What Are the Fundamentals Saying?

Everyday news sources report China and India buying oil reserves to support their growing industrial bases. When I speak with folks on the commodities trading desks they remark that all bids seem to be coming out of China: I saw in the WSJ that India ONGC made a $2 billion purchase of Nigerian oil and gas rights in a single reserve basin.

So what? Why do I care?

The graphic above plots per capita oil consumption by country. As the chart indicates, the US consumes more oil per person than any other country in the world. If you look in the upper right hand corner of the chart, you can see the US position - 25 barrels of oil per person per year. If you look in the lower left hand corner, you can see the relative positioning of China and India - 1 barrel of oil per person per year. The US consumes approximately 20 million barrels per day vs. world consumption of about 80 million barrels day. India and China want to get where we are on the chart - so if this is a fact, the world has a big supply-demand problem that is only going to get worse. If the average per capita consumption of oil in India increased by one gallon per month, India would need an additional 1 million barrels a day or about 5% of the total current daily US consumption. At this point please remember the impact that Hurricanes Katrina and Rita had on US pump prices in the summer of 2005.

And the implications to investors are?

The graph above combined with current offshore industrialization trends together make a reasonable case that the prices of oil are going to stay high on a constant dollar basis. Thus it is arguable that recently expanded capital budgets of the major oil companies are going to stay expanded. This is all good for investors of IT vendors selling to those companies.

However.......

There are some disturbing, lingering questions. O.K. like what? Here are some facts (as an example):

• India is a country filled with mathmaticians.
• Indian knowledge workers work for relatively for low wages.
• India has an increasing demand for oil.
• India has a penchant for developing software.

This might be a form of Deja Vu. Can much of the legwork of app. development be pushed offshore to India? If so, might we see more innovation out of the US companies as resources are free to focus on higher value requirements or might the industry find its way East like so many others? Are the larger software providers thinking this way? I am talking with several of the majors this coming week and will be focused on these questions and the further implications.

Business Process Management

I recently saw a product demo for a form of business process management (BPM) application - and I am certain I have seen the future (company name is Lombardi). This form of BPM enables creation of composite applications - applications which are generally built on top of pre-existing systems using data (an sometimes functionality) from those systems to effect a new business routine. Composite apps are appealing because they are generally lower cost than tweaking the legacy apps. Some designs are good...some are bad.

What is interesting about this version of BPM is that one can script business logic and lift and place data back into old apps without pain. Now what is even more interesting is the business logic thread can be presented in a Microsoft Outlook context. This means an email can show up in your inbox and which represents enterprise strength business process.

So let's suppose you're Microsoft and are trying to invade the space of Oracle and SAP - this has been going on for years. I can now draw on the power of those underlying apps and their monolithic data strcutures into a Microsoft environment rendering visibility of those applications irrelavent to the user. In other words...I don't have to look at them and don't have to know how they work. This then represents an interesting way to invade Oracle's and SAP's space. If business logic is incrementally lifted up into the BPM enviroment...where does this leave the legacy app. vendor...now I am not saying that these companies will be rendered powerless...I am merely observing that a new process layer is going to exist and will consume oxygen - the reason I am most convinced of this is because it will be driven out of the most pervasive user app. in the world - Microsoft Outlook.