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CIO's Guide to On-Demand

Wednesday, July 29, 2009

Lost withOUT the Cloud - NY Times on Cloud Computing

Mark Tognetti

Recently Jonathan Zittrain, a law professor at Harvard, and the author of “The Future of the Internet — And How to Stop It” published an op ed piece “Lost in the Cloud” in the New York Times. The article was forwarded to me by a number of IT security colleagues along comments like “I told you that cloud computing is risky.” I’ve ordered Professor Zittrain’s book, ironically from Amazon, a cloud computing pioneer, to more fully explore his ideas. But in the meantime, let's take a look at the "real dangers" that Zittrain claims come with the cloud.

The typical fears: financial stability, security and data privacy in the cloud

In the article, Zittrain cites the typical fears about financial stability, security and data privacy and backs these up with examples about online subscription services going out of business, the recent hack of a Twitter employee’s account, the Feds abusing the authority granted by the Patriot Act and the admittedly egregious Internet monitoring by the Chinese government. Each of these examples has more nuance than suggested, and represent a phases of growth vs. being "showstoppers."

1) Financial stability/long-term viability of online services: My local newspaper or manufacturing company is just as much, if not more, at risk of going out of business (they just stopped printing a Monday edition) than a reputable cloud provider. Last check, iTunes and Google, are a safer bet. As with any business relationship, choose your partners carefully and have a backup plan... but don’t fail to act.

2) Security of online services: The Twitter hack was great example of user naivete about strong passwords, but any company that provides remote access to their internal systems would be equally vulnerable. In addition to teaching users how to make good password choices, options exist to improve login security via multi-factor authentication from companies like Ping Identity and MyOneLogin. What the cloud does is provide more transparency around "what is secure" across people, processes and technology. It also provides a better view of where risk lies so that companies can take the right actions. For security addressing only the subset you know about doesn't make things better - in this case ignorance is not bliss.

3) Data privacy: Without debating what constitutes appropriate governmental access to private data, it is fair to say that governments can overstep their bounds. I agree with Professor Zittrain that my data on the cloud should be afforded a degree of legal protection equivalent to my data stored in my house. As with any disruptive technology, the cloud will require adjusting (or perhaps rewriting) existing laws and regulations. His comments that “With a little effort and political will, we can solve these problems” certainly rings true. Cloud providers will need to develop corresponding capabilities to ensure compliance with the intent of regulations.

A more concerning fear: does the cloud really reduce our ability innovate?

The most concerning statement by Professor Zittrain is that the cloud puts “the freedom to innovate" at risk. His concern about the cloud is that “the vendor of a platform has much more control over whether and how to let others write new software”. His cited examples are Facebook and Apple. Perhaps SAP and Oracle would be his examples of inspiring innovation ?

I grew up with the PC revolution. I wrote my first line of code at 12 on an Apple II which my parents paid several thousand dollars to acquire. I worked within the limitations of 48KB RAM, 140KB floppy disk drives, and Apple BASIC (with the occasional peek in to 6502 Assembly to do the tricky stuff). Today, because of the cloud my 8-year-old son has virtually infinite access to compute power, languages, databases, open source tools, etc. for free or pennies to use. Not only does he have significantly greater freedom to innovate, he will be able to innovate much more rapidly than his old man, because the cloud has eliminated the burden of building, maintaining and understanding the infrastructure (hardware, operating system, etc.) required.

Professor Zittrain’s concern is that the market could settle in to a handful of “gated” cloud communities who control the availability of new code. He believes that software developers are writing “less adventurous, less subversive, less game-changing code under the watchful eyes of Facebook and Apple”. But, as Professor Zittrain himself cites, far less restrictive development environments exist in Amazon Web Services, Salesforce's Force.com, Google App Engine and Google Android to name just a few. Although the ecosystem of cloud providers will certainly evolve over the next decade, I cannot imagine that we will end up with a few “gated” providers that are anywhere close to the level of restriction imposed by today's enterprise software vendors and architectures. The Internet and the cloud change the drivers for the vendor - it still wouldn't be in their best interest to stifle innovation (as David Schatsky explains in his response to Professor Zittrain).

Our conclusion: the cloud will drive enterprise IT innovation

The ability to innovate has and will be lost without cloud. The contrast between consumer and business driven technology innovation over the last decade is a staggering proof point - online banking and trading, job search, finding where I am going and what to do, e-commerce, social networking and a score of other innovations ranging from mission critical to just fun have made it nearly impossible to remember how we survived pre-Internet. The cloud can bring that level of innovation and productivity to enterprise IT. After all, its hard to imagine my eight year old or anyone in the future workplace settling for less than the near infinite scale and freedom cloud computing.

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Thursday, July 23, 2009

NetSuite buys QuickArrow: Should we expect Oracle-style acquisition or a SaaS platform for small businesses?

Ryan Nichols

Yesterday's announcement of NetSuite's acquisition of QuickArrow was more significant than the $20M price tag would indicate, for anyone who follows cloud computing but especially for existing customers of QuickArrow and OpenAir, the other point SaaS app for Professional Services Automation (PSA) that NetSuite scooped up last year.

For the industry, this acquisition is a proof point for the power of on-demand platforms vs. silo'd SaaS applications. Building and maintaining a point SaaS application like PSA from the ground up is hard work. QuickArrow and OpenAir have poured tens of millions of dollars of VC funding into each and every level of their SaaS application stack... hardware and network infrastructure, database and application servers, and lots of horizontal application functionality like UI, analytics, and security. Contrast that with what we do here at Appirio - we're building a superior application for professional service firms with a fraction of the effort on the Force.com platform, because we're able to focus 100% of our development effort on the needs of professional service firms, and 0% on infrastructure. More from Appirio on that topic in the coming weeks.

But what about the existing customers of QuickArrow or OpenAir? They need to consider whether they should expect any better behavior from NetSuite than they've come to expect from their on-premise counterparts.... especially since NetSuite is partially owned by none other than Larry Ellison. NetSuite now has 3 different SaaS platforms to support professional service firms, with significant overlaps in functionality and fundamental differences in design. The question is whether we should expect NetSuite to take the low road and become an Oracle-like consolidator of SaaS applications, or whether NetSuite will invest what's required to become a cloud platform for small business.

Let's look at what the two alternatives mean for customers:
  1. NetSuite does an Oracle-style roll-up: If this acquisition is mostly about acquiring customers and squeezing more dollars out of them over time, then NetSuite will be following the tried and true footsteps of Oracle. Expect little rationalization of this confusing portfolio. Instead, existing customers of QuickArrow and OpenAir should expect increasing pressure every quarter to pay more for the products they need and buy "bundled" products they don't need, and receive less and less innovation from their solution as the R&D teams of the acquired companies experience "synergy." A great deal for NetSuite, not so great for the customers of OpenAir and QuickArrow.

  2. NetSuite assembles a SaaS platform for the small business: NetSuite also has the option to take the best-of-breed functionality from each of their existing solutions and build it into a new solution built on the same platform as NetSuite financials. This path will require more investment from NetSuite, but certainly has a more positive outcome for small services businesses that don't have an existing financial solution other than QuickBooks and are ready to make this sort of switch. Naturally, it will take NetSuite a while to get to this end state, and customers who want to take advantage of this functionality will have to perform a migration of their current, end-of-life PSA solution. But this approach will give NetSuite a compelling offering for small services firms just getting started building out their technology infrastructure.

Of course, many customers will lose in either of these scenarios - especially enterprise-class service organizations currently using QuickArrow. What does this acquisition mean for companies like Adobe, Advent, Borland, Genesys, Informatica, Software AG, and Symantec (all QuickArrow customers according to their website)? These are companies that run Oracle or SAP for their financials, not NetSuite. These are companies that are going to have to take a hard look at how they want to support the needs of their services teams going forward whether Zach Nelson follows in Larry Ellison's footsteps or not. Enterprise service companies are between a rock and a hard place.

If you fall into this category and are concerned about the affects of the QuickArrow and OpenAir acquisition on your professional services business, drop us a line. We'd love to show you what we're up to.


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Tuesday, July 07, 2009

Part II - Beware the Wolf in Blue Clothing

Narinder Singh

IBM's mixing metaphors in the cloud slows innovation and enterprise success with the cloud

In Part I of our blog we shared our thoughts on the debate between public and private clouds. Here we want to share what to expect when entrenched vendors muddy the waters in the cloud (and reissue our offer to a public webinar to debate the topic).

