Evolve or Perish – Cloud Computing and Enterprise Software

Cloud computing is in its infancy.  Even SaaS is a relative newcomer in the enterprise, even though it has been around for many years and gained popularity with the rise of Salesforce.com.  In most large enterprises, only a fraction of applications are “rented” and hosted outside the firewall.

What if the following adoption curve holds true, even partly?  What if at some not-to-distant point in the future – perhaps 5, 10 or 15 years – most systems in large enterprises are delivered from the cloud?  If you make software delivered under the old license + maintenance + services on-premise model today, is there a risk that your business is doomed to end up like Siebel Systems (e.g. roadkill)?

Cloud Penetration Curve

The lesson of Salesforce.com and RightNow in the SFA/CRM space should be extended to the rest of enterprise software. Let’s take a quick look at some examples.  This is just a starting point, but what y0u must quickly realize is that for every traditional enterprise software category, there are cloud offerings (SaaS or other) attempting to compete.  Over time there may be some applications that just never make it to the cloud – like latency-sensitive algorithmic trading apps on Wall Street – but the list will get smaller and smaller over time.

Traditional vs. Cloud

Many of the traditional providers above have not yet begun to work out how they will compete in the post-premise software world.  The reasons for this may include:

  1. Inertia – many companies listed above are very successful and bring in hundreds of millions or even billions in revenues.  They feel that even if there is a threat, it’s a long time before they start to see it impact their business.
  2. Financial Constraints – if you’re losing money, or have a tough time keeping Wall Street happy, it may be hard to make the investment to produce a credible cloud offering.  Note that this often means re-writing what you have from the ground up — and that can cost millions of dollars if forward compatibility is included in the requirements (it should be).
  3. Fear – largely this is a fear of canibalization of existing sources of revenue and profit.  What happens if we make the switch to the cloud and our revenue or profit drops?  Perhaps the question should be “what happens when this happens?”  It may happen because you do it to yourself, but it will happen when competitors start taking away market share.
  4. No Vision – sometimes the key people in the company just don’t see what’s coming. They are too busy focused on today, or enjoying the fruits of past labors, and they miss the signