Appirio

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!

Labels: CloudComputing, Force.com, Google Apps, PaaS, SaaS

Thursday, April 16, 2009

Cloud Computing Savings - Real or Imaginary?

The venerable management consulting firm, McKinsey & Company, released a thought-provoking analysis yesterday on cloud computing economics. The piece has generated a fair bit of attention because it's been taken to mean that migration to cloud platforms is actually more expensive than what large companies currently spend on their own datacenters.

As usual, the problem is not in the analysis or the research but in the question that is being asked. The question that the McKinsey analysis answers is about the comparative economics between running your datacenter on your own hardware vs. running it on Amazon's hardware (offered as a service). We aren't going to question their analysis or numbers (we'll leave that to experts like Vinnie Mirchandani), but we also don't think this really answers the question about what cloud platforms can do for a business.

Cloud platforms exist at three levels (Click here to enlarge image)

At the lowest level, infrastructure-as-a-service is purely computational power for rent, which is what services like EC2 offer. It abstracts the physical infrastructure but you still need to do the work of mounting a database and an app server on the infrastructure, building and maintaining your app, etc. Therefore, the only savings are those that come from the delta between how efficient your datacenters are vs. those that Amazon runs. As you talk about large, well-managed datacenters that are operating at scale, it's plausible that savings are not significant.

It's at the next level, Platform as a Service, and beyond, that we start to see significant savings. Once you move up the stack to PaaS, there are significant savings because you no longer need to run a datacenter (physical or virtual as in the Amazon case) or maintain infrastructure software (database and app servers). Within our 150+ customers, we see savings of over 30% on operating costs and 2-3x improvements in time-to-market when building on cloud platforms. For example, for a publishing client, we built a custom application that automated the entire publishing process in less than 6 months. Their estimate for doing this using on-premise platforms was over 3 years. In terms of ongoing cost/productivity improvements, they have estimated a 50-75% reduction in the time and effort it takes to add new products. Additionally, since the application is built on the Force.com platform, upgrades are seamless and the platform gets better over time, all for no additional cost.

At the highest level of the stack, the benefits get multiplied further, since you get all the benefits of PaaS, plus you get freed from 22% maintenance and costly (to implement) upgrades every 3-5 years. The savings have been well documented: 25-40% in terms of implementation costs (by freeing yourself from the clutches of the dreaded Globals SIs) and operating cost savings, e.g.,50%+ savings running your mail on Google vs. Exchange.

Cloud platforms provide savings at each layer of the stack, and McKinsey's analysis focuses on just the lowest levels of the stack, thus missing most of the savings potential.

We have seen the benefits of cloud platforms first-hand at over 150 customers, including companies like Avago, Genentech, Japan Post, Qualcomm, Starbucks and Dolby. Once customers experience the benefits of cloud platforms - quantifiable savings, rapid time to value and innovation that drives the business, they seldom want to go back. This is why 90%+ of customers plan to increase their spending on cloud platforms. In these economic times, there is no greater vote of confidence for cloud platforms than that!

Labels: Cloud Computing, EC2, McKinsey, PaaS

Monday, March 02, 2009

Whose cloud is it anyway? Appirio's takeaways from presenting at TechCrunch's Cloud Computing Roundtable

Ryan Nichols

You can watch the entire three hours of the event here.

You can also watch it on co-presenter's ooyala's neat player.

Labels: Cloud Computing, Google, PaaS, SaaS, salesforce, Tech Crunch

Wednesday, February 25, 2009

C is for Cloud: Appirio raises Series C from GGV and Sequoia

Chris Barbin

Given today's headlines, we're humbled to announce our Series C funding from GGV Capital(formerly Granite Global Ventures) and Sequoia Capital.  Amidst all the uncertainty confronting business and IT in today's economic climate, one thing remains certain: enterprise IT is moving to the cloud.  That single idea is at the core of Appirio's business, and is an idea that's worth investing in precisely because we're in the worst spending environment any of us can remember.

The headlines for most venture-backed startups are grim: "Tech start-ups call it quits," writes the Wall Street Journal, as GigaOm describes "VCs sowing panic in their portfolio companies."   We remember the buzz created by Sequoia's all-portfolio meeting last fall, featuring a picture of a slaughtered pig with all the fat removed. 

Why is Appirio growing so dramatically in this environment?

• Our market: Far more important than anything about Appirio's business is the market opportunity that we've targeted.  Cloud computing will disrupt $1 trillion of IT spending-- great things happen when you're able to accelerate an industry transition of this magnitude.
  
• Our model: New markets call for innovative business models.  Traditional wisdom says you have to choose whether to be a services company or a product company.  We believe that the availability of web platforms makes a truly hybrid business model not only possible, but advantageous.  Consider our new product offerings in 2009, Services Management and Facebook Referral Management --  neither would have been possible without the opportunity to directly serve and learn from leading customers in these markets.  Our model of delivering high end professional services, innovative software products and compelling cloudsourcing solutions is what we like to call a 'next generation IBM without the baggage of hardware'.  Customers need alternatives to the Global SI's and traditional enterprise software - our hybrid model directly addresses that need and has delivered repeatable results for our customers.
  
• Our team: There's something special created when you assemble a team of professionals passionate about transforming an industry.  We've been able to quadruple the size of our team in the last 12 months (and remain hiring now), because our #1 goal has been to hire the best and brightest change agents in the industry.  "The Appirio Way " comes through in every interaction we have with customers and partners, whether through sales, services, support, or R&D. 

Its a cliche that the easiest time to raise money is when you don't need it.  Appirio's business model is strong and our services business has been profitable since our founding in October 2006.  We create substantial value for our clients and share in the rewards of their success.  

But it is still "early days" in the business of accelerating the adoption of on-demand in the enterprise, and we're excited to have our new partners at GGV Capital on-board.  GGV specializes in deploying expansion capital, and today's investment from GGV and Sequoia Capital will be invaluable in our continued efforts to invest in products built on Force.com & Google App Engine, supporting and evolving our team of cloud computing professionals and investing in and innovating along side our strategic partners Salesforce.com, Google and Facebook. 

Consider, for example, our other announcement today-- Appirio's expansion into Japan, the second largest IT market in the world, barely penetrated by traditional packaged application vendors.  We believe that Japan has the opportunity to completely leapfrog on-premise packaged software and migrate directly to custom applications developed on an on-demand platform.  Being part of this process (and the largest Force.com deployment in the world) is tremendously exciting. 

We invite you to get involved.  Schedule a discussion with us, take a trial of one of our products, look into joining our team, or even just contribute an idea.  The transition to cloud computing is one thing to be certain of, even in these very uncertain times.  We look forward to working together!

Labels: Cloud Computing, Google, PaaS, SaaS, salesforce, Sequoia-Capital

Thursday, January 15, 2009

2009 Prediction - Rise and Fall of the Private Cloud

#6 in our series of 2009 predictions

2008 Recap

2008 saw massive hype around the concept of a “private cloud,” roughly defined as a adopting the technology and practices from public cloud providers for a single company behind the firewall. “Private clouds are the future of corporate IT” declared Gartner. “Private Clouds Take Shape,” gushed InformationWeek, citing the funding of companies like Elastra and Parascale. “Get off my cloud” said eWeek, questioning the security of public cloud environments compared to private clouds.

2009 Prediction

Here’s the rub: Private clouds are just an expensive data center with a fancy name. We predict that 2009 will represent the rise and fall of this over-hyped concept. Of course, virtualization, service-oriented architectures, and open standards are all great things for every company operating a data center to consider. But all this talk about “private clouds” is a distraction from the real news: the vast majority of companies shouldn’t need to worry about operating any sort of data center anymore, cloud-like or not.

The idea that somehow companies can use “private cloud” technology to offer their employees web services similar to Google, Amazon, or salesforce.com will lead to massive disappointment. Here’s why:

• Private clouds are sub-scale: There’s a reason why most innovative cloud computing providers have their roots in powering consumer web technology—that’s where the numbers are. Very few corporate data centers will see anything close to the type of volume seen by these vendors. And volume drives cost—the world has yet to see a truly “at scale” data center.
  
