006 —

Looking for an independent voice on the HP-Mercury deal, I finally caught up with industry analyst Theresa Lanowitz, who has left Gartner and started up her own firm, Voke (like in pro-voke). She shares our concerns about the future of Mercury in a company that has not had success selling software in the past.

HP customers might think of the acquisition as giving them something more, but Mercury customers won’t be interested in HP’s network view of the world, or in OpenView, to which everything at HP slants, Lanowitz said.

Mercury’s management team, led by Tony Zingale, was nimble and aggressive, helping the company to a 50 percent share of the software testing market. Its engineers, she said, have great visions for what Mercury’s architecture needs to be for the future.

Now, it has become part of HP’s staid approach, and the target of smaller, more nimble and aggressive companies. Empirix, another testing tools provider, is offering a free one-to-one switch from Mercury products to its own. Opportunities also exist for Compuware, IBM Rational and others, she said.

Lanowitz speculated that the US$4.5 billion HP paid for Mercury was driven by bidding, mentioning such companies as Oracle, SAP and EMC as potential suitors. “HP isn’t one I even would have guessed” to have an interest in Mercury, Lanowitz said.

She believes the traditional Mercury customer base will be looking to evaluate products from other companies, since only a very small portion of HP’s revenue comes from software. If you’re a test tools customer, Lanowitz said, you’d have to be leery of a company “that gets 51 percent of its revenue from toner.”

Shifting gears, Lanowitz said her company will be focusing on the application life cycle, with a mission to move the industry beyond the status quo. “Things are largely the same since 1999,” she said. “IT is working on tactical things, and not being strategic. The IT model of today is really outmoded, and the application life cycle is one of those big areas.”

According to Lanowitz, who worked for a software company before moving to the analysis side, “Companies will tell an analyst something they will never tell a vendor. It’s like a doctor-patient relationship.” She noted the disconnect between what the software sellers are saying and what the development teams are saying. “In the application life-cycle management environment, vendors think every IT organization is humming right along, efficient and effective. But these guys are struggling. It’s a hard, hard life.”

One area in which she sees a major change in how business is done is in the outsourcing of IT work. She described outsourcing as being in its third phase, with the first being cost-savings and the second involving figuring out how to make the outsourcing company an extension of the development team. Phase 3 is around the offshoring of very technical skill sets.

“People with skills that good will work for a cool software company, like Adobe or Microsoft,” she said. “The enterprise can’t afford to keep those skills up to date.” Citibank, she said as an example, doesn’t need to pay someone $100,000 to write LoadRunner scripts. “They need good managers, who can make the go or no-go decision on [deploying] applications.”

Software companies also will have pressure put on them from enterprises to create tools that business analysts can use in collaboration with development teams, to ensure that what’s being built meets the needs of the business. We’re already seeing some of that in the requirements management space; she thinks this will become a big market opportunity in the coming years.

Further, the decisions on which tools the company should use will start to be made in conjunction with the outsourcing companies that will be using them. “While the payment is coming from a North American company, the use is by the offshore guys, and they’ll help drive the evaluations.”

With U.S. business schools overflowing and plenty of good seats still available at computer science schools, it will be easier for enterprises to find this type of manager, and send the coding overseas. It might not be as cost-effective as it was when the trend began, as programmers offshore get hip to what they can ask for, but it might be the only way for these enterprises to stay competitive in a world in which more and more business is moving to the Web.

David Rubinstein is editor-in-chief of SD Times.

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