COLD: the state of the market 1998

COLD (computer output to laser disc) systems increased dramatically both in number of systems and in total sales in 1997.

COLD revenues last year were $1.3 billion, an increase of more than 90% over 1996. That figure includes software, optical hardware, servers and services. A significant portion of the revenue increase occurred in the NT client-server market segment, which moved from $53 million in 1996 to $294 million in 1997. Unix client-server systems also increased, although not as dramatically, moving from $239 million in 1996 to $343.8 million in 1997. An area of revenue that was insignificant prior to 1997 is the CD and Online Services category, which combined for $50.6 million in 1997.

Very large COLD systems (defined as more than $1 million) grew significantly. The number increased from 49 in 1996 to 103 in 1997, amounting to revenue of $170 million. The total number of systems installed worldwide at the end of 1997 was 28,436 -- an increase of 6,694 systems over the 1996 total.

A client-server segment shift from Unix to NT is evidenced by the growth in NT systems -- 412 shipped in 1996, and 2,181 shipped in 1997. That trend will continue as NT becomes truly scalable and can handle document volumes of greater than 1 million per day with 1,000 or more concurrent users. Two vendors have already tested NT at those levels; all that remains is proven installations.

IMERGE projects NT shipments to increase by more than 95% in 1998 to slightly more than 4,200. The average price for NT systems at $135,000 (software, server/magnetic disk, optical disc and services) is much lower than for Unix systems at $550,000. The lower cost of storage is increasingly influencing buyers to put more documents on magnetic media and to move to optical disc in the later stages of the document life.

As might be expected with the new scalability of Unix and NT, the growth of IBM mainframe (MVS)-based COLD systems decreased from shipments of 487 in 1996 to 218 in 1997. IMERGE projects MVS/COLD systems will stay level in the 200-systems-per-year range for the next three to four years before further decline occurs.

The low-end PC/LAN COLD segment of the market is in decline with shipments of 2,100 systems in 1997, down from 2,850 systems in 1996. That market will become the exclusive domain of very small vendors and the low-performance PC/LAN image vendors that want to add COLD. None of the top 50 COLD vendors currently offers a PC/LAN system.

Customer service & Internet fuel growth

The Internet is clearly an integral part of a corporation's infrastructure. It is beginning to be used for the distribution of computer-generated customer documents (statements, invoices, etc.) outside the corporation (extranet). It is more commonly being used to distribute computer documents (reports) within the corporation (intranet). Web servers specifically for use as internal report delivery systems are being installed as an extended capability of COLD systems. Report viewing and print systems are also being implemented as special purpose Web "report servers." Those report/Web servers are essentially COLD systems, but not called by that name. Internet-based report delivery systems are growing dramatically as IT departments look for ways to electronically distribute internal reports to corporate users. The use of standard browsers enables report output to be viewed anywhere users can obtain an Internet connection.

The other customer service Internet application -- the extranet -- is also growing rapidly. A COLD server can be used to provide a total history of online outbound customer documents -- with forms (for document fidelity). That capability is being used for extranet customer service; statements and bills can be accessed by customers at any time from their PCs anywhere in the world. The customer self-service option that COLD systems now offer has the potential to propel the concept of COLD into mainstream corporate use.

The key question is: Can COLD vendors make that capability known to IT managers before they invest in intranets and extranets? COLD vendors face the sales and marketing challenge of educating corporations about the capabilities the systems offer for internal report viewing and external customer self-service through the Internet. If they are successful, the future growth of COLD systems will be dramatic.

1998 forecast -- continued growth for NT servers

The number of systems installed through 1997 and the forecast for all architectures and vendors in 1998 are as follows:

• PC/LAN -- 16,950 currently installed systems (1998 forecast -- 2,100 systems);
• Unix client-server -- 3,545 systems (1998 forecast -- 625 );
• NT client-server -- 2,981 systems (1998 forecast -- 2,181);
• mainframe -- 2,220 systems (1998 forecast -- 220).

The entire COLD market will expand at a rate of slightly under 25%. NT client-server systems will grow at a rate of 85% in 1998 and will reach a total installed base of 27,900 by the end of year 2000. Mainframe, Unix client-server and PC/LAN systems are declining, but will still represent a significant number of new system sales.

Vendors reported that upgrades to their existing installed base of COLD systems provided an additional 25% to 30% of their new revenue in 1997. That percentage reflects added COLD software and the inclusion of imaging software to the base COLD installation. They expect that to continue into 1998 and beyond. Total sales of COLD systems, including software, optical disc drives/jukeboxes and servers, will be approximately $1.8 billion in 1998.

Electronically delivered Internet services are rapidly becoming a factor in the overall growth of the COLD market. Internet service represents a new category of COLD system, in which reports and customer documents are stored and delivered via intranet or extranet. COLD vendors are providing off-site storage and delivery of documents as well as supplying the technology in-house at a per document charge. The revenue in that system category reached $50 million in 1997 and will almost double to $95 million in 1998.

The most significant new opportunity for COLD systems lies in the emerging "electronic bill presentment" market, which will require customer service history archives for bills. If COLD vendors are successful in penetrating that market before in-house corporate developers write their own software, revenues will grow dramatically. At least four of the high-end COLD vendors are active in creating electronic bill archives for customer service. Many corporate developers of Internet/extranet systems are unaware of COLD systems or don't consider them viable because they are confused about the technology and perceive it as simply a system that stores information on optical discs. Most corporate IT managers do not view optical discs as mainstream technology and simply reject COLD as outdated. In fact, many COLD vendors do not even supply optical discs with their software, preferring to recommend low-cost magnetic disk or even lower-cost magnetic tape as the storage media. COLD needs to be presented as mainstream customer service -- Internet-based software rather than a hardware-oriented historical archive. A name change would do wonders for this market segment.

COLD needs new name

An emerging mainstream IT market, named "enterprise reporting," has been recognized by the Giga Information Group, the Meta Group and other industry analysts. COLD is essentially an enterprise reporting solution. The only thing that enterprise reporting does that COLD systems do not do is to create an original report from a database. In all other respects, COLD has far superior capabilities, including ad hoc reporting, intranet report distribution, report mining, extranet bill and statement presentment, long-term archiving and call center integration. COLD is also being implemented as E-commerce middleware for legacy data access and interchange of data between different host systems.

COLD systems must cross the chasm that exists between the document systems market and the mainstream IT market. The name "enterprise reporting," which has already been adopted by the IT market, appears to be a logical choice.