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.

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11 thoughts on “Directions in cloud computing and software-as-a-service

  1. Pingback: Microsoft Research paper proposes using ‘Data Furnaces’ to heat the home | Innovation Toronto

  2. Happy new year. I basically agree with the apporach and the changes involved, but I don’t understand exactly what do you mean when you say that ‘the move to SaaS requires changes in the target customers’. I would like to understand better this point.
    Many thanks.

  3. Thanks for asking for the clarification: I probably should have used the term “new target market” – the cloud will require that ISVs identify a different target market to the one they are used to, typically small- to medium-sized businesses.

    • Sorry, but I don’t see why ISV have to look for a new market. I think the market will continuate being the same, maybe the difference has to be in the go to market, or the market approach. I will appreciate if you explain your thoughts about the target market.

      • Good point. But there may be new markets as well, for example, the ISV may only handle business in certain regions with an on-premise solution, but a SaaS application could be used by anyone anywhere in the world. So how the SaaS application is marketed, sold and supported will require changes in the way the ISV business works.

  4. Dear Manticore
    Your articles are very knwoledgeble.
    I would really like to know the comparison points between Syspro and Axapta..
    Looking forward for your In-depth feedback
    Thanks & Regards
    Burhan Gabaji
    Kuwait

      • Dear Manticore
        Thanks for your response.
        I am very well aware of technology evaluation.. but i though to ask you as you would have had some pre-sales expereincescompeting with AX.
        There is an immense potential of Syspro in Gulf region which we would like to capitalise.
        Currently there are 2 strong solutions in the region AX & EPICOR which are very aggressively trying to push into the market.
        So for an evalaution perspective i would really like know some facts in comparison with AX and EPICOR…
        Thanks
        Burhan

      • Thanks for clarifying your question.
        Epicor is a serious competitor for SYSPRO in a number of regions. Here are some points to consider:
        – Epicor’s annual maintenance is much higher than SYSPRO’s
        – Epicor lacking in terms of reporting and supply chain functionality as compared to SYSPRO
        – Epicor a bit too complex
        – Epicor requires considerably more hardware to run than SYSPRO
        – check out http://erp.ittoolbox.com/groups/vendor-selection/erp-select/epicor-9-the-good-bad-and-the-ugly-is-it-as-good-at-it-3682919#M3684254

        What I know about AX from my time with Microsoft Dynamics:
        – powerful, but complex, functionality
        – customization requires specialised skills (in A++)
        – complex in implementation and ongoing maintenance
        SYSPRO offers a distinct advantage when comparing features and prices
        For a large company AX may be appropriate to consider, but for mid-size and smaller companies its too costly and complex

      • Thanks Manticore for your well thought answer.
        We would really like to engage with SYSPRO for partnership.
        Waiting for your response based on which we can proceed.
        Regards
        BG

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