The Legacy Vendor Playbook
The effort for a giant to play catch up on cloud computing (or other disruptive technology innovation) normally involves three main components.

Step 1 - Name everything the same
Step 2 - Claim progress through standards
Step 3 - Build a few real, innovative solutions, but use them as a part of many existing strategies


All the while, the center of these organizations still sound like the advocates of the previous paradigms so insightfully described in Clayton Christensen's "Innovator's Dilemma."

Step 1 - Name everything the same
At one point IBM had more than a dozen (maybe 20+) products that were called DB2. SAP has similarly pulled everything into their suite whether integrated and relevant or not. This enables vendors to ensure that statements that their "product (e.g. DB2) can do X" is inevitably true.

Step 2 - Claim progress through standards
As we have noted before, a search for web services standards returns IBM as the top result with a page with over 30 WS* standards. On average a very small number of those standards are being used within enterprises to allow two systems from different vendors to inter-operate. The open cloud manifesto from IBM followed a similar pattern, it allowed them to jump closer to the center of the discussion around cloud computing without having a single proven offering related to it. The most proven demonstrable cloud innovations have come from vendors like Amazon, salesforce.com and Google. They have used proven web standards to promote interoperability without slowing innovation.

Step 3 - Build a few real, innovative solutions, but use them as a part of many existing strategies
IBM has the ability to and will deliver true, innovative, multi-tenant solutions. We have seen it before with other standards and areas of development. Yet rather than being disruptive, this innovation is cornered and primarily used to make less relevant, non-cloud based solutions appealing to enterprises and to demonstrate technology leadership in the market. Similarly, Microsoft will certainly provide interesting capabilities through Azure to allow existing .NET solutions to plug into cloud services. But their motivation is primarily to protect their investments, not their customers.

How should enterprises respond?
Now that we know what tens of millions of marketing dollars will promote, how should enterprises respond?

1. Use technology advancement from legacy vendors where it makes sense - as we mentioned, IBM (and others) will deliver some real innovation, and many of the technologies are applicable to helping you create a more efficient IT environment. In those scenarios, continue to explore offerings old and new to help reduce costs and increase flexibility. At the same time, expect incremental improvements to your current solutions - not giant leaps forward.

2. Don't believe the hype - it's one thing to use technologies where they make sense, its quite another to use them to accelerate your path towards the wrong destination. Continue to invest in exploring and deepening the understanding of the real cloud computing solutions and ecosystems (obviously we think salesforce.com, Google and Amazon are great starting points). Even if you are currently skeptical of (public) cloud computing, it will allow you to draw the right contrasts and clarify what is really different.

3. Use pure plays to increase knowledge, get real benefit and put pressure on legacy vendors - We have had many prospects and customers begin to explore public cloud
apps like Google simply to place pressure on their legacy vendors (Microsoft Exchange or Lotus Notes). In some cases, this resulted in dramatically lower renewal costs of those products; in others it led to a deeper understanding of and eventual selection of Google Apps. Either way, it's a clear benefit to the enterprise. And over time it inevitably increases the rate of adoption of the solutions delivering superior value (i.e. the cloud).

While legacy vendors take steps to participate in the next generation of technology, they will often do so while belittling it. SAP in the past weeks has simultaneously aggressively promoted the cloud and then deemed it mostly inadequate for enterprise solutions. To cut through this alternative approach to holding on to the past, enterprises can ask a few simple quations. Is the cloud more or less capable than it was three years ago in handing our needs; will it be more or less capable three years in the future of handling our needs? Regardless of your evaluation of where it stands today, answering these questions for yourself will indicate where you should invest going forward.

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Monday, May 11, 2009

Do your most strategic apps belong in the cloud?

Balakrishna Narasimhan

I've been in a number of conversations over the past few weeks where I've been asked which business processes or apps belong in the cloud.  There are obviously some technical considerations, but I'd like to focus on the strategic reasons for making the decision and how things have changed in the shift from traditional IT architectures to IT in the cloud.

