Midway through the decade, new pricing and business models championed by relative upstarts such as Google and Salesforce.com are forcing established players to reinvent themselves. Meanwhile, old-line companies that have failed to meet the challenges of the new millennium are cleaning house – sometimes starting with the chief executive.
A year in IT
Here, not necessarily in order of importance, are our pick of the top stories of the year, significant in themselves but often indicating larger IT trends.
Google, whose IPO (initial public offering) was a big story in 2004, made history this year when its share price in June ascended to the point where the company became the most highly valued media company in the world, beating Time Warner.
In the months that followed, the company's valuation turned incandescent as its secondary offering of common stock netted more than $4bn (about £2.2bn), and its share price rose past the $400 (£225) mark, more than $350 (£200) more than rivals such as Yahoo and Microsoft. The share price premium is a reward for having the most popular search technology on the market and figuring out how to monetise that through adverts.
The company made some mis-steps, including security flaws in new services and a lack of preparation for demand that temporarily shut down new services. But as rivals bolster online services, the main question is whether Google will succeed in other forms of online advertising or in different businesses, such as enterprise search, where it is a relatively new player.
Web 2.0: Software as a service is real
As the dot-com bust recedes into history, the internet has emerged as a real platform for delivery of software and services, accompanied by new pricing and business models. This is the Web 2.0 world.
Google is at the forefront of the new internet business model: free services to users, paid for by advertisers. On the enterprise side, the concept of pay-as-you-go pricing, per user, for software delivered over the web has taken root. Salesforce.com was an early example, but IT heavyweights such as IBM and Sun Microsystems are now touting on-demand, dynamic services ranging from business software to 'utility' computing cycles from grid-based computers. Microsoft latched on to the concept with its 'Live' launch in November, trumpeting upcoming web-based versions of Windows and Office. Industry insiders can see that Web 2.0 is a real trend now that 'vapour services' are being announced.
The play for the digital home: Microsoft launches Xbox 360
An industry milestone was reached in November, when the most closely watched product launch of the year from the biggest software maker in the world was not an office productivity application, or even another 'vapour announcement', but something much more tangible: the Xbox 360 game console.
There's no doubt among players that the 360 is a quantum leap over the graphics capability of both the older Xbox and Sony's PlayStation 2. So be prepared for the next level of competition, when Sony launches the PS3 in 2006. It's not just about gaming, though; Xbox 360 is also seen to be Microsoft's foothold into the digital home – a sort of digital entertainment hub for music, online entertainment and video. For example, users can download all kinds of non-game content from Xbox Live Marketplace.
The giant challenged: AMD sues Intel
AMD's June filing of an antitrust lawsuit against Intel, alleging that it had abused its dominant position by tying rebates on processor purchases to quotas on AMD chips, is just one aspect of its increasingly successful challenge of the chip leader. The suit has been accompanied by a feisty PR campaign against Intel. But more importantly, AMD appears to have won the first round of the dual-core chips battle, since its processors appear to offer the best performance. AMD seems to be gaining ground in the retail market as well, pulling alongside Intel in US sales.
The hits just keep on coming: iPod keeps Apple in business
After ushering in the personal computer era in the 1970s with the Apple II, and reinventing the PC in the 1980s with the Macintosh, Apple's strategy of offering completely proprietary, premium-priced systems seemed to be forcing the company into a dead end. But incredibly, the 2001 launch of the iPod – in effect, part of a turnkey music system complete with online store and proprietary copy controls – is still lifting company fortunes.
Stoking user interest with the launch of the nano in September, Apple's fiscal 2005 fourth-quarter profit was the best operating quarter in company history. The iPod's 'halo effect' has also helped the Mac to avoid becoming history: on the Mac side, Apple shipped 1.23 million units in its Q4, the second-highest quarterly shipment total in the company's history.
PR nightmare of the year: Sony's rootkit fiasco
In the beginning of November, Sony BMG Music Entertainment CDs started getting hit with reports that its CD copy protection software used 'rootkit' code techniques normally used only by spyware and computer viruses. The company then lurched from one miscue to another, as it tried to mollify enraged users and answer criticism. In one mis-step, a patch issued to make the XCP software visible to system tools and antivirus products was discovered to have the potential to crash Windows systems.
Beyond giving Sony a black eye, the issue called into question, once again, the role of copy protection in a world where digital products are distributed, and openly but often illegally traded, over the public internet.
The bet that failed: HP fires Fiorina
The HP board's ousting of CEO Carly Fiorina in February was a stunning acknowledgment that the company's approach over the past few years, marked by the Compaq merger, did not work. Fiorina pushed through the acquisition of Compaq over objections to sinking money into the low-margin business of selling PCs. Fiorina's bet was that HP could boost its flagging sales of higher-margin servers and services by selling complete packages of hardware to business customers.
But three years after the Compaq purchase, HP's financials are still faltering. Fiorina's replacement, the low-key former NCR president and CEO Mark Hurd, has not overhauled HP yet, but has cut 15,000 jobs.
Oracle buys Siebel: M&A market stays hot
It's official: the high-end, enterprise business applications market is now a two-horse race between Oracle and SAP. After Oracle closed its bitterly contested $10.3bn (£5.8bn) acquisition of PeopleSoft in January, it turned its sights on Siebel, announcing in September that it would scoop up the embattled CRM (customer resource management) maker for $5.85bn (£3.3bn). Like PeopleSoft, Siebel had been on the vanguard of corporate uptake of ERP (enterprise resource planning) and CRM, but suffered as rivals entered the market.
The Oracle acquisitions were part of a trend as mergers and acquisitions stayed hot throughout the year in other areas of IT and communications. Witness the SBC Communications purchase of AT&T; the Cisco acquisition of set-top box maker Scientific-Atlanta; and eBay's move to buy internet phone service provider Skype. The continued, relatively low cost of borrowing money has helped fuel M&A in industry sectors that are maturing, as well as hotly contested new areas such as internet communications.
AOL in play: a sign for Time Warner, and the times
Reports that Time Warner has been in intense negotiations for most of the year over the future of its AOL unit have served as a coda for the dot-com era and a bridge into 2006. Initially, talks included the possibility of an outright sale of AOL, which completed its merger with Time Warner in January 2001. Since then, AOL has been viewed as an albatross around financially beleaguered Time Warner's neck, as Google, MSN and Yahoo have beefed up online search and services.
But as the end of the year neared, talks centered on teaming up: on the table was the possibility of a switch to the MSN search engine or a closer advertising relationship with Google, which has been providing search technology for AOL. The wheeling and dealing have served to clarify one thing: midway through the decade, the online sector is divided into two camps: those who are successfully monetising search and services delivered over the internet, and those who are not.
Sony dumps Idei, elevates Stringer
In a defining moment for the company, Sony dumped Nobuyuki Idei in March and named Howard Stringer as chairman and group CEO. The appointment will mark the first time that a foreigner has taken the helm at Sony, which last year saw 70 percent of its sales come from outside of Japan. The move is an acknowledgment that the company has bungled the transition from analogue to digital devices. In an age where most companies rely on the same components to build products, Sony has had a tough time justifying to consumers the price premium that its products typically carry. Stringer, who was chairman and CEO of Sony Corporation of America, is expected to bring a new agility to the electronics giant.