• You can’t teach an old dog new tricks: What do you get when you move legacy applications as-is to a new and improved data center? Marginal improvements on your legacy applications. There’s only so much you can achieve without truly re-platforming your applications to a cloud infrastructure… you can’t teach an old dog new tricks. Now that’s not entirely fair…. You can certainly teach an old dog to be better behaved. But it’s still an old dog.
  
• On-premise does not equal secure: the biggest driver towards private clouds has been fear, uncertainty, and doubt about security. For many, it just feels more secure to have your data in a data center that you control. But is it? Unless your company spends more money and energy thinking about security than Amazon, Google, and Salesforce, the answer is probably “no.” (Read Craig Balding walk through “7 Technical Security Benefits of Cloud Computing”)
  
• There’s no secret sauce: There’s no simple set of tricks that an operator of a data center can borrow from Amazon or Google. These companies make their living operating the world’s largest data centers. They are constantly optimizing how they operate based on real-time performance feedback from millions of transactions. (check out this presentation from Jeff Barr and Peter Coffee at the Architecture and Integration Summit). Can other operators of data centers learn something from this experience? Of course. But the rate of innovation will never be the same—private data centers will always be many, many steps behind the cloud.
  

There’s also something very suspicious in all this discussion of private clouds…. private clouds are advocated mainly by companies who make their money from selling or operating data centers, and risk losing their shirts as real cloud computing drives more and more computing onto shared infrastructure. I understand why these companies are reluctant to embrace true cloud computing: Imagine being the junior partner in IBM Global Services pitching a client to develop an application on Amazon, Google, or Salesforce. Not only are you taking money out of the pocket of your colleagues in hardware and software….. you are also taking money out of the pocket of your colleagues in professional services, since integration and app development are so much easier using on-demand platforms.

That’s not to say that there’s no place for the technology behind private clouds. In certain cases where it simply isn’t an option to utilize a public cloud, this technology can have a significant impact. But those use cases are few and far between, and the benefits to be achieved are insignificant relative to the benefits of moving to a public cloud. Here’s who should be thinking about private clouds:

• Cloud Providers: This is an easy one… companies that plan on being in the business of providing cloud computing capabilities to others need to think about how to effective provide their own cloud. But we’d argue that very few companies actually need to be in this business (e.g., we believe most on-demand BI vendors should be running on public cloud infrastructure).
  
• Highly regulated industries: Government regulation will always lag behind commercial application of technology. There will inevitably be instances where nervous politicians or policy makers write up requirements that can only be met through a private cloud.
  
• Companies in the process of moving to a public cloud: Of course, no company of any significant size can move its IT infrastructure to the cloud all at once. In fact, Appirio specializes in helping companies figure out what the right first step is away from their on-premise infrastructure. For the IT infrastructure that hasn’t yet moved, it definitely makes sense to think about how to use “private cloud” technology. But that means the private cloud is a temporary stop-gap, not the “future of enterprise IT.”
  

Implications for customers.
Of course any customer with a data center should be thinking about how to use the technologies behind “private clouds” to improve their efficiency. But this should be a minor element of your long-term IT strategy. The most important thing any IT department can do in 2009 is chart out a thoughtful plan to migrate significant portions of your IT infrastructure to the public cloud. Don’t let “private clouds” be a distraction from that goal.

Labels: 2009-Predictions, Amazon S3, BI, Cloud Computing, Force.com, Google, IBM, On Demand, PaaS, remove, SaaS

Friday, December 26, 2008

2009 Prediction: Business Intelligence goes SaaS

#7 in our series of 2009 predictions

2008 recap

Business intelligence is an unsolved problem. At every company we’ve ever worked with, managers lack the information they need to make intelligent decisions.  Why is this, after the rise (and eventual fall) of an entire industry around business intelligence technology?  Will Cloud Computing change the sorry state of business intelligence for customers?

2008 saw a number of next-generation BI providers move their offerings from niche to mainstream.  Companies like PivotLink, LucidEra, Good Data, and Panorama announced a maturation in their offerings and important customer wins.  Even Business Objects and Cognos were able to advance their on-demand offerings from within their on-premise parents. 

