The momentum around cloud computing is such that this past year could go down in history as “the great cloud rush of 2009.” In fact, market research firm IDC recently predicted that over the next five years, spending on cloud computing will accelerate, capturing 25 percent of IT spending growth in 2012 and nearly a third of growth the following year. This shift is coming from all corners of the IT world -- from traditional hardware providers, to independent software vendors, to consulting shops that are extensively building out their cloud-consulting offerings.
The recession is the catalyst for this trend. Customers have been forced to reduce capital expenditures and get smarter with IT spending. Services powered by cloud computing and software as a service IT solutions are, quite rightly, perceived by many IT professionals as one of the most attractive routes to achieving dramatic cost savings. For example, in Proofpoint and Osterman Research’s June 2009 survey of 220 technology decision-makers at large U.S. enterprises, more than 40 percent of respondents said that they have or intend to deploy SaaS-based solutions for outbound email or HTTP security in order to reduce costs.
In the rush to meet this demand, many vendors who previously provided only on-premises software or appliance-based solutions are jumping on the cloud computing bandwagon. However, are vendors really grasping the business implications and embracing the changes required to deliver cloud services? Or are they simply repositioning themselves as cloud providers? Just because you have a shovel and pan in gold country, does not make you a successful gold miner.
There are fundamental business changes required that often go overlooked until mistakes are made. Many businesses have to rethink their models and re-engineer their teams, as well as their products, from the ground up. During this time of profound change, these changes will be significant and run deep and wide throughout organizations.
The following are just a few of the issues that traditional software and appliance vendors will have to face as they retool their solutions – and their entire organizations – to capitalize on the growing demand for cloud-based solutions. IT buyers should keep these issues in mind, too, as they evaluate cloud-based offerings and the vendors who deliver them.
Reskill Your Sales Team
The sales team is the gateway to customers. With cloud services, they sell ongoing subscriptions -- an ongoing relationship – not perpetual licenses to packaged software or hardware appliances. An entirely different skill set is required to sell services rather than products. Sales teams will have to focus on communicating a different set of value propositions, with more emphasis on business credentials, levels and quality of service, total cost of ownership and quality of ongoing customer support, rather than features and functionality or “speeds and feeds.”
Moreover, it is not just sales style that needs to change. The shift to selling cloud-based solutions has ramifications for sales management as well. How do you compensate such a team if they are accustomed to big bonuses and commissions based on the large upfront fees paid in perpetual license and appliance-based deals?
Spend More on Customer Support
This is an obvious area that will change. For cloud-based services, customer support needs to be tailored to customer behavior and usage, rather than product functionality. You cannot just “bolt on” a customer support team and expect current support staff to understand cloud computing and SaaS issues overnight. As customers become more knowledgeable in cloud services and competitors crowd the market, the quality of customer support becomes a huge differentiator between different cloud-based solution providers. Support is essential to maintaining customer satisfaction (hence, ensuring that customers renew their subscriptions) and to growing the customer base as well.
Change the Product Development Schedule
The change to cloud services also necessitates changes to product development and engineering cycles. Product development needs to move from a model of releasing periodic product updates (e.g., one major release per year), to rolling updates where new features, fixes and components are introduced across an entire SaaS infrastructure on an ongoing basis. This may seem obvious, but how do you motivate developers and manage priorities if the engineering team is unfamiliar with these different requirements?
Revisit Accounting Processes
Subscription-based services require a completely different pricing model that focuses on number of users rather than one-time fees for packaged or perpetually licensed products. This also, impacts the sales team as they need to understand pricing to sell to customers effectively. Is it clear and easy to implement? Similarly, accounting for ongoing subscription revenue is substantially different than accounting for up-front license fees.
The shift to cloud-based services does not have to be an “all or nothing” proposition, however. Consider, for example, a hybrid email archiving service that combines on-premises and cloud computing features. Such services use an appliance installed at the customer’s site (which may provide enhanced security features such as encrypted communication), combined with secure data storage in the cloud.
It is clear that a seismic shift in business processes and company culture is necessary to successfully offer cloud services. It is not a new add-on that traditional vendors can offer, especially those that are not willing to adapt to the fundamental changes required by a subscription-based model. Hardware and software providers are rushing to provide these services to their customers, but can they actually do it effectively? These providers must learn quickly or they will be left behind.
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