The ISV of the Future:

An IDC White Paper sponsored by Cisco

Philip Carter

August 2014

August 2014, IDC #250303

WHITE PAPER

The ISV of the Future: Creating Success Through New Partnerships

Sponsored by: Cisco

Philip Carter August 2014

EXECUTIVE SUMMARY

IDC firmly believes that the IT industry is in the midst of a massive structural shift — from the PC and client/server-based "2nd Platform" to what IDC calls the "3rd Platform" era, which is built on a foundation of mobile, social, Big Data, and cloud technologies (see Figure 1). IDC believes that over the next 20 years, business innovation will be based on the 3rd Platform as literally hundreds of thousands to millions of high-value, industry-transforming solutions and services will be built on this new platform. In 2020, the 3rd Platform will generate virtually all the growth in ICT spending for the year. Correlated with this new era of IT is a level of network connectivity that is enabling a new ecosystem of connected (either wired or wireless) devices, or "things," which the industry is referring to as the Internet of Things (IoT) or the Internet of Everything (IoE). IoE solutions are at the heart of IDC's view of the 3rd Platform in that these solutions fulfill efficiently and innovatively the vision of value creation throughout the 3rd Platform. This document assesses the impact of this transition for independent software vendors (ISVs) and the importance of sourcing new partners to compete effectively in the new era encompassed by the 3rd Platform and the Internet of Everything.

IDC defines ISVs as a "category of firms that generate the majority of their revenue from the software they develop. These players typically leverage another vendor's software (e.g., database, middleware) or platform as a critical part of their application."

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FIGURE 1

IDC's 3rd Platform

Source: IDC, 2014

The 3rd Platform: A Software-Driven Foundation for Innovation and Growth

IDC estimates that 3rd Platform technologies, services, and solutions will account for more than 90% of all the cumulative net-new IT spending from 2013 to 2020. More importantly, this shift in spending points to one strategic outcome — the impact that software will have on enabling the transformation, expansion, and disruption of literally every industry on the planet. The shift to the 3rd Platform is having a significant impact on the software vendor market landscape in the sense that the traditional on-premises license-based business of the majority of ISVs is being transformed by 3rd Platform–related technologies. IDC believes that in 2014, 90% of net-new software offerings will be built for public cloud delivery. Traditional ISVs with a legacy on-premises business need to adapt to this new delivery model, or they face losing complete market relevance.

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IDC believes that as a result of this disruption, all ISVs will focus on the following five key priorities to compete effectively through 2020:

� Shifting the business model to deliver software as a service (SaaS)

� A secure "mobile first" software development and delivery philosophy

� Delivering a next-generation user interface with integrated, multilayered collaboration features

� Quicker development cycles leveraging agile and DevOps development techniques

� A differentiated approach to working with the underlying infrastructure to deal with Big Data

Across all of these areas, IDC sees an opportunity for ISVs to reassess their partnerships with their existing ecosystem. New potential partners that can help address these five areas are looking to work more closely with the ISV community to help with the shift to the 3rd Platform — and, in many respects, could make a significant impact on that transition. One such example is Cisco — an organization that intends to maximize ISVs' impact and growth opportunities across the 3rd Platform by providing ISVs with technology and resources that take into account multifaceted ISV relationships across Cisco's on-premises and cloud-based solutions. This includes ISV participation in the Solution Partner Program and is particularly important in connection with the rapid growth of Cisco's Internet of Everything initiatives incorporating all things in the infrastructure and in the cloud.

CISCO'S ISV INITIATIVE

Cisco, a US$46.8 billion organization in annual revenue, has leading capabilities across a variety of market segments in the IT space. With 81% of all of its business sold and delivered through partners, Cisco expects that its ecosystem will be critical for the company to meet its growth objectives. As part of its broader partner strategy, Cisco is looking to work more strategically with new types of partners to develop business solutions that capture market transitions such as the shift to the 3rd Platform and the Internet of Everything. IDC believes that a broader ecosystem of strategic partners will be critical to scalable value creation across the 3rd Platform and IoE.

