Growth is the key to glamour IT industry

By CHRIS BARTON IT editor

The suggestion 2003 was a boring year for IT was met with howls - "you cannot be serious" - by IT bigwigs at a Christmas party.

Hewlett-Packard head Russell Hewitt said it was a difference in perceptions. As far as he was concerned 2003 had been fantastic compared to the slog of the year before.

Gen-i chief executive Garth Biggs was also incredulous. His company has grown to 670 staff and revenue of about $150 million.

Microsoft head Ross Peat scoffed - 2003 was the year it launched two major products - Windows Server 2003 and the new Office "system".

There wasn't much traction to the idea that the technology these companies sell is now so commoditised and ordinary that it goes into businesses almost without anyone noticing. That computers are now so much an everyday part of work life they've become mundane, banal, dare one say it ... , boring.

Never mind. When you're making sales grow, in the IT industry you're having fun, and despite the geek stereotype it's still a wealthy and glamorous industry to belong to.

Will the good times continue? At that Christmas party no one could see any reason why not.

But the hard reality is that while there is growth in the IT industry, it's not great.

Results from a Statistics NZ survey show the total value of sales of information technology commodities, excluding communication services, for the 2002 financial year was estimated at $7055 million - 4 per cent lower than the 2001 financial year. The numbers for 2003 aren't in yet but expectations are for around 3 per cent growth.

Looking further out, research company Gartner is predicting 1 and a bit per cent for New Zealand in 2004 - last by a long way in the Asia Pacific region.

That's because the IT industry is only just coming out of the "trough of disillusionment" following the dotcom fallout of 1999-2000.

Asia Pacific research director Dion Wiggins sees modest growth ahead but only if the industry starts dealing with fundamental problems. That IT costs too much; infrastructure is complex, fragile and expensive; financial returns are elusive; and too many vendors are selling the same thing.

Underlining the latter point, Wiggins says there are 2300 publicly traded software companies - which is about 50 to 60 per cent too many - so he's a predicting a big shakeout in 2004-2005.

It doesn't take much foresight to see that outsourcing - sending off all the boring IT work like PC and server maintenance for someone else to do - will continue in 2004.

In 2003, Gen-i scored what was thought to be the biggest IT outsourcing contract of the year - a $50 million, four-year deal with the NZ arm of Insurance Australia Group.

But that was dwarfed late in the year by dairy giant Fonterra's $590 million, seven-year deal covering its 327 offices in 34 countries with computer services company EDS.

It's unlikely we'll see a deal of this size in 2004 - because there simply aren't that many more big companies that haven't already outsourced.

But there's bound to be a lot more smaller companies taking the same path because of the efficiencies that can be gained. Expect also new twists in outsourcing, with more segmentation of IT tasks and business processes so they can be handed off to separate outsourcing vendors.

EDS here also demonstrated the worldwide trend in a type of outsourcing known as off-shoring - that's doing IT jobs such as software maintenance and development away from the US because the tech workers there are far too expensive.

While New Zealand can't compete with the IT sweatshops of India and China, our exchange rate, time zone and standard of education make us a viable location.

Thanks to the sterling efforts of its New Zealand head, Rick Ellis, EDS managed to snare a $1.5 million Government grant to set up just such a "follow the sun" IT sweatshop here.

The grant is on condition EDS creates 360 new positions by March 2006 - a target it's well on the way to meeting, with 123 jobs created so far.

Another area where New Zealand is unlikely to make much headway in 2004 is in open source software and the Linux operating system - software that's built by the collective generosity of code cutters and shared with everyone by keeping the underlying source code free to be copied and modified, as long as those modifications are kept "free" too.

While a small number of businesses have made the leap to open source, NZ remains very much a Microsoft stronghold - especially in government and education.

Governments around the world are recognising open source as not only a software path that saves a significant amount of money, but also as an opportunity for growth. But don't expect any such bold move by the Government here. It has adopted a head-in-the-sand view of the open source movement and the millions of dollars of taxpayer money it might save.

Which is a shame because there is no doubt Linux and open source skills are the coming trend in IT.

A glimmer of hope is the IBM centre of excellence for Linux in Auckland - spawned from work IBM did for Air New Zealand in running Linux on mainframes.

If that work could be expanded in collaboration with the Government and tertiary education to form some sort of open source institute, we might make some progress.

Such a move would require the Government to opt for open source in some of its major computing projects - a prospect about as likely as pigs flying.

Meanwhile the Government continues to waste money on large ill-conceived computer projects. The Department for Courts case management system was more than a year late and ballooned to $41.9 million.

Questions remain whether it's also a white elephant, with reports from case managers that they're still using the old manual system to be sure where cases are at and that it's plagued by poor data input and other inadequacies.

The Government also had to pull the plug on its Goprocure scheme for all Government departments to buy through a single portal, wasting $2 million.

Then there's the Parliamentary Counsel Office's $8 million failure to set up a website containing all of New Zealand's laws.

In 2004 the project to watch is the Ministry of Social Development's replacement, or "evolution", of its Swiftt and Trace systems. Before it's even started, the job threatens to cost $177 million, making it one of the biggest computer projects undertaken in New Zealand. Already the planning phase is shrouded in secrecy. Somehow you just know it's going to get worse.


The failure of The PC Company last September, owing $3.35 million, marks the end of an era for local assembly of PCs in New Zealand. Not that white box manufacturers are going to go away, just that they'll no longer hold such a significant market share as The PC Company did or the earlier success stories such as PC Direct.

Questions still remain how PC Company founder Colin Brown could have let his company crash and burn. There's no doubt the company wasn't making enough sales. But why? Was it bad management, bad marketing or bad product? Quite possibly a bit of all three.

But you have say Brown is a tryer. He's back in business again - ironically hawking very low cost PCs. But it's a sector we're likely to see a lot more of in 2004 judging by The Warehouse's experiments with $999 PCs in December. Not before time - the sub-US$1000 PC began in the US about three years ago and quickly lead to sub-US$500 models.


Finally, there's broadband. The Government still doesn't really have a policy on this - and remains blind to the considerable economic benefits a high-speed, always-connected society might bring.

Its lack of leadership on this front directly correlates with New Zealand's continued fall in OECD rankings on broadband penetration and has all but shut us out of next-generation internet development.

We did, however, get Project Probe - a half-hearted attempt to wire up all New Zealand schools and engender competition in the broadband market.

But how that latter objective can said to have been met when eight of the 15 regions have been assigned to Telecom is hard to fathom.

For real competition in this market in 2004, and only in some parts of the country, we will look to Woosh Wireless, Counties Power and in Nelson The Pacific.Net. But based on their performance so far, their delivery may be disappointing.

Counties Power looks the most promising but uptake has been slow. Woosh hardly lived up to its name too with offerings, both in price and speed, that will not give Telecom any cause for concern. And to hear the way Woosh bleated about the Telecommunications Commissioner's proposal to free Telecom's wireline monopoly to competition, you have to wonder about the viability of its business plan.

The big question for 2004 is whether any of these competitors will deliver on their promises.