But most business still lack basic access to critical information.  For most people in most companies, it takes a request to IT (and perhaps a call to your implementation parter) to do something as simple as add a field to a report.  In our eyes, this is a market ripe for disruption from cloud computing in 2009.

2009 Prediction

Despite the fact that on-demand business intelligence has been slow to take off, there are fundamental problems in business intelligence that, in our view, can only be solved through cloud computing.  We believe that the increased availability of cloud computing platforms in 2009 will make BI the next application category to reach the tipping point of on-demand adoption, fueled by data from SaaS applications. 

Why BI?

BI is a classic “bursty” application.  BI requires infrequent access to massive computing power-- a perfect application for cloud computing.

Thanks to Google, users have been trained to expect nearly instantaneous access to any piece of information.  Instead of spending hours formulating a carefully crafted query to run once, users expect to be able to navigate iteratively through their business information.  They expect to run an initial search, see what comes back, and explore from there. 

This is simply not possible with any legacy BI system: vendors brag about achieving sub-minute response time… a far cry from the sub-second response time that an interactive application requires. 

As a result, BI's impact in the enterprise has been limited... only a few power users are able to use it effectively.  The impact and value of BI would be exponentially greater if business users could search and navigate their company's data in the same way they search and navigate the information on the internet.  

Why can't in-house IT departments deliver this level of performance and usability using legacy BI systems?  In part, the issue is infrastructure.  BI infrastructure is overpriced and tremendously under-utilized.  Many BI systems sit completely idle 90% of the time, only to be hammered on well beyond capacity in the days (or hours) leading up to a management meeting or end-of-quarter analysis.

These are perfect conditions for the shared infrastructure of cloud computing. Shared computing power is the only way that companies can deliver the responsiveness their users demand without a prohibitive investment in hardware.  On-demand BI vendors, with their roots in modern web-based technologies and user interfaces are well positioned to create usable BI applications that will finally unlock the value from companies' transactional data.

Why BI from SaaS data?

We also predict that the winner in on-demand BI will emerge from an initial strength in analyzing data from SaaS business applications.  Why?  Analyzing data from SaaS applications overcomes 3 of the key barriers to adoption for on-demand BI: Security, transformation, and integration.     

Security:  Your business data are your crown jewels, and nobody wants to be the first to put that into a shared infrastructure.  That’s why we think that data generated by on-demand business applications is the likely starting point for on-demand BI…. After all, this data already lives in shared environment. 

Transformation: Query, reporting, and analysis is not the hardest part of BI—getting data into a format suitable for analysis is a far harder challenge, especially for an on-demand solution that’s trying to bring together information from behind the firewall.  This is less of an issue for BI running off SaaS applications where the data is already in the cloud. 

Integration: Most analytical applications require bringing together business data from multiple sources.  Most modern SaaS applications offer more open APIs than on-premise software.... on-demand BI has the potential to be better integrated, and therefore more valuable, when paired with a SaaS application.

Implications for customers

Of course, it will be difficult for customers to justify investing in an entirely new BI infrastructure, especially since most are still trying to justify the investment they made in their last round of on-premise BI infrastructure and 2009 looks to be a year of frozen or slashed IT budgets.

That’s why we expect to see on-demand BI enter the enterprise from the line of business, not the IT department.  Business users will be fed up by the inability of their IT department to support their basic demands for information.  If they’re already using a SaaS solution, they’ll be tempted to try an on-demand BI solution that they can get running without IT support, out of their operating budget (exactly how on-demand CRM initially penetrated the market).   

This is what we expect to see in 2009:  Low ticket, low risk, on-demand BI solutions, built on cloud platforms, with adoption driven by business analysts hungry for information. 

Our advice for enterprise IT?  Let it happen.  There isn’t yet a clear winner in on-demand BI, and you have much to gain and little to lose from these experiments.  These are not requests you’ll be able to service in 2009 anyway, and early experimentation will leave you well positioned to jump on a winning solution.  

What do you think?

Which of our predictions do you agree or disagree with? Please let us know by voting in our poll or commenting below.