Traditional IT department
In the past, the only way for a company to maintain control of their business process was to completely own the technology supporting the process.  The rationale was that a company's most strategic, differentiating processes are unique and therefore have to built by the company either from scratch or by heavily customizing packaged applications.  This also meant owning the entire technology stack supporting the process and the application.  So, while the intent was to create differentiated processes that were agile and differentiating, the reality has become that the technology stack is an albatross around the IT team's neck that prevents them from moving as quickly and as efficiently as they would like to.


The result is that while IT organizations are keen to support the business, they are unable to go much beyond providing basic services.  The solution to the problem of managing the entire stack was traditionally either hosted/managed server services or outsourcing, but each introduces its own problems.

Outsourcing
In the case of outsourcing, the enterprise gains cost savings but relinquishes control of their business process and has to adhere to the provider's "best-practice" process.  This clearly means that outsourcing can only be applied to commodity processes rather than any differentiating processes or processes where innovation is needed.  The IT team's role shifts to primarily vendor management with little ability to innovate or drive the business.

Hosted/Managed Servers
Hosting gets a bit closer to solving the problem because it reduces some of the IT team's pain in terms of managing infrastructure.  However, the IT team still needs to spend a lot of their time maintaining the application and the middleware stack, i.e., applying patches and bug fixes, implementing upgrades, maintaining integrations, etc.  In addition, the team also needs to manage their relationship with the hosting vendor.  So, again, the main impact is some cost savings but no real gains in terms of agility or ability to innovate or support the business.

IT department in the cloud
Cloud computing changes the decision process completely.  No longer do companies face a choice between relinquishing all control of their business process for cost savings or dealing with the high costs and complexity of supporting an entire software stack.

Platforms like Force.com and Google App Engine give companies a way to control the parts of the stack that matter most, the application and business process layer and abstract away the management of the infrastructure.  This means that the IT team can focus their energies on driving innovation and supporting the business.

A real-life example
In a past life, I was a partner at a major management consulting firm.  Since our business was our people, we believed strongly that our most critical processes were those that were related to managing our people, e.g., recruiting, employee performance management, compensation, project management, project staffing, etc.  The technology supporting many of these processes is available from outsourcers but we couldn't even consider those offerings because our processes were absolutely unique and core to our business.  The result was the that we spent significant amounts of money maintaining a brittle IT infrastructure that was great at running the business in a static state, but was difficult to adapt as we changed our business model, made acquisitions or entered new markets.

Fast forward to today at Appirio.  We run our entire business in the cloud.  A core part of our business is delivering professional services to our 150+ enterprise customers (and products to over 2500 companies).  We manage all aspects of our professional services business in a custom application running on Salesforce's Force.com platform.  The application is completely customized to our unique processes but runs in the cloud.  Therefore, we can quickly adapt the application as new needs arise and not worry about maintaining servers or managing infrastructure.  With no intervention from us on the infrastructure side, the application has supported our four-fold growth over the past year.  In addition, as we make changes to our internal organization structure or introduce new products or service offerings, we can make changes almost instantly.  Our IT costs less than a third of industry benchmarks AND we can run a better, more agile business.

That's why we believe that over time, companies should move not only their non-core processes but also their most strategic processes to the cloud!

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Wednesday, January 28, 2009

Short the Global SIs

Global SIs Continue to Struggle with SaaS – Enterprise Executives Abandoning Accenture, Cap Gemini, & TCS

Chris Barbin

In January of 2007, we published an article, Services 2.0, which highlighted the shifting sands in deploying SaaS solutions such as Salesforce.com, Google Enterprise and Amazon Web Services. Two years later, Global SIs such as Accenture, Cap Gemini, TCS and others are still shackled by their dependence on old-school, on-premise partnerships with SAP, Oracle & Microsoft. While they may be paying lip service to cloud computing, most offer SaaS-based solutions at 2-3X the total cost necessary, are nowhere to be found in the relevant communities and developer ecosystems, and have few true SaaS enterprise reference customers to speak of.

