Ray Lane: Smart Use Of IT Can Help In New Business EnvironmentRay Lane: Smart Use Of IT Can Help In New Business Environment

To be a successful business in this decade, a company needs to be able to grow and shrink while maintaining profitability, free itself of long-term ties to assets, and be flexible enough to satisfy customers whose needs change quickly. Smart use of business technology can help a company accomplish those goals, said Ray Lane, general partner at venture-capital firm Kleiner Perkins Caufield & Byers, on Sunday during a keynote address at the information Fall Conference in Rancho Mirage, Calif. He also said the nature of the IT industry is changing. Software companies need to take a financial stake in the outcome of projects built with their products and can't expect to be paid just for shipping new products, Lane argued.

Those changes are a result of the recent recession, new political realities after the Sept. 11 terrorist attacks, and a series of corporate fraud cases that have created a new business climate in the United States. Companies are more regulated and work is shifting to cheap labor markets even as global business growth slows, said Lane.

Yet the IT investment of the '90s hasn't yielded a good return, he said, and only a handful of companies such as McKesson Corp., Merrill Lynch, FedEx, and Sabre Holdings are exemplars of profitable tech investment. And those examples pre-date the '90s tech boom. "Those are precious few for the work that's gone in," said Lane, who was previously president and chief operating officer at database software company Oracle, where he spent eight years. Lane also has been an executive at Booz Allen & Hamilton and EDS and spent 10 years at IBM. "Who's our IT bell cow today? Who's our Sabre, FedEx, or Merrill Lynch" for the current decade?

Markets are more volatile, companies need to compete around the world, and rapid business growth in relatively small economies such as China and India hasn't been enough to offset stagnancy in large ones, such as Germany, he said. As a result, companies shouldn't tie themselves too closely to long-term labor contracts and physical assets, according to Lane. Businesses today need to be able to add or subtract workers or infrastructure on a quickly. "Investing in labor and hard assets may be a path to destruction," he said. "Planning may actually be the worst thing you can do."

The software industry of the future won't be about vendors getting paid just to release new code, he said. "You still pay the industry to fix the bugs," Lane said. "We took a nerd from Seattle and made him the richest man in the world."

Instead of generating sales by writing new code and releasing it into the market, software companies will become more reliant on proving their products work to generate revenue. He predicted software companies will have to have a stake in the outcome of IT projects built with their technology, and perhaps not get paid until customers can show that the technology works. "Money will change hands as I get value," said Lane.

In a question-and-answer session after his speech, Lane also offered commentary on his old employer, Oracle. Eliminating PeopleSoft from the market--as Oracle plans to do with a $7.7 billion bid for the company that was cleared by a federal court earlier this month--won't be better for customers, Lane said. "The Justice Department had it right," he said. "Oracle is using its database business to destroy a competitor." Lane also compared Oracle's attempt to enter the market for business applications with Microsoft's strategy of using cash generated by its flagship business to break into new markets.

But Oracle would be worth more if it wasn't selling business apps, he said during his speech. "If Oracle were a database business only, it would be much more profitable than Microsoft and the stock would be at $25 instead of $10."