Labels: 2009-Predictions, BI, Business Intelligence, Cloud Computing, PaaS, remove, SaaS

Monday, December 22, 2008

2009 Predictions: Azure Disappoints

#2 in our series of 2009 predictions

2008 Recap

We’re not sure exactly what there is to recap about Microsoft Azure in 2008, other than the launch event, which certainly generated a lot of buzz. 

A closer look by many  generated more skepticism. Phil Wainewright said it best: “Whereas real cloud vendors release working services in beta on the same day they announce them, Microsoft simply announces what it’s going to do a year or two off in the future….  Ray Ozzie confessed that ‘the maturity of the things that we’ve got on them as this point in time is limited. It will be a different story a year from now. But I wouldn’t want to hold it for another year. So, we’re getting in the game.’” 

2009 Prediction

So we’re keeping our expectations in check for Azure in 2009.  CNET doesn’t expect web-based Office on Azure until 2010. There are only a handful of applications (nearly all Microsoft built) being demonstrated on Azure….the next generation of Live Meeting is supposedly up next. 

Why the slow pace? Part of the explanation is certainly the scope and ambition of the Microsoft vision.  Microsoft has a history of being late to markets that it eventually dominates, and we certainly don’t want to under-estimate the power of the resources Microsoft has at its disposal. Ray Ozzie is a visionary, and he’s charted out an ambitious course that will take decades to fully realize.   

But we think there’s more to it than that.  The last 2 years have shown us how challenging it is to play in both the cloud and client-based worlds.  We’re written about the challenges SAP has faced building new business models without disrupting their core business. Microsoft will face the same challenges.  This tension between wanting to play in the cloud without damaging its cash cows is the reason that it has taken Microsoft so long to even start talking about Azure.

Given this conflict, we don’t expect much from Azure in 2009.  Microsoft will use it as a platform for some of its own services, but will face huge go-to-market conflict in rolling these out to customers.  Microsoft’s developer community will face the same conflicts, and will be unsure how to focus their
investments.  The hundreds of companies that make their living hosting Microsoft Exchange servers have the most to lose—Exchange and Sharepoint are likely to be the first applications ported to Azure (exhibit A of the types of conflict Microsoft will encounter as they roll out Azure).

What it means for customers

The big news for customers out of Microsoft Azure is validation of the cloud computing model.  The entire IT industry is FINALLY unanimous in acknowledging that the future of enterprise computing lies in the cloud.  Microsoft, IBM, SAP, Oracle—all have now told their customers that they need to be thinking about cloud computing. 

So the real question for the enterprise is how to get started. That’s a question that we at Appirio love to help customers answer.  Unfortunately, the answer is probably NOT with Microsoft Azure.

What do you think?

Which of our predictions do you agree or disagree with? Please let us know by voting in our poll or commenting below.  And follow a rich dialog on these predictions hosted by Clint Boulton at eWeek.

Labels: 2009-Predictions, business by design, Microsoft Azure, Microsoft Exchange, Microsoft Sharepoint, PaaS, remove, SAP

Monday, December 08, 2008

Force.com for Google App Engine: Apps "Native" to a Cloud Community

Salesforce.com made two fantastic announcements today at their CloudForce event in New York. The first is Force.com for Google App Engine (demonstrated on stage by Marc Benioff and our own Narinder Singh using an extension of our work with Harrah's). The second is Force.com Checkout for native apps (Appirio Adoption Accelerator is one of the 19 apps in the pilot). These announcements illustrate two important elements of Salesforce's platform strategy: "Connecting the cloud" and "Go Native." We think Salesforce is uniquely positioned to bring these two concepts together into a powerful platform. Here's what we mean:

Labels: Amazon Web Services, AppExchange, Cloud Computing, facebook, Force.com, Google, Google Apps, Microsoft Azure, On Demand, PaaS, SaaS, salesforce.com

Wednesday, October 01, 2008

Cloud Computing - It Ain't Over Til It's Over

Narinder Singh

Recently, a plethora of attempted clarifications (such as those seen in the Wall Street Journal and Information Week), confusion, and even an angry Larry Ellison rant in CNET News have weighted in on the latest hot topic, "what, exactly, is 'cloud computing?'" But the increasing volume level says more about the medium of the argument and the participants, than the it does about the topic's essence. Really, it's just insider talk among "thought leaders" and tech companies, which likely leaves Main St. CIOs scratching their heads.