To achieve this, one of the stated key immediate priorities of Cisco is to "develop the world's best connected partner ecosystem to accelerate profitable growth and business relevance through technology partners, ISVs, and global systems integrators." Cisco is actively looking to work with ISV partners on a number of new Cisco capabilities that align with the key ISV priorities mentioned previously. To do this, Cisco is aiming to leverage the following underlying pillars of its broader value proposition:

� Brand and thought leadership: Cisco's brand and financial viability allow the company to identify market transitions and emerging opportunities early, thereby giving potential ISV partners first-mover advantage to capitalize on these opportunities.

� Resources: Cisco offers marketing, sales enablement, and go-to-market services; technical support; reference architectures/engineering assistance; education and training; and financial incentives and discounts.

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� Access to technology and expertise: Cisco's Solution Partner Program unites third-party independent hardware and software vendors with Cisco to validate and deliver integrated solutions to joint customers. The DevNet developer community provides access to APIs and SDKs and supports collateral across Cisco technologies as well as reference architectures for domain-specific use cases.

� Relationships: Because of its extensive partner network, Cisco has the ability to connect ISVs to service providers (including telecom players and Cisco Powered cloud and/or managed service providers), systems integrators, and its network of channel partners globally. In addition, Cisco is investing in cross-ecosystem solutions such as ServiceGrid, which helps reduce complexity across multiple partner touch points to provide benefit to an ISV's end customers. With Cisco ServiceGrid, ISVs can interconnect and automate support processes with ecosystems (e.g., incident management, change management, and help desks).

In addition, Cisco has put in place a number of key offerings specifically for ISVs to help them capture the market transition to the 3rd Platform. The sections that follow look at how the different components of Cisco's ISV program align with the key ISV priorities mentioned previously.

Shifting the Business Model to Deliver SaaS

The $445 billion global software market is no longer monolithic — it is increasingly about lightweight, easy-to-use applications being accessed via mobile devices. More importantly, these applications are increasingly being delivered through a SaaS delivery model. In fact, IDC forecasts SaaS revenue will grow five times faster than traditional packaged software through 2014 and 65% of new products coming from established ISVs in 2014 will be delivered as SaaS. Of all the trends currently impacting the traditional ISV landscape, the shift to SaaS is the most pressing. It requires a major transformation of financial metrics, sales compensation, and skills and competencies.

A key component of Cisco's cloud strategy is Intercloud: Cisco is heavily investing in building the world's largest global network of clouds together with a set of partners (e.g., Atos Canopy, Logicalis, Dimension Data, Sungard Availability Services, and Telstra). Intercloud helps customers and ISVs move workloads seamlessly between the various cloud delivery models (in potentially different locations), with use cases such as capacity augmentation, disaster recovery, and cloud bursting. In addition, ISV developers can use Intercloud capabilities to develop and test software code in the cloud and then bring the production code back for on-premises deployments.

Cisco is helping architect the global Intercloud for the Internet of Everything, with a distributed network and security architecture designed for high-value application workloads, real-time analytics, high levels of scalability, and full compliance with local data sovereignty laws. Intercloud will feature APIs for rapid application development and will deliver a new enterprise-class portfolio of cloud IT services for businesses, service providers, and resellers.

A major component of Intercloud is Cisco Intercloud Fabric, which is a solution that enables freedom of workload placement by delivery model to meet ISV scalability and bursting requirements. It ensures the same network security, quality-of-service (QoS), and access control policies previously enforced exclusively in the on-premises datacenter exist in public cloud.

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Cisco has specific solution offerings and partnership opportunities to help ISVs with a transition to deliver SaaS, such as:

� ISVs can partner with a certified Cisco Cloud and Managed Services Program (CMSP) to build their own private cloud or host their application on their Cisco Powered infrastructure-as-a-service (IaaS) solution to deliver SaaS to their end customers or simply provide hosting or managed services.

� ISVs can work directly with Cisco or Cisco's Cloud Builder partners to build their own SaaS offering based on Cisco. ISVs choosing to build their private cloud on Cisco technology can use this offering to leverage Cisco's leadership in integrated architectures like FlexPod and Vblock, which includes Cisco Unified Computing System (Cisco UCS) and Cisco UCS Service Profiles and Unified Fabric and Unified Management capabilities within Cisco's broader global datacenter business unit to build their own cloud services. With this offering, Cisco's key value proposition to ISVs looking to shift to SaaS is to help them quickly and easily spin up service to onboard new customers and meet customer demand.