In this down economy, we have seen a dramatic shift of enterprise customers looking to accelerate their SaaS & cloud computing initiatives--they have seen results from prior efforts and are eager to expand efforts to "do more for a lot less." Having served over 100 enterprise customers including Dolby Laboratories, Qualcomm, Harrah’s, Starbucks, Genentech, Plantronics, Japan Post and others, Appirio has seen a continued movement from simply replacing one or two on-premise apps with their SaaS alternatives, to enterprise-wide, C-level mandates. Here's some of the things we're hearing customers demand:

  • "Eliminate 15% of our IT spend with SaaS"
  • "Cut $100M in expenses by moving to the cloud"
  • "Help us define a path to the server-less enterprise within 3-5 years"

When confronted with these mandates, the Global SIs that we see and hear competing for these deals seem flat-footed and ill-equipped, trying to meet these new challenges with dated on-premise technology and techniques. In the past 60 days alone we have witnessed 3 examples of this:

  • Global SI #1: Quoted a basic SFA, Call Center and Partner Portal implementation for a $1B manufacturer @ nearly 3X the necessary amount. To justify its high cost of sales and hamstrung delivery model, the bid "added" unnecessary roles and services. They could not adapt to new rapid and iterative development methods - now a standard in SaaS development and deployment.
  • Global SI #2: Quoted a global SFA requirements phase at 1.5X the necessary cost EVEN WITH A LOWER AVERAGE HOURLY RATE. Again, a dramatic misunderstanding of how to define requirements in a SaaS world, compounded by a lack of repeatable assets, IP and methodologies for SaaS deployments.
  • Global SI #3: Quoted a PaaS initiative for an existing customer @ 2X its necessary amount. In this case, the quote was driven by a combination of exorbitant rates, a comfort level with an established client, an army of under-utilized resources already on-site, and a blatant misunderstanding of how to define, develop, deploy and support a PaaS initiative.

We see this list of examples growing every day, and it does not even include the dozens of customer relationships where enterprise executives are simply bypassing the Global SIs because of their bloated costs models, old school methods, multi-billion dollar partnerships with legacy vendors, or systemic lack of knowledge of cloud computing products and services. The discussion around "private clouds" is a perfect example-- Global SIs trying to teach an old data center new tricks.

More evidence? Search the discussion groups and forums for relevant case studies and success stories from these companies. While Accenture, Cap Gemini, TCS and others claim strategic partnerships and deep SaaS practices and expertise in cloud computing, the facts and relevant case studies prove otherwise. A few examples:

  • A quick search in the Salesforce.com developer discussion forum for "Accenture" yields a grand total of 49 hits, "Cap Gemini" 30 hits and "TCS", 25 hits – for a total of 104 hits. The equivalent search for Appirio and our competitors yields well over 1,000 entries.
  • The number of solutions offered by the Global SI community on Google Enterprise Solutions Marketplace – ZERO. When the TCO of the Google Enterprise solution is 1/10th the TCO of Microsoft and/or Lotus Notes, is this any surprise?
  • The number of enterprise SaaS success stories and testimonials on the Global SI’s websites – less than 10 based on our review. Appirio and our competitors have well over 200 true enterprise success stories.

When we launched Appirio just over 2 years ago, we suspected that the Global SIs would "get it" in 2-3 years, have significant assets, teams and relationships in the world of SaaS -- luckily, we are being proven wrong. Our new forecast, we have at least 2 more years. Or, perhaps Global SIs won’t ever be able to disrupt their traditional business, and the new Services 2.0 players will continue to outbid, out-deploy and out-innovate. If we are missing something and there is evidence of real SaaS growth at the Global SIs – we’d love to hear from you.

UPDATE, 3/11/09: We were flattered to receive a request from Accenture to remove their copyrighted image of Tiger Woods from this post. We are more than happy to comply-- we replaced it with this creative commons image.

UPDATE 2, 3/11/09: After the above, we received another request to remove Tiger's image altogether (from his people). We certainly never mean to cause the commotion, just to point out that Global SIs are focused on the wrong things, and they are lacking in getting behind something that genuinely is better for the customer.

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Thursday, December 11, 2008

Gartner Says SaaS is Taking Off!

Balakrishna Narasimhan
Gartner recently released a survey saying that the majority of enterprises expect to increase their use of SaaS in the coming months and years. We've been seeing this for a while in the customers we work with, but it's great to get external confirmation that this is a broad trend.

