Directions in cloud computing and software-as-a-service

I was fortunate to be invited recently by Microsoft to a seminar by well-known writer David Chappell. The seminar was given to provide Microsoft’s ISV (Independent Software Vendor) partners with insights and guidance on what to expect with, and how to prepare for, the growth of cloud-based software and software-as-a-service (SaaS).

Chappell is a skilled writer, and an informative and engaging speaker; but even more valuable, he was speaking as in independent with no restrictions on what he could say. His comments about Microsoft’s cloud offering – the Windows Azure platform – were balanced and he certainly didn’t pull some punches. In various areas, Azure is still a platform in development, but despite some shortcomings, Chappell believes it has potential.

He also believes that the most significant cloud development is in the area of Platform-as-a-Service (PaaS); this is where Google App Engine, Microsoft Windows Azure, Salesforce.com Force.com, and Amazon’s recently announced Elastic Beanstalk operate. However, Infrastructure-as-a-Service (IaaS) as delivered in Amazon EC2 is not going to be as well used in the future, according to Chappell.

Chappell covered technical and non-technical issues in the seminar. He pointed out the that type of application is significant in terms of applicability to a SaaS solution – a greater customisation requirement makes SaaS harder; which is why cloud solutions have been more in the basic accounting, CRM and SFA areas than in ERP. He also discussed how cloud computing requires changes to the business model of a traditional (i.e., on-premise) ISV, as in the table below.

Advantages of SaaS	Disadvantages of SaaS
Potential to reach new customers	Must demonstrate real value upfront
Sell direct to business, not via IT	Revenue builds up more slowly
More predictable revenue	Lessens ability to sell customisation and customisation services
Lower support costs	New sales challenges, e.g., resistance
Gain more knowledge about customers’ behaviour	Requires changes in how business is done
	Requires more capital to sustain in the start-up period
	Slower revenue growth

The move to SaaS requires change in a number of areas:

• target customers
• pricing model and subscription management
• sales process
• sales force and partner ecosystem
• sales compensation plan
• website becomes fundamentally important for sales success
• marketing
• support
• operations
• software development
• organisation structure

Because of the change needed, Chappell commented more than once that moving to the cloud is a major, disruptive change for traditional ISVs, but if ISVs wish to defend their existing market, and find new opportunities for growth, then they have to ‘bite the bullet’ and start the transition. In the short space of thirty years we have seen the predominant computing platform change from mainframe, to mini-computer, to client-server, so we should consider cloud computing as the next phase.

Three final points from the seminar.

   1. How SaaS changes the sales approach

Deal size	Customer acquisition cost	Type of sales force needed	Relationship with customer	Typical customer	Product complexity
High	High	External, field	Personal	Enterprise	High
Medium	Medium	Internal only	Phone	SMB	Moderate
Low	Low	None	Website only	SMB, department	Low

Chappell advises that an organisation should be aligned across the rows for the best sales approach – not be on different rows for different columns.

   2. He noted that it is easier to go up in the table; to go down is difficult. So ISVs should probably start with a solution that has less than the full set of functionality. In many cases, the SaaS entrants in the market have functionality that is ‘good enough’.

   3. What to consider when deciding where to host a SaaS application.

Platform location	In-country data centre	Support	Platform control	Admin required	Security	Disaster recovery	Cost
Local hoster	Good	Good	Extensive	High	Medium	Limited	High
Global IaaS platform (Amazon EC2)	Maybe	Remote	Partial	Medium	Strong	Excellent	Medium
Global PaaS platform (Azure)	Maybe	Remote/ local	Minimal	Low	Strong	Excellent	Low

In the decision between cloud platforms and hosting providers, the following issues also need to be considered. On the one hand, the cloud option is faster, cheaper, and has less risk; on the other hand, developers have to learn a new world, and they have less control and less choice.