� ISVs that build their SaaS cloud on Cisco cloud platforms have an opportunity to become a CMSP provider and deliver Cisco Powered services to market and gain access to additional benefits including financial incentives. This approach provides the opportunity for ISVs to leverage the Cisco sales force and Cisco-authorized cloud resellers as routes to market. In addition, Cisco's combination of validated architectures and Cisco Powered cloud service partnerships offers customers a choice of SLA-backed enterprise-class cloud services globally. ISVs that become Cisco CMSP partners have two Cisco Powered services to certify their SaaS offering on — IaaS and Cisco's recently announced Cisco Powered Foundation for Software as a Service (FnSaaS) (This provides an entry-level Cisco platform for ISVs to offer their applications in an "as a service" model in a more cost-effective manner). Cisco CMSP partners and Cisco Powered services are an essential part of facilitating the vendor's global Intercloud offering highlighted previously.

In addition, Cisco has recently acquired a company called Whiptail (Cisco UCS Invicta) to provide application acceleration leveraging flash memory within the compute layer — particularly important to drive performance in a SaaS delivery model.

In addition, it is important to delineate between SaaS and what IDC calls "subscriptions" and how a partner may help with both. SaaS is a different architecture based on multitenancy and tends to be built using cloud platforms and newer programming languages (e.g., Python and Ruby on Rails), but traditional existing applications can also be delivered as a service (on a pay-as-you-go model). Figure 2 highlights these two tracks to the cloud for software applications moving forward.

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FIGURE 2

Software Applications on Two Tracks to the Cloud

Source: IDC, 2014

Most of what was covered previously in the form of Cisco's SaaS engagement models for ISVs relates to the creation of "new applications" in the multitenant SaaS delivery model. With regard to the approach of selling legacy or existing applications as subscriptions, Cisco's datacenter solution and, more specifically, Cisco UCS capabilities can treat the single-tenant workload exactly as a virtual multitenant workload. This helps ISVs get to "as a service" delivery quicker, allowing them to recode their applications for multitenancy. As part of this trend toward subscriptions, there will be an increased focus on the notion of license mobility: Even if it's not SaaS, it will be deployed as a subscription in a cloud environment. Cisco's Intercloud offerings will become increasingly important in this respect.

Either way, ISVs need to make this transition. As an example of this, an increasing number of ISVs with a historical on-premises license will no longer offer software licenses to the market. Both their cloud and their traditional offerings will be sold on a subscription basis — and this reflects the unstoppable shift in the industry that all ISVs must undertake.

A Secure "Mobile First" Software Development and Delivery Philosophy

Recently, Marc Benioff, CEO of salesforce.com, made it clear that the company was developing applications based on a "mobile first" development philosophy. Benioff also asserted that everything is becoming a mobile device. According to Benioff, "The smartphone is a dashboard, everything is an app, and every company is becoming a software company." These sorts of statements are not unique to salesforce.com — software executives at all ISVs know that their companies must invest in mobile to take advantage of end-user connectedness and mobility among their customers.

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In fact, IT organizations are finding that virtually any application that they deliver to the business has to have a mobile component and that laptops are increasingly out of scope. Figure 3 highlights how end-user organizations tend to look at "when" — and not "whether" — to mobilize enterprise applications.

FIGURE 3

"Mobilizing" Enterprise Applications Q. Which solutions at your organization can be used via smartphones or tablets?

Source: IDC's 2013 Western European Enterprise CIO Survey

It's no surprise that mobile access to email and calendaring is far ahead and will soon be 100% deployed, but what's really interesting is the strong growth in corporate application areas such as human capital management (HCM), supply chain management, and logistics as well as CRM. In fact, planned deployment of mobile HCM will be up fourfold in the next 12–24 months, while mobile CRM is expected to grow threefold from today's levels.