Let's not focus on the semantic question of "what is cloud computing?" Instead, let's shift to "what your company should do." The wit and wisdom of Yogi Berra seems appropriate as a guide to help explain the causes of the perfect storm around cloud computing.

"The future ain't what it used to be"
Just a few years ago, many predicted the tech industry, and particularly business software, would go the way of the auto industry. A few gigantic players would survive, around which supplier ecosystems would develop. However, innovative providers discovered that if they ran all their customers' systems on a single multi-tenant instance, they could achieve huge advantages - hence the advent of on-demand, Software-as-a-Service (SaaS), and Platform-as-a-Service (PaaS). These providers were able to rapidly develop and innovate for their entire customer bases.

As this market matured, customers discovered that SaaS provided a better functional fit, it was faster to rollout, and it was generally more accepted by end users. Inevitably, if you spend more time on strategy, requirements, business process and adoption, while spending less time on hardware, operating system configuration, software installation and configuration, you end up with projects that better meet business needs.

The future of how businesses used technology was changed forever. Although this is now widely understood, we are still very early in terms of impact on IT and business. This set the stage for the current attention and debate surrounding "cloud computing."

"If you can’t imitate him, don’t copy him"
Cloud computing confusion is sometimes sown intentionally - because of vendor envy for missing the buzz. Large on-premise companies know they have missed the "news cycle" for something that has the powerful combination of hype and reality on its side. So they try to re-spin existing terms in order to re-assert their leadership, leading to interesting tricks like Larry Ellison, Oracle's CEO, cleverly deriding the term "cloud computing" as overused, while simultaneously wrapping the Oracle seal around it.

"Our similarities are different"
While on-premise laggards attempts at catch up fuel their interest in the cloud, successful SaaS companies have an equally compelling, but very different rationale for promoting "cloud computing." They know they have a winning value proposition, but, relatively speaking, a small part of the market dialogue. They fear a repeat of the past - where SAP, Oracle, IBM and Microsoft hijack leadership around an important market trend (see the browser, java, B2B/SOA, open source) that they've been living and breathing for years.

So in a classic judo turn, they also promote "cloud computing." But they turn it into a powerful weapon by using it as the theme that connects business software with mainstream consumer Internet disruptions like Google, Yahoo, Amazon and Facebook. Suddenly, they have a way to further differentiate themselves from their laggard on-premise competitors, with a future tied to the Internet.

Happily, this spin has the added benefit of being true (which is always a plus!). The consumer Internet has conclusively shown the power of collaboration. Now businesses want to be unshackled from the constraints of legacy software that was designed to be physically and emotionally closed.

"You can observe a lot by watching"

With both the laggards and innovators supporting buzz creation around "cloud computing" the race is on. Will clarity or confusion rule the day? Businesses are looking at cloud computing (which for today we'll assume to be a superset of all SaaS, PaaS, and on-demand solutions) as a way of doing things that had never been done beyond their four (virtual) walls. Unfortunately, too many vendors are simply trying to tie the movement back to their past strengths so that any change is incremental.

Our advice to all organizations and their CIOs is simple:

1. Use the cloud computing hype to discuss broader related changes in your organization. The business press is saying that "business must think differently about IT." This is a real chance to focus broader discussions around cloud computing into the very real, concrete benefits of SaaS/PaaS/etc.. Appirio launched Business Model Prototyping to jump on this opportunity. We think companies can use SaaS/PaaS and other learning from the consumer Internet to dramatically reshape their businesses.

2. Start with the concrete. The "cloud computing" discussion makes for good blogging, but it's not directly helping your business or feeding your kids. Real impact comes from translating the trend into action. Do this with projects that prove quick value or clear measurable milestones in a slightly longer journey, and highlight a sharp contrast with the old way of doing things.

3. Force vendors to be specific and timely. We'll be seeing lots of vendors starting to parade their products and services under the banner of cloud computing. We'll see more arguments over what cloud computing is, and how to understand it. Customers cut through the hype by forcing vendors to be specific in how they will help, where they will help, and on what timeline. Force discussions around initiatives that have a quick time to benefit and very clear milestones. Protect your company from being a victim of hype with low hopes for success. As Yogi Berra supposedly once said, "If you don’t know where you’re going, chances are you will end up somewhere else."

