IssueAlert Emerging Technologies ~ August, 2004

In today's highly competitive but relatively mild demand customer information system market there is a divergence taking place. Some CIS vendors are considering the product-focused world of commercial-off-the-shelf, or COTS, development, while other CIS vendors are gravitating back to a software services business model—generating revenue as much from professional services, consulting and maintenance contracts as from new license sales. This is particularly true at the top end of the market where—at least for the moment—fewer large investor-owned utilities are opting to undertake wholesale CIS replacement projects.

Evidence of the suitability of true COTS products for today's utility market is growing. The recent announcement of Peace Software's implementation at Xcel Energy for 1.5 million electricity and 1.2 million gas customers in six U.S. states by project manager and system integrator IBM Global Services, is substantive validation and proof for the often repeated assertion that utilities require both extremely robust, flexible and extensible products, and best-of-breed installation and integration.

COTS products are being entertained because they provide utilities with a variety of advantages over in-house developed products. For example, though in-house development is a product-based software design approach, it does not typically create a critical momentum for increased development capacity that translates into IT system business agility and responsiveness. Additionally, utilities that have relied on in-house development of CIS systems have often been able to solve immediate and short-term business or business process needs, but have not been effective in supporting the business in optimizing business processes or preparing the business to meet future challenges.

The buyer should beware, however, as not all CIS products or COTS products are created equal. A true COTS product and true product company is differentiated between independent software vendors and custom software developers by the key judgment that:

• a vendor delivers a packaged product
• product companies have scale in the numbers of people and resources dedicated to making core product
• the product is delivered in frequent releases
• true software product companies must exist to bring new product to market—rather than providing solutions including integration consulting or other software services.

The astute utility will also recognize that a key differentiator of a true product company is whether it has a track record of having clients running on the same version of a product and working specifically not just to develop new product versions, but to migrate clients to new version platforms over time.

UtiliPoint International research and analysis of the CIS market shows that there has been an evolutionary path of CIS product development, from in-house system, to custom-developed system, to true packaged product. While it is difficult to predict exactly where the future of the CIS market lies, UtiliPoint believes that robust productization of CIS functionality is part of that future. In fact, it is possible that well down the road, there may be no such thing as a CIS but rather a set of technology and business process functionalities that enable the user to assemble both the information and the format for any given particular task. UtiliPoint, hence, sees that strong productization and extensibility are going to be the lasting hallmarks of CIS software development.

Peace Software has always been a unique company, and in today's environment Peace's unique and arguably contrarian marketplace stance is challenging the established thinking in terms of software development. The company is solely focused on extending and enhancing its packaged CIS product—and causing others including top utilities like Xcel to take notice.

UtiliPoint's Emerging Technologies IssueAlert articles are compiled based on the independent analysis of UtiliPoint consultants, researchers, and analysts. The opinions expressed in UtiliPoint's Emerging Technologies IssueAlert articles are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. UtiliPoint's sole purpose in publishing its Emerging Technologies IssueAlert articles is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues.

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