As the embedded markets emerge from the recession, we look for the shape and form of new revenue and profit opportunities.
We see indications that some of the differences in technical requirement and commercial opportunity that differentiated (and insulated) the embedded markets from enterprise markets -- and the larger economy on some levels -- have been worn away by the latest recession.
Indeed, the 'borders' of these markets have become quite porous during the past decade, with some transfer points created by the recession, and pre-existing others made wider by it.
Each quarter brings another announcement of an enterprise vendor launching extended lifecycle support for one platform or another.
At the same time, embedded developer requirements for native, embedded 10G Ethernet, for example, highlights at least reduced resistance for, and more likely acceptance of, enterprise industry 'standards' for a broad range of capabilities.
What does this mean for the business models of suppliers of embedded software platforms, tools and higher-level solutions? We are not sure. However, if the idea that broader requirements sets from the embedded markets are 'merging' with enterprise, we think it means some business model revisions may be required as well.
Last week saw the release of a study of the broader outsourcing market that reported the vast, disparate community of companies offering technology outsourcing services, or products as services, would have a new name: External Service Providers. And that this community would enjoy strong, stable, profitable growth opportunities for most of the next decade.
These companies would be offering hybrid combinations of standard service packages, customized services, traditional software products and products packaged as services (including SaaS and a host of Managed Services).
It all reads like a post-recession repositioning resulting from the re-aggregation of the IT services and communications industry, in the opinion of this reader.
But if we take this article as foundation for a future embedded market scenario, is it instructive? And of what?
We met dozens of embedded software suppliers and services providers during our junket to Nuremberg. Our teams exchange ideas with these companies daily. What we know is a community of software companies that for more than a decade have been toiling -- driven by their own business models and by the demands of their clients -- to continue to explore productizing their capabilities and offer their clients' more powerful tools that they can deploy more independently.
Services remain a core part of the revenue profile of the most successful companies, but, the type of services migrated. No longer was license maintenance the bulk of revenue for these companies. In the eyes of the customer base -- the developers of the embedded systems -- services revenue migrated away from these pre-competitive, undifferentiated requirements, and moved up the value stack to enable developers to layer in more and better performance in their embedded devices.
However, when the recession hit the embedded engineering community, and it did, they reacted with broad, swift, slashing strokes that eliminated perhaps billions of dollars in services contract fees for third-parties.
Many projects were delayed. Others scaled back. Some cancelled. And more than a few OEMs brought some of the outsourced services back 'in-house' in order to fill up some of their newly discovered excess capacity versus release talented developers.
In response, a growing number of third-party embedded engineering service providers surveyed their proprietary toolboxes for marketable family jewels -- if you will. After all, had the market not told the embedded tool service provider community that their preference was for much lower spending in attached services, tool products that they could operate more powerfully and with less dependence on fee-based support services from their tool suppliers?
What is a supplier of services to the embedded engineering community to do? Invest in services capacity, for, as the enterprise market goes, and merges with at least the outer edges of the embedded market, so goes the larger embedded market? Invest in productizing the most marketable and profit-potential proprietary methods and processes to meet, and perhaps accelerate the embedded market demand for software tool products?
It seems that the porous border between embedded and enterprise requirements definition can create as much potential for dissonance as for opportunity and profit.
I think of the Slovenian firm, HERMES-Softlab, when I consider the implications for the community of companies that provide tool products and services to developers of embedded devices, systems and solutions.
HERMES-Softlab has more than 1,000 developers, consultants and project managers. The firm supports hundreds of projects annually. Such was the strength of Hermes offering that the company's coverage area has grown far beyond its Balkan home markets to most regional markets between Russia and the Atlantic. In fact, HERMES-Softlab business grew across the Atlantic as well.
Until the recession, when third-party contracts came under the knife in the embedded markets.
HERMES-Softlab responded with revised strategies that support two parallel approaches:
1. Reinforcement for the primary value propositions of its core services: proven time to market compression,
cost reduction, design stability and client system performance
2. Launch of a HERMES-Softlab-branded automated test tool suite, based on the accumulated experience and
intelligence of its 1,000+ organization of developers and managers
We like HERMES-Softlab's strategy, for it recognizes the duality of the new reality in the embedded markets. As they emerge from what is clearly the worst economy since the inception of the 'embedded markets', software tool and service providers need to position themselves with products that continue to consolidate and automate lower-level, pre-competitive tasking, and higher-level services that enable embedded device suppliers to maximize their solution development capabilities and their return on assets.
The embedded and enterprise markets may be merging and creating hybrid markets with blended product and service requirements from traditional embedded and enterprise markets. Many in the tools and service supplier community may need to as well.