However, these are early days in terms of mobile application adoption, and traditional application software vendors must focus efforts on figuring out how to make their mobile offerings more compelling to CIOs from both a technology perspective and a business perspective. In this respect, most vendors have not cracked the code to meeting all the customer expectations for mobile today, particularly in terms of their attention to security. In many respects, the mobile device represents a new "moving" vulnerability to any organization's network perimeter. This is exacerbated by the BYOD trend. According to IDC research, total global employee-liable smartphones (i.e., purchased by the user, not the company) will represent 79% of all new smartphones within enterprises in 2017. As such, ISVs need to bake the security components into their "mobile first" philosophy and not treat security as an afterthought.

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Cisco is helping a variety of ISVs with this approach by leveraging its understanding of the "Unified Workspace" environments based on a variety of projects deploying mobility in the enterprise — with a particular focus on device management and security.

More specifically, Cisco has rolled out its "Enterprise Mobility" offerings, which provide BYOD life-cycle management with secure data access. The solution secures data with unified policy as well as collaboration tools native to the device. This is part of Cisco's Unified Workspace solution, which is discussed in more detail in the section that follows.

Delivering a Next-Generation User Interface with Integrated, Multilayered Collaboration Features

Users of enterprise software are increasingly expecting an experience that is the same as (or at least similar to) the experience of using consumer apps. In reality, we are seeing a boost in demand for a new breed of enterprise software, which is inspired by Google, Apple, and Facebook. The applications must be easy to deploy and use and provide a rich experience that includes app awareness and contextual data. In addition, there is an expectation for the applications to be low cost as well as the belief that they should be easy for end users to obtain. As a result, newly developed software must deliver a fundamentally enhanced user experience, whether it is on a desktop or a mobile device or via a cloud service. In fact, there is a very strong mobile connection to this, as most ISVs are developing this approach in conjunction with their "mobile first" philosophy outlined in the previous section. At the outset, most software vendors are working on improving this experience in some of the simpler areas of functionality such as workflow approvals, information lookups, and self-service tasks to be used on a mobile device. However, it will not be long before this becomes the development philosophy for entire software suites across all form factors.

As part of this trend, a critical aspect of the next-generation user interface is around social collaboration. This allows employees to engage with other employees, partners, and even customers via social communities, driven again by consumer interactions on social media platforms (such as Facebook or LinkedIn) and the desire to take this approach into the work environment. IDC defines the social component of this technology as the "enterprise social network," or ESN. This software represents a wider group of social applications, standalone or embedded in other applications, that facilitate the connection of people inside and outside the firewall. An ESN will become the social backbone by forming a relationship layer across the business to facilitate information sharing and collaboration in the context of work processes.

IDC believes that all software vendors will have to think about integrating this type of collaboration functionality in all enterprises — regardless of whether it is infrastructure, middleware, or applications. In line with this, Cisco offers ISVs an opportunity to integrate three core products that make up the Cisco portfolio of collaboration applications as part of its broader Unified Workspace offering:

� Cisco WebEx, which is a line of Web conferencing products that lets users connect with customers, partners, and employees on a virtual basis

� Cisco Jabber, which is a unified communications application (client) installed on PCs, Macs, tablets, and smartphones, giving users access to presence, instant messaging (IM), voice, video, voice messaging, desktop sharing, and conferencing.

� Cisco Video solutions, which offer both desktop video and videoconferencing for multiparty collaboration from any device in any location as well as video management

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A good example of an ISV working with Cisco in this fashion is the BI vendor MicroStrategy. MicroStrategy, which is a leader in mobile analytics, has integrated Cisco's Mobile Advisor capability within its mobile analytics platform. This new mobile "collaborative BI" solution allows for direct voice/video communication between company employees — back office, staff, or management and experts in the field — and the delivery of up-to-the-minute alerts to their mobile devices empowers management to make better-informed decisions and react more quickly. With the introduction of mobility and collaboration integrated (with the help of Cisco), the company has increased its share of wallet significantly as it sells to new stakeholders across department and product managers.

For ISVs lacking this type of functionality within their software offerings, the ability to integrate these capabilities by using Cisco's SDKs and APIs to help developers integrate collaboration capabilities into their own applications and services could be an important differentiator.