Labels: Cloud Computing, on-demand, PaaS, SaaS

Friday, July 18, 2008

Appirio backed by Sequoia Capital: What changes, what doesn’t.

Chris Barbin

In our first blog post as a Sequoia-backed company (news leaked today, press release coming Monday), we thought we’d answer a question we’ve been asking ourselves: What changes about Appirio? What doesn’t?

We have more to say about what doesn’t change than about what does. Sequoia’s backing is an endorsement of some unconventional core beliefs that we’ve been talking about (and blogging about) for months-- convictions about our market's potential, our business model, and our value proposition that absolutely won't change as a result of this announcement. What will change, however, is what you can expect from Appirio: more partners, more products, more talent, and of course more customer success.

What doesn’t change: Day-to-day life here at Appirio won’t change much. We continue to be focused on making our customers successful, developing innovative product and service offerings, forming deeper relationships with our partners, and finding and empowering great people. But we’re doing these things with new external validation about some of the core beliefs that make Appirio unique:

• Web platforms will enable the creation of important companies. Sequoia thinks big-- they measure success by the % of NASDAQ’s total market cap represented by Sequoia backed companies. We’ve blogged before about why we think web platforms have the potential to disrupt $1 trillion of IT spending—it’s great to have Sequoia’s endorsement of this vision.
• Products and services are complementary when powered by web platforms. Conventional wisdom holds that technology companies need to choose whether they are going to focus on products or services, and that VCs won’t invest in businesses that think professional services are important. We believe that this was true with on-premise software, but that the availability of web platforms makes a truly hybrid business model not only possible, but advantageous in successfully turning innovation into customer success, and customer success into further innovation.
• Focus on customer success matters. Appirio doesn’t have the portfolio of complex patents or the single product “big idea” that venture capitalists typically look for. What we do have is an unique approach and an outstanding team dedicated to making customers successful and driving product innovation in the rapidly growing market for on-demand solutions. This is what Sequoia found unique, and the core of what they are investing in.

What will change: So while it is mostly business as usual here at Appirio, you will notice a couple of changes in how we talk about and grow our business—Sequoia’s backing has empowered us to "think even bigger" about Appirio. While we’ll have a lot more to say about each of these topics over the next couple of months, we wanted to provide some hints of what new to expect from Appirio:

• More Partners: To date Appirio has been very focused on our partnership with Google and Salesforce, and we continue to believe that these two companies offer the most compelling web platforms on the market. But there’s much more to cloud computing than web platforms, and we’re excited to be exploring application and technology partnerships with some of the most innovative and successful companies in these parts of our industry. Stay tuned for more announcements in this area.
• More Products: Appirio’s product portfolio has been tremendously successful to date at introducing companies of all sizes to us and the potential to “connect the cloud.” We want to lower the barriers to trying these solutions, broaden the available market for their deployment, and use them to introduce even more companies to Appirio. At the same time, we’re enhancing our offerings to solve pain points we see at our customers every day, building the type of enterprise-class solutions around which we hope to build a big business.
• More Talent: Appirio has been successful thanks to a team willing to do things well outside their job description to get the job done. Now we’re looking to bring in some outstanding people to focus on what’s going to take our business to the next level: engineers looking to do amazing things with Google and Salesforce, consultants willing to do what it takes to make a customer successful, customer advocates looking to build community around our solutions, and marketing gurus with innovative ideas for how to get the word out about Appirio virally.

What does this mean for you? Everyone can get involved and help accelerate the adoption of on-demand: you can schedule a talk with a client manager, take a trial of one of our products, look into joining our team, or even just contribute an idea. It may be business as usual at Appirio, that’s anything but usual in the traditional world of enterprise software. We know on-demand will unleash a wave of productivity that will drive our industry for years to come and look forward to playing a major part in that transformation.

