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.

Is IDC out of step?

I am coming to the conclusion that the research group International Data Corporation (IDC) is out of step with just about everyone else when it comes to the research they publish.

This first came to my attention when I was referred to an IDC report on the top ERP vendors. Looking at the report’s table of contents, I was surprised to see that companies such as TOTVS, Activant, Micros Systems, CGI and Torex Retail, were included. In no way can these companies be called top ERP vendors. So I was left wondering on what basis did IDC identify its vendors.

Now, there is a report that IDC predicts 27% compound annual growth in the Software-as-a-Service (SaaS) market, only a few days after Gartner is reported as “backing off the software as a service (SaaS) bandwagon“.

Whether you are a customer or a vendor, do you wonder where IDC are getting their data?

where is Dynamics in the cloud?

Jason Hiner at Tech Republic published the PowerPoint slide from TechEd 2010 that showed Microsoft’s strategy for private and public clouds. I think there is something missing from that picture – on the private side you can see Dynamics, but it is not on he public side. So my questions are: where is Microsoft Dynamics, and especially the ERP component, in Microsoft’s cloud strategy? What does this say about Microsoft’s plan for ERP Software-as-a-Service?

Where is SaaS on the Tech Adoption Life Cycle?

I listened to a webinar on high-tech marketing recently in which the Chasm Institute discussed the Technology Adoption Life Cycle (TALC), saying that it is the Pragmatist segment that ultimately decide on the success of a high tech solution.

There has been a lot of talk in recent months about Software-as-a-Service (SaaS), but has anyone agreed where on the TALC that SaaS is?

Where on the TALC do you think SaaS is?

A sign that social business is growing up

Michael Fauscette made some wise comments about a new company, Pragmatic Enterprise 2.0, that announced itself recently:

without a methodology, a risk mitigation approach, the correct skills and change management a project is doomed. Businesses need enterprise class, scaleable social tools, social processes and knowledgeable assistance to pull off this level of business transformation.

Earlier this week some colleagues announced a partnership that is both good news for businesses that want to do social transformation projects but also an indication that social business is growing up.

I think Michael is right.

I also had a discussion with one of the founders, Michael Krigsman, on Twitter that their product diagram looked like it was designed by a committee and was difficult to understand. I am looking forward to how things develop on that front.

Does SaaS ERP exist?

There is currently a debate on the ITToolbox site about whether ‘proper’ ERP is available as a Software-as-a-Service (SaaS) offering – Does SaaS ERP really exist?

I don’t believe the debate has been resolved either way, but I found some comments interesting:

“Perhaps there are some ERP vendors that have made the leap to true SaaS, but, keep in mind, in the long run, you will pay more money for a SaaS model. Typical payback times are between 2-2.5 years to where it becomes more expensive to operate with the monthly fees (you never “own” the license), vs. paying up front for a perpetual license. Due to the strategic nature of an ERP investment that may not be changed out for 10+ years, the SaaS model typically does not make much financial sense.”

“One major TCO benefit surfaced right to the top in favor of SaaS. We call it the “Six Year Pinch”. We all agree that the payback for on-premise is within the five year time frame; however, growing enterprises require upgrades to the on-premise applications, infrastructure, and personnel (new hires and training). When you factor these costs into the TCO model, the on-premise ERP became 3x more expensive than the SaaS ERP since the investment for SaaS remained linear whereas the on-premise had a investment requirement every 5 to 6 years. True SaaS ERP vendors have one code base (i.e you are always on the latest and greatest version of software). The SaaS vendor manages the deployments behind the scenes and the customer is responsible for enabling new functionality through switches as necessary. On another note, the companies we interviewed who are using SaaS ERP chose the solution not because it is a SaaS solution, but chose it because the functionality met their requirements – the most important decision in any business system selection. The SaaS model was a secondary benefit.”

SaaS applications down-side

There is a lot being written about software-as-a-service (SaaS) for business applications. Just recently I learnt the downside of SaaS business software.

A company using Salesforce.com has found that it doesn’t do what they wanted. The only money the company invested in the application was the monthly rental, that’s all. So guess what they can do to Salesforce.com? When the company now selects an on-premise application, they will have to make a serious decision and provide serious commitment because the investment will be more significant.

I’m glad we don’t provide SaaS solutions if that’s how quickly customers can switch.

Update: Dennis Howlett has made some valuable comments following from this blog – what he considers the the wrong question, and pointing out a real problem.

My take on latest analyst views

My favourite analyst site, AMR Research, often has raises some issues on its ‘First Thing Monday‘ page that provide me with blogging ideas:

A Google chrome comment – summarises the prospects of Chrome from an enterprise perspective as a

browser, a platform for Google Apps, omni-client platform strategy and a replacement for the Windows environment for desktop and mobile applications

The state of enterprise software skills in the US – AMR now believes only 2 ERP vendors, SAP and Oracle, are the main players in the US. I wonder what Microsoft thinks of that?

I find the Gartner site to be pretty poor in terms of getting quick news analysis, but one of their analysts was on ClassicFM last night (again) discussing some discontinuities that are coming from the Internet. At least he was aware of SA’s local issues around the Internet, e.g., why Software as a Service (SaaS) is not taking off here due to our Internet bandwidth problems. Also discussed was the future impact of social software – very much aimed at the big corporates rather than SMB market – which makes it sound unimportant to the majority of SA companies.

Where SaaS ERP will fail

ERP applications delivered as a SaaS (software as a service) will struggle against on-premise products while the danger of a service interruption is still regarded as likely.

The major cloud computing services (Amazon, Google) have recently had problems, preventing people from using their applications. It isn’t too serious when those applications are word processing and email, but try saying that to a financial director whose company’s business relies on the ERP transactions going through.

Two other recent articles (Nick Carr, Business Week) make the same point, and go into more detail.

SaaS – for consumer or enterprise

A post by Judith Hurwitz warning about SaaS (Software as a Service) advises business that they need to know what they are getting into before they make a hasty decision. Some of the questions like should be asking are around their use of and attitude towards their data, and what are the third-party software integration issues they need to understand.

Sadagopan lists a number of applications that lend themselves to SaaS: “HR/Payroll; Procurement, Financial management; Business-to-consumer (B2C), e-commerce/product catalogs including dynamic pricing models, Loyalty management, Marketing & Sales promotions”

It seems to me that SaaS has a better in the consumer arena than in the enterprise. I haven’t come across a single company that has just one set of software application that runs the operations of the enterprise – either in finance and admin, distribution or manufacturing.

As for the data question, there may be some data that a business will let someone else manage, but every business has some data that they consider too confidential or proprietary to let someone take it over. How would a SaaS application handle that scenario?

Then there are the issues of country-specific regulation, whether in accounting, governance, safety regulation, data privacy, HR (which here in South Africa would include BEE – black economic empowerment).

I see Anshu proclaiming Oracle’s position in the SaaS stakes. I wonder how he would respond?