Cloud Computing - A Silver Lining

Is it true that every cloud has a silver lining? What about cloud computing? I was reminded of the silver-lining adage recently when I noticed that several online news outlets had picked up this story from silicon.com – the thrust of which is that many companies still are not even aware of SaaS.

Sometimes we may lapse into thinking that we’re a bigger deal than we really are; and this forces us SaaS vendors to work that much harder to earn validation in the marketplace.

This article quotes statistics taken from a study conducted by BT (British Telecom), “One of the problems that we've unearthed in a survey that we did recently was about 81 per cent of customers we spoke to didn't really know about software as a service…”

This quote was from Chris Lindsay from BT, who goes on to say, "It's quite eye-opening really in terms of the lack of awareness but [also] the benefits are very clearly spelt out by the customers who have adopted the services…"

So the bad news is that 81% of companies (in the UK anyway) aren’t familiar with SaaS as a delivery model, but the good news is that, if they were familiar with it, they’d like it.

Unfortunately, several other online media outlets picked up this story and trumpeted it from the rooftops, using the somewhat sensational (and misleading) headlines such as, “Business Not Taking to SaaS”, “Businesses Still Clueless Over SaaS”, and “Businesses Still in the Dark About SaaS”.

What this tells me is that we – as an industry – still have a lot of work to do in order to get the word out on the SaaS delivery model in general. I think, too often, perhaps we forget that Silicon Valley doesn’t extend worldwide yet – in different parts of the world, the market penetration and mindshare that SaaS has claimed varies wildly depending on the geography you’re talking about.

Remember that the study in question was conducted in the UK, and there was some great news out of that region earlier this week, when TechWorld (billed as “The UK’s infrastructure and networking knowledge centre”) published this article that found a majority of companies planned “to adopt SaaS within five years.”

Neil Barton, director at Hostway, said: “Companies are certain that SaaS will make their application usage more c006Fst-effective because of the reduction in software management costs, and the ability to eliminate buying too many or too few software licenses.”

I agree with Jeff Kaplan of THINKstrategies who said, "I think (SaaS) adoption is far more advanced than is being readily reported.”

What SMBs are most concerned about is the functionality, Kaplan said. What they're finding is it's not just simpler and less expensive, it also adds a whole layer of application opportunity they couldn't get from legacy apps.

"A lot are having a revelation."

So perhaps that’s the silver lining to this particular cloud?

If not that, then perhaps the news yesterday that Symantec had agreed to buy MessageLab’s SaaS business unit for $695 million. Clearly, Symantec’s CEO John W. Thompson expects to make a major push into the SaaS market immediately. Reaction from industry media members was positive, as TheStreet.com and Forbes both published articles lauding the acquisition – one titled “Symantec Adds to Web-Software Arsenal”, and the other cleverly titled “Symantec Has Its Head in the Cloud”.

I think we’ve only seen the beginning of large companies looking to strategically make inroads into the SaaS/cloud-computing market. It makes too much sense to ignore, especially in these trying times.





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Da Vinci, Plate Tectonics and CapEx Budgets

Here in San Jose, where Xactly is headquartered, the Tech Museum of Innovation – located right down the street from us – recently unveiled the world premiere of an exhibit titled ‘Leonardo: 500 Years into the Future’, billed as “the largest, most comprehensive exhibit of the innovative art, science and engineering works of Leonardo da Vinci” and “a once-in-a-lifetime opportunity to see how this genius of the Renaissance has influenced and inspired much of the technology we use today.”

Now, I already knew some things about da Vinci and his life, but I learned that in addition to being one of the greatest painters and sculptors of all-time, his ideas about improving the world around him were simply astounding. In a time when no real technology existed, da Vinci “conceptualized a helicopter, a tank, concentrated solar power, a calculator, the double hull and outlined a rudimentary theory of plate tectonics. Relatively few of his designs were constructed or were even feasible during his lifetime, but some of his smaller inventions, such as an automated bobbin winder and a machine for testing the tensile strength of wire, entered the world of manufacturing unheralded. As a scientist, he greatly advanced the state of knowledge in the fields of anatomy, civil engineering, optics, and hydrodynamics.” [source]

He did all this five hundred years ago! I think it’s clear that the assertion made about da Vinci that he was perhaps ‘the most diversely talented person who ever lived’ is unequivocally correct.

Why am I telling you all of this (apart from the fact that it’s fascinating, and I seek to enlighten and instruct)?