Labels: BusinessModels, PaaS, Software as a Service

Thursday, May 22, 2008

Now that’s a Big PaaS Market

Ryan Nichols

Prominent industry observers such as Dion Hinchcliffe, Phil Wainewright, and McKinsey have been busy lately discussing the rapidly evolving “platform as a service” offerings from companies such as salesforce.com, Amazon, and Google. One frequently heard sentiment is that nobody can build a “big” business using someone else’s platform.

We don't buy this argument. Lots of big businesses have been built using the platform capabilities of others. To extend the standard analogy comparing on-demand technology platforms to the electric grid, lots of great companies have been built without building their own "power plants." The Oracle database platform provides another set of examples. There's no reason for this to change. Plenty of great businesses will be built throughout the technology value chain, including platform providers, tools providers, and platform consumers that deliver business value directly to the customer.

This begs the question: How big is the market for solutions based upon on-demand platforms? Is the pie big enough to build great companies on a slice of it?

Size Matters

The SaaS market as it is currently defined is just the starting point. Still composed largely of point solutions for CRM and HR, SaaS represents $5-$12B in spending today, depending on which analyst you believe. It's just starting to penetrate the full business application market, a $50-100B market that includes ERP solutions. More great businesses will built in the market for SaaS applications, and some of these companies will build their offering using the capabilities of a platform delivered as a service.

Even the $50-100B market for business applications, however, fails to capture the full market for platform as a service. The larger market to be disrupted by platform as a service is the business “solutions” market, composed of the software and services that companies consume to develop customized solutions. This market is 3-4 times larger than the market for business applications — generally estimated by analysts at $200-300B.

In our experience, custom development using a platform as a service offers a higher degree of customizability, at up to an order of magnitude lower cost. The fact is that on-premise platforms are lousy for custom development. Once you’ve developed to a platform, you can't take advantage of future platform capabilities without expensive customizations and rewrites. This kind of wasted effort has fueled the growth an entire industry.

But platform as a service disrupts not just the $200-300B market for software and services, but also the market for hardware and infrastructure. These markets are seeing a dramatic concentration in their buying base, and some competition or substitution from companies they never would have expected, such as Google using its own hardware spec in its data centers. All told, platform as a service stands has the potential to disrupt $1 trillion of IT spending.

Shrinkage

The opportunity is large, and real. But on-demand solutions are enormously disruptive, and we have no expectation that any of these IT markets will stay the same bloated size that they are today. We look forward to seeing the current $300B industry that’s generating a nice living for on-premise product and service vendors, and watching it transform into a $100B on-demand industry that delivers more value for customers. We’re willing to help make that happen (and take some profit from the transformation) while on-premise competitors are economically motivated to resist changes to the status quo. See our postings on how this dynamic affects on-premise software and service providers for more.

Expansion in a New Dimension

While the traditional market for business applications and solutions is shrinking, we anticipate that on-demand platforms will open new areas of growth. The inflexibility of on-premise software has severely limited where it can be applied, as we argued in our recent posting on “business solutions meet business people.” Most workers remain woefully undersupported by IT. Many companies haven’t figured out how to support knowledge workers beyond issuing them a copy of Microsoft Office. McKinsey notes that the IT investment in supporting “tacit interactions” - a form of knowledge work - lag IT investment in supporting transactional and transformation work by $30,000 per employee.

The opportunity to solve this problem is enormous. There are 500 million licensed users of Office and Notes globally. These users are the information workers who are making decisions that require access to enterprise data. The global workforce is composed of about three billion people. Every one of them makes some sort of work decision every day that would benefit from additional information. The true consumerization of IT connects every worker to every relevant piece of information needed to get the job done. Serving the full enterprise workforce using on-premise IT is simply too costly, so as a result, companies have gotten by with poor communication and incomplete information. That equation changes with PaaS. Google provides free communication and information services to millions of consumers. These services are higher quality than most of us use at work. With PaaS, those capabilities can now be used as part of a business solution. The recently announced integration points between salesforce.com and Google Apps are just the starting point-- we anticipate entirely new ways to "connect the cloud" by bringing the capabilities of every business solution to every business person.

The opportunity to serve the entire business workforce has arrived -- and that's certainly a big enough opportunity to build a company around.

Labels: appirio, BusinessModels, PaaS, Software as a Service