The Stats - Accelerating Adoption

According to Gartner, 90%+ of enterprises expect to maintain or increase their investments in SaaS. Even more interesting, ~40% of the organizations that Gartner surveyed are changing their IT environments completely from on-premise to cloud-based solutions. This end-user trend is reflected in the tepid financial performance of the SAPs and Intuits of the world while Salesforce, Concur, Taleo and others continue to grow at 40%+ (Ray Wang has an excellent analysis of this here).

The Business Drivers - Lower TCO while Increasing Flexibility and Innovation

We believe strongly that 2008 represented an inflection point in the adoption of cloud computing in large enterprises. This trend has only accelerated with the current financial conditions. As Nick Carr has observed, on-premise architectures are inherently wasteful (80% of server capacity, 65% of storage capacity are unused) and represent a fantastic opportunity for savings. However, the benefits of SaaS and cloud computing go far beyond savings alone. The "black magic" of SaaS is that companies can reduce TCO while increasing flexibility and innovation.

At Appirio, we experience this every day. We have a completely server-less internal architecture which has enabled us keep our IT costs at <2% of our revenues while scaling smoothly from 20 employees a year ago to nearly a hundred employees today. In addition, we have access to new innovations instantly. For example, a few weeks ago, Google rolled out video messaging in Gmail. Since we use Google apps within our domain, we had access to significantly enhanced functionality from one day to the next with no added cost or administrative overhead. Almost unimaginable in the traditional software world!

Our Prediction - Large Enterprises will Migrate Much More than Mail and CRM to the Cloud

SaaS is past the trial phase in many enterprises. Gartner notes that 40% of enterprises have 3+ years of experience with SaaS platforms. Companies have now experienced for themselves the benefits of SaaS within specific areas like CRM or messaging. We're seeing within our client base that companies are ready for a more holistic cloud computing strategy. We're increasingly working with large enterprises to quickly map their portfolios and develop roadmaps for large-scale migration to the cloud. Happy to see that Gartner agrees that this trend will accelerate in 2009!

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Thursday, October 09, 2008

Sequoia Capital Meeting: Our take on the economy and on-demand adoption

Chris Barbin


There's a lot of talk today about a meeting held earlier this week at Sequoia Capital, Appirio's lead backer, with the CEOs of their portfolio companies. The headlines grab your attention: Sequoia has emergency meeting, Sequoia sounds the alarm, Sequoia says to cut expenses now. The meeting was held in confidence, but we thought we'd share our perspective on the condition of the economy, what it means for Appirio, and, most importantly, what it means for customers considering the adoption of on-demand.

Macro-economic conditions are critical for every business to consider. This is the time for the leader of any organization to take a sober look at their spending plans and chart a prudent path given the uncertainty in the economy. That's our approach at Appirio, and we recommend that all of our clients do the same.

What does this mean for the adoption of on-demand? While nothing is certain, we remain optimistic that very bad news for the traditional enterprise IT industry will be very good news for cloud computing, companies like Appirio, and customers who are adopting on-demand solutions.

Let's take a closer look at how the economic conditions are impacting one of the stalwarts of traditional enterprise software-- SAP. SAP announced this week that they experienced a "very sudden and unexpected drop in business activity" last month. The announcement led to a 12% decline in SAP's stock price. Here's how they explained the shortfall in revenue, and why we think things are different in on-demand:
  • SAP customers faced difficulty financing upfront license fees. On-demand customers, on the other hand, pay for their solution as they use it. They don’t need to finance a big up-front investment in a monolithic solution with an uncertain business benefit.
  • SAP customers balked at difficult-to-justify maintenance fees. On-demand customers, on the other hand, know what they are paying for — they see continual enhancements to their solutions without expensive upgrades or patches.
  • SAP only learned of this in the final days of the quarter. On-demand customers, on the other hand, don’t need to engage in the edge-of-the-cliff negotiations with their technology vendors at the end of the quarter. These vendors know that they will only keep their customers for as long as they are able to create value, and need to be working every day to keep their customers happy.
It's striking that the very things that make current economic conditions so difficult for traditional enterprise technology vendors will drive customers towards adopting on-demand. Does that mean that spending in on-demand technology is counter-cyclical? It’s too early to say. But we have compared cloud computing to the Toyota Prius — an automobile that gets more popular as economic conditions worsen and gas gets more expensive.