Well, I was going to open this blog post by saying that we’re living in uncertain economic times.

But I stopped and realized that that’s an understatement on the same sort of level as saying “Leonardo da Vinci was slightly ahead of his time, don’t you think? If he was alive today, I’ll bet he'd be smart enough to have his own cable-access show, or maybe get a job selling Christmas trees at Home Depot. Possibly.”

It doesn’t quite capture it – and the economic crisis we’re facing can’t be understated. So it got me thinking about the need for companies to cut spending and save money on upfront costs; budgets are being slashed all over the place. But in most cases, companies don’t have the option to stop buying solutions altogether, they just must make smarter decisions about how they spend their money.

Opting for a SaaS solution in order to save their capital-expense budgets makes a lot of sense for these companies. As the always-eloquent and erudite Phil Wainewright points out in his blog, this financial crisis should be an opportunity for SaaS companies to continue to grow.

Phil says in his latest post, “If credit remains tight, then one of the first things businesses are going to cut is capital expenditure — either because they can’t stomach the risk, or because they can’t raise the finance. The upside for SaaS vendors is that those cash-strapped businesses will find the pay-as-you-go SaaS model highly appealing — especially if it helps deliver operational cost savings at the same time. So while the credit crunch seems certain to harm the front-loaded cost model of conventional software sales, SaaS should continue to grow by picking up some of those canceled projects.”

Sing it, Phil. We are in lock-step with you on this kind of thinking.

Additionally, when one considers that among the hardest-hit entities at the moment are the banks and financial institutions, I enjoyed this article (published by AmericanBanker.com) that touts the advantages of SaaS and BPO as an effective way to cut costs in the current economic climate.

To quote the article, opting for outsourcing some processes and choosing Software-as-a-Service solutions “not only reduces the bank's operating expenses and protects them from cost spikes… it can also help institutions reduce their risk through service level agreements. This allows executives to focus their attention and resources on critical areas like customer experience and new product strategy to stay competitive and grow their businesses.”

Banks, as we all know, are not early adopters when it comes to technology. They are forced to remain fairly conservative and are not prone to making broad sweeping changes in the way they run their business. I like the idea that we can help them navigate through this choppy water, and help them look ahead into the future.

Maybe not 500 years ahead like Leonardo… but we’re working on it.




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CIOs are a Smart Bunch

In talking to CIOs these days, I’m hearing a lot of commonalities when it comes to discussing their focus and priorities.

One of these common threads is the need to opt for on-demand solutions over traditional on-premise software options because of man-power constraints. It seems there simply are not enough skilled folks to administer to these bulky on-premise software tools any longer.

Doing a little casting about on the internet, it seems as though I’ve hit upon something that’s begun to pick up steam: CIO.com published this great article about that very same topic. To quote the author, Thomas Wailgum:

“…however, there is a bigger problem that on-premise software vendors face: The net effect of the skills shortage is pushing existing and potential customers to consider alternative software delivery models, AMR Research analyst Dana Stiffler contends.

‘I think what it really means long term is that people are really crying out for a different delivery model for enterprise software and business functionality,’ she says. ‘And it's my belief that combinations of SaaS and business process outsourcing (BPO) will eventually begin to emerge and make that gap be slightly less noticeable.’

I’ve been banging on the ease-of-use drum for awhile. Consistently, I’ve called attention to the lower cost of entry, lower TCO, instantaneous upgrades, plus the freedom and flexibility that come with a subscription-based service model, but now we must add: no need to hire specialized, expensive personnel to administer to the technology.

Those on-premise software vendors better think about founding some schools just to train qualified technicians for their applications!

Better yet, I don’t want to wake any of them up. Forget I said anything.



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Are We Hearing the Death Rattle of On-Premise Software?

Lately, I’ve been somewhat bemused when I see a small subset of the SaaS buzz that is registering out on the fringes of the blogosphere.

There seems to be an undercurrent of negative sentiment toward the on-demand world these days, and while I’m bemused, I’m not surprised.

I don’t want to confer validation on any of these ridiculous statements by calling them out specifically – though Jeff Kaplan (founder of THINKstrategies) does a very nice job of echoing some of my sentiments in this insightful article that was recently published on SeekingAlpha.

You’ve got people predicting the imminent demise of the SaaS market. Some folks would describe a prediction like that as ‘fuzzy thinking’ – and they’re half right; it’s fuzzy, but it’s not thinking.