Quicker Development Cycles Leveraging Agile and DevOps Development Techniques

The traditional software development life cycle is going through a transformation unseen in the industry up until this point. This is largely driven by end-user expectations, which are driving vendor release cycles to accelerate dramatically. In parallel, legacy applications also need to be rewritten, migrated, or decommissioned as part of the broader shift toward the next-generation software that needs to be rolled out, as mentioned in the previous section. However, ISVs have to carefully manage the time-to-market expectations and software quality requirements. The impact of poor-quality software on the business in terms of lost revenue, poor customer experience, and brand/reputation damage is significant.

As a result, vendors are shifting from the waterfall development methodology to agile, which focuses a lot of attention on the plan, design, and build phases of the life cycle — with the introduction of sprint planning meetings, daily scrum meetings, and sprint review meetings to drive a more iterative approach to the application build process. However, this agile development has not always delivered on all the promises that were expected. A number of organizations indicate that although the build phase is more dynamic, bottlenecks still exist in the test phase — with multiple constraints delaying the deployment of the applications. To deal with this, vendors have started to think about continuous delivery by delivering every change to a production-like environment and ensuring that the applications function as expected via automated testing. Bringing development and operations (or support) together as part of one team (at a virtual level at first) is an important step toward helping mitigate the impact of this. It is also helping create a new next buzzword in the industry in the form of DevOps, which creates a framework for these structures to work within. This approach drives confidence in the robustness of the application on deployment when required. However, the impact on the structure and competencies of the traditional R&D department of ISVs is enormous.

To help with this, Cisco recently launched its Application Centric Infrastructure (ACI) offering — an architecture with centralized automation and policy-driven application profiles to help accelerate the software development life cycle. ACI aims to deliver software flexibility with the scalability of hardware performance. The idea is to provide simplified automation by an application-driven policy model through a single of pane of glass. This capability provides real-time application deployment acceleration and agility, and during operation, application health scores can be utilized. The key focus is to provide software flexibility for the DevOps teams mentioned previously by providing a network that is deployed, monitored, and managed in a fashion that supports rapid application change. In the future, this capability will extend beyond networking to include compute and storage as well.

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A Differentiated Approach to Working with the Underlying Infrastructure to Deal with Big Data

The transition to the 3rd Platform is also forcing the traditional data management software vendors to reassess their relationship with the underlying infrastructure (that up until recently was left up to the customer to decide). These ISVs are realizing that as part of this, more focused development efforts linked to the hardware (even to the chip level) can optimize the performance of the software significantly. This is particularly the case when it comes to database and analytics workloads — and the examples of SAP HANA as well as SAS' approach with the SAS High-Performance Analytics offering show the better performance as a result of these efforts to work more closely with infrastructure providers. In this area, Cisco is providing innovative solutions for ISVs to combine Cisco's infrastructure, platform software, and services to enhance the performance of data and analytics business applications. For example, Cisco's Big Data Warehouse Expansion (BDWE) solution combines Cisco Unified Computing System and Cisco Data Virtualization platform software to "offload" infrequently used data to low-cost Big Data stores (like Hadoop) while retaining it and making it accessible for enriched analytics. The solution offers hardware optimized for running Hadoop and other Big Data stores, software for federating multiple data sources, and a comprehensive services methodology for assessing, migrating, virtualizing, and operating a logically expanded data warehouse. For ISVs playing in the data management space, this type of capability will become increasingly important as they look to integrate nontraditional Big Data stores (such as Hadoop) into their broader solutions.

Linked to this, one of the key outcomes of the shift to the 3rd Platform is that these new technologies (cloud, Big Data, social, and mobile) place more demands on the network and the datacenter. They all generate more traffic, higher end-user expectations, more management, and security issues. This is particularly important for a technology area adjacent to the 3rd Platform, which is the Internet of Things. Billions of interconnected devices drive the demand for bandwidth and application-specific performance. Hence the network has to keep getting smarter.

For independent software vendors, this situation creates an opportunity. ISVs can build solutions that are network aware and that take advantage of Cisco Application Centric Infrastructure (networks that are open, programmable, and application aware) to create new competitive advantages in terms of potentially driving improved performance for their software across the bandwidth-intensive environments that will be required in the era of the 3rd Platform. A good example of an ISV working with Cisco in this area is Citrix. For Citrix's desktop and mobile services, Cisco's ACI platform provides improved levels of visibility and control to help improve the end-user computing experience. IDC expects that this type of optimization of the network to drive better performance for end users will become an increasingly important area of focus for all ISVs in the 3rd Platform era.

