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.
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.
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.
Labels: BusinessModels, PaaS, Software as a Service
Thursday, May 22, 2008
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