The SaaS market is expanding like a balloon at the moment, which is why analysts are quoting growth rates of more than 100% in the next two years.

There are other recent examples of people attempting to throw water on the SaaS flame, but in my mind this fire will not be quelled – in fact, we’re not far from it becoming a raging inferno. However, this hasn’t stopped the haters from hating.

Is this not the *definition* of a ‘disruptive technology’? “…a technological innovation, product, or service that uses a "disruptive" strategy…to overturn the existing dominant technologies or status quo products in a market.”

HOW LOW-END DISRUPTION OCCURS OVER TIME (source: Wikipedia)

That’s what we’re seeing at the moment, I think – the ‘status quo’ vendors in the software space have become roused from their slumber and are reacting angrily to this challenge to their supremacy. So let’s call it what it is: the Death Rattle of the on-premise software world.

"If we are really dying, let us hear the rattle in our throats and feel
cold in the extremities; if we are alive, let us go about our business."

--Henry David Thoreau, ’Walden’(1854)

Boundary Conditions

Someone very clever once wrote, “Human beings are naturally drawn to ‘boundary conditions’ “ – for example, where land meets water, where the earth touches the sky, where space meets time.

In other words, we like to congregate at these boundary conditions; stand on the edge of something and gaze over at something else.

Is that why beach houses are so expensive?

I feel as though the SaaS market is at one of these boundary conditions right now. As we see more and more companies choose on-demand solutions, the ‘old way’ of doing things is giving way to the ‘new way’ of doing them.

It’s not hard to see why this is so: when one considers the lower cost of entry, lower TCO, instantaneous upgrades, plus the freedom and flexibility that come with a subscription-based service model, the exploding popularity of SaaS makes perfect sense.

Evidence of the ‘SaaS explosion’ can be found all over the place. Recently, Penny Crossman wrote a terrific article describing the “almost-meteoric rise of SaaS on Wall Street”.

On the same day last week, Salesforce.com announced not only the acquisition of InStranet (to strengthen its service and support offerings), but also record earnings for their second quarter.

The SaaS market is spectacularly healthy and growing at a dizzying pace. According to IDC’s Worldwide Software On-Demand Forecast 2007-2011 the CAGR is forecast 32% among companies of all sizes, and another analyst (that I'm not able to mention by name) estimates that Software-as-a-Service will grow to a $19.3 billion industry by 2011. This means that SaaS – already a healthy $6 billion industry in 2006, will have more than tripled in size in less than five years.

If we, as an industry, have not already reached our tipping point, it seems to be rapidly approaching.

Won’t you join me at this boundary condition? Let’s gaze over at the old, on-premise world and be glad that we’ve claimed such a valuable piece of beachfront real estate.

Customers Take the Wheel

It’s no secret there’s a sea change occurring in enterprise software, as “on-premise” increasingly gives way to “on-demand.” What’s not so evident yet is the shift in power from the vendor to the customer that is occurring as a result of the on-demand revolution. In a recent article posted on ebizQ, I discuss how the growing popularity of on-demand SaaS applications will lead to a more customer-centric and responsive software industry. This is because in the on-demand world, the customer is firmly in the driver’s seat and can pull the plug on the vendor at any time. As opposed to on-premise software implementations, on-demand implementations have no expensive infrastructures and no sunk costs that lock customers in and limit their flexibility to make a change.

Nevertheless, customers need to step warily. As more and more large enterprise software companies test out the SaaS waters with initial on-demand offerings, there’s no guarantee they will support their on-demand customers properly. After decades of locking customers into expensive on-premise software and subjecting them to lengthy implementation cycles and costly upgrades, who’s to say these companies can suddenly and successfully shift gears and become paragons of customer care?

Then there are those vendors who are trying to cash in on the on-demand cachet by offering “hosted on-demand” applications that are really just the same old on-premise applications running remotely, and which have few of the advantages of a genuine on-demand application built on a multi-tenant SaaS model. There are some rude shocks just around the corner for the customers of these guys, who by blurring the truth are setting themselves up to disappoint their clientele.

So as you slide into the driver’s seat and take the wheel in the brave new on-demand world, how do you make sure you’re not going to be fooled and are indeed going to get all the value that you expect? In the ebizQ article, I posit a brief checklist to help customers navigate the maze of on-demand claims and promises. Like any good driver, you’ll want to run down such a list before turning the key. Check out the full article here, and let me know what you think: www.ebizq.net/topics/bpm/features/8567.html