To the Cloud, and beyond… (part 5)

By Phil Cutajar - May 1, 2012 | Tickers: GOOG, MSFT, N, CRM, WDAY | 0 Comments

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Welcome to the final installment of the five part series aimed at demystifying “The Cloud”. To help define The Cloud I have categorized the various Cloud offerings into five major focus areas, with links to the earlier installments in the series;

Part 1: Personal subscription cloud services
Part 2: Personal private storage clouds
Part 3: Private enterprise clouds
Part 4: Enterprise platform clouds
Part 5: Enterprise service clouds (this edition)

Enterprise service clouds (#5) are more commonly known as Software as a Service (SaaS).  This generalization identifies turnkey software solutions hosted, managed and administered by an external entity, and made accessible to the enterprise over the Internet. Unlike Infrastructure as a Service (IaaS) and Platform as a Service (PaaS), which I discussed in part 4: Enterprise platform clouds, SaaS solutions are complete business software solutions, requiring nothing more than basic configuration and minimal system administration on the part of the subscribing enterprise. The entire solution is built, maintained, refreshed and supported by the service provider, requiring no programming effort by subscribers.

Enterprise service clouds are not new; there have been enterprise class services available over the Internet for the past decade, including eMail, HR & Payroll, accounting, customer relationship management, forms processing, eCommerce, etc. What is new however, is the attitude shift towards broad acceptance of these solutions, and the corresponding momentum shift in the software industry. The Cloud is a marketing magnet, and everyone seems to be attracted to it. 

Benefits and Risks

A key benefit to SaaS is the ability to avoid large capital expenses in software licenses and infrastructure, and spread IT costs over time making them more predictable, and often more cost effective. Time to market, rapid deployment, and feature richness can also be significant competitive advantages to businesses just getting started, or enterprises looking to refresh their technology and modernize their applications. Multi-site cloud vendors can also help companies with business continuity and recovery plans, reducing the risk from localized business disruption threats.

Some of the drawbacks are that most SaaS services leave little room for customization and differentiation, potentially forcing your enterprise to adapt to the software, rather than the software adapting to your business. Furthermore, subscribers often have little control over the product feature roadmap, or upgrade planning, which could leave functional gaps unaddressed, and service upgrade schedules may be disruptive to the business. A key risk is the stability of the service provider; should they fail to perform, the disruption to your business could be very damaging, and recovering your data and restoring service elsewhere may be very difficult. Unlike the PaaS and IaaS models, the application source code and intellectual property belongs to the SaaS provider, not the subscriber, so switching to an alternate provider could be very costly and disruptive. SLA guarantees and compensation for service outages are another key consideration as discussed in the section on IaaS and PaaS.

Sample SaaS solutions

There are many SaaS providers offering a broad breadth of business solutions. Some of the most popular are bundled business application suites, such as Google’s (NASDAQ: GOOG) Apps for Business, providing web based email, calendar and documents in one solution. Google claims to have over 4 million businesses subscribed to the service. Microsoft’s (NASDAQ: MSFT) Office365 consists of Office Web Apps (Word, Excel, PowerPoint and OneNote), SharePoint Online, Exchange Online and Lync Online.

SalesForce.com (NYSE: CRM), founded in 1999, is one of the most influential leaders in the SaaS movement, offering rich customer relationship management (CRM) services online. In 2011, SalesForce claimed to have over 100,000 customers, and launched its 37^th major online product release. NetSuite (NYSE: N) provides an integrated cloud suite consisting of Financials, ERP, CRM, and eCommerce. It was founded in 1998, and claims to have more than 12,000 customers. Workday is a young up and coming SaaS startup jointly founded in 2005 by two former Peoplesoft senior executives. Workday’s stated mission is to build the next generation of enterprise business services; Human Capital Management, Financial Management, and Payroll as SaaS solutions. Workday already has an impressive list of enterprise customers, and is expected to file for an IPO in 2012.  

The SaaS revolution

The SaaS business model is gaining significant momentum as a viable business alternative to on-premises software ownership. Based on a 2011 SaaS survey, Gartner reported 95% of respondents expect to maintain or grow their use of SaaS. The survey further confirmed leading uses of SaaS were either replacements for on-premises applications or net-new SaaS solutions, representing a shift from previous Gartner surveys where more respondents indicated SaaS was being used as an extension to an existing on-premises application.

Although the industry is maturing, many corporate CxOs are still not quite ready to go all-in on SaaS and relinquish control of their core systems and data assets. Many concerns about security, privacy, cost effectiveness, reliability and scalability still remain. With time and innovation, these challenges will eventually be overcome, eliminating the biggest barriers to SaaS adoption and paving the way for the reinvention of the software industry. For software companies, resisting the trend towards Cloud and SaaS could be risky, potentially opening the door to more agile competitors who move first. Conversely, if cloud adoption is poor, first movers could get crushed and the costs sunk into reengineering will impact profits and margins. The trend seems to have put a lot of software companies at a crucial crossroads where success potentially hinges upon their ability to adapt to The Cloud. For business enterprises, embracing the cloud holds similar risks and rewards; cost efficiencies and agility, versus risk and instability.  

This concludes the series on demystifying The Cloud.  Please feel free to comment and provide your feedback. 

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