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FUTURE OUTLOOK

The IT industry can expect to see more of Cisco proactively placing itself and its technologies at the center of the key market trends highlighted in this document and encompassed within IDC's 3rd Platform, with a major focus on cloud and the Internet of Everything. This combines Cisco's capabilities in the form of the application-centric infrastructure and secure workload mobility capability across heterogeneous cloud environments leveraging the vendor's Intercloud capabilities. At the heart of Cisco's strategy relating to these new trends is the partner ecosystem — and ISVs are an increasingly important part of that. Hence, Intercloud will essentially become the platform for the Internet of Everything connecting Cisco's ISV partner ecosystem.

CHALLENGES AND OPPORTUNITIES

Disruption linked to the 3rd Platform will present not only challenges but also opportunities with regard to setting up new partnerships, as outlined in the sections that follow.

Challenges

� The joint-go-market strategy between Cisco and its potential ISV partners will involve a significant amount of business planning to identify common ground to target new business opportunities by vertical and market segment.

� To create the "business relevance" highlighted previously, it is vital to create a joint value proposition that involves key capabilities from both sides of the table. For Cisco specifically, this will have to be done on a case-by-case basis for each ISV that it chooses to partner with.

� There is no question that each new partnership involves investments from both sides, and as such, the partnership will have to deliver tangible business benefits to both sets of stakeholders. This will require a clear understanding and due diligence around what the acceptable financial metrics for success in the short term should look like.

Opportunities

� Most ISVs will already be working with Cisco at some level of the organization. It would be a good idea to use that as a foothold to develop the joint opportunities highlighted previously. In addition, for smaller ISVs, Cisco represents a very credible brand in the market that can and should be used proactively to promote joint offerings.

� The 3rd Platform is forcing a rethink of partner relationships for all players in the ecosystem. The business model opportunity is very much along the lines of a "sell with" business model (as opposed to just "sell to"). This is the mindset that IDC recommends ISVs (and Cisco) take into any potential partnership.

� For the broader set of start-up ISVs and smaller ISVs, the various components available with the Cisco Solution Partner Program and DevNet become an increasingly important mechanism to engage with Cisco and get access to its SDKs, APIs, and other integration offerings including go-to-market opportunities.

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� Within this ecosystem, there are various layers of partners. For example, Cisco has a large network of its own resellers. ISVs should look at ways of leveraging these providers (which themselves are looking to augment their respective value propositions) to drive real scale from the joint offerings with Cisco.

� Assess your options in terms of delivery models. Delivering software as a "subscription" might make it easier to make a full transition to the SaaS model. With regard to the broader cloud strategy, it is worth taking some time to assess what can be delivered leveraging Cisco Intercloud.

CONCLUSION AND RECOMMENDATIONS

There are many different strategies ISVs can take to ensure success in the 3rd Platform. Providing unique value is critical to success. But a few things are common for every software vendor out there:

� The rules have changed, and like it or not, margins will be impacted as a result of the shift to the 3rd Platform. Managing the current and future financial metrics related to the business model transition will be a critical success factor.

� Sales and technical skills and competencies will need to evolve. As part of this, ISVs will be required to think through a broader skills refresh with a different approach to training and/or hiring as necessary.

� The time to act is now. There is a landgrab going on right now for new customers. In fact, there is not much time left before you find yourself in the segment of ISVs that have not made the transition to the 3rd Platform.

Finally, for ISVs to be successful with the 3rd Platform, they need to consider who they will partner with. There is a whole new world around platforms, developers, ecosystems, and solution marketplaces developing — and a variety of new opportunities are available for ISVs to establish new partnerships and strategic vendor relationships.

This white paper has highlighted one such opportunity in the form of Cisco — and ISVs should assess a potential partnership with Cisco with a new mindset. This involves a crystal-clear understanding that only with the help of new partners can ISVs win the emerging battle for mindshare and market share in the era of the 3rd Platform. IDC recommends that ISVs perform a critical assessment of existing strategic partnerships today and what transitions need to be made to prepare for the 3rd Platform.

For more information on Cisco's ISV resources and opportunities to engage, go to cisco.com/go/isv.

About IDC

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