Let's take an example: One of our customers built a business case comparing Microsoft to Google Apps for communication and collaboration. When they added up what they were spending on hardware, software, and people for on-premise software, storage, and backup, the total came to almost $700 per year for each of their 10,000 users. Switching to Google Apps saved this company $12M a year. Clinging to Microsoft Exchange is an expensive luxury, one that's going to be increasingly hard for CIOs to justify.

The average company spends 4-6% of revenue on IT-- for a customer at $1B in revenue, that is $40M - 60M in annual IT expense. Organizations that 'cloud-source' their IT infrastructure to on-demand providers can reduce this to 2-3%... a 50% reduction. This model provides cash critical in a down economy, and also provides executives flexibility and innovation that on-premise vendors cannot.

Despite these benefits, today SaaS represents only $10 billion of the $100 billion spent on enterprise software and $1 trillion spent on enterprise technology. It's easy to imagine dramatic declines in these traditional markets while SaaS and PaaS continue their rapid pace of growth. We've always believed that it was just a matter of time before SaaS moved from 10% of the market to 70%...CIO concerns over TCO amidst economic uncertainty could certainly catalyze this shift.

So in the midst of all the headlines, here's our message to you, our partners and customers:

Appirio is committed to helping our customers weather this storm. You’ll hear us talking more about the cost savings possible by moving your IT infrastructure to the cloud, and the rapid ROI possible from our custom application development. Creating real business value for our customers using on-demand technology remains our first priority.

Appirio is committed (as are our investors) to continued investment in our mission to accelerate the adoption of on-demand in the enterprise. We believe that this is a great time to develop new products, launch new service offerings, and enter new markets-- stay tuned to hear more.

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Tuesday, July 29, 2008

Cloud Computing: Hummer or Prius?

Ryan Nichols

Last week we noticed a similarity in news headlines from two very different industries - automobiles and software.

In the auto industry, U.S. gas prices remain near all-time highs, and car buyers are nervous about economic conditions. The result is a dramatic shift among buyers to emerging technologies. The market for large SUVs is hurting, while the market for smaller, lighter cars and especially electric hybrids is booming. Domestic automakers are scrambling to retool their existing SUV factories to smaller vehicles, and Toyota is poised to overtake GM as the leading global car maker.

In the technology industry, we face a similar situation. CIOs are certainly nervous about economic times. And the costs of operating traditional, on-premise enterprise software is rising. Buyers are reeling from the recent Oracle and SAP price increases (does this move remind anyone else of OPEC?).

So why is Goldman Sachs telling us that CIOs plan almost no investment in cloud computing in 2009? Isn’t this the equivalent of reacting to a gas price increase by postponing your purchase of a Prius, and driving your Hummer for awhile longer?

Goldman based its findings on a set of survey results which the blogosphere has dissected over the past few days. The common theme is that CIOs don’t get it. Billy Marshall of rPath argues on Sandhill.com that CIOs are often the last to know about investments in new technologies. James Staten at Forrester has a similar take, saying CIOs aren’t the target for cloud computing anyway. Todd Ogasawara at O'Reilly claims CIOs simply don’t understand the value proposition of cloud computing.

While the shortsightedness of some CIOs is a contributing factor, we think that the thought leaders in cloud computing shoulder some of the blame. We all get so excited about the potential of cloud computing that it sometimes sounds futuristic, as if it were like some spaceship that will provide commuter service to the moon, instead of like a reliable Prius, perfect for your daily commute. The name “cloud computing” itself, with its fanciful tones, contributes to this "unreal" perception.

The reality is simple. "Cloud computing" is just a big name for business solutions and IT services that are delivered over the Internet, providing more flexibility and scalability at a dramatically lower cost. This is a proven technology with a clear ROI, especially when deployed with a pragmatic eye towards business impact. In the last 15 years consumer technologies have experienced unparalleled advancements all at a diminishing costs. In the same period, enterprise software (e.g. SAP, Oracle, IBM, Microsoft) have failed to deliver innovation and relied on their own lack of flexibility - i.e. high switching costs - to actually increase the cost for ever diminishing returns.

Appirio's customers include CIOs who understand that uncertain economic conditions, and on-premise software price increases, make 2009 a year to increase investment in cloud computing. We hope and predict that many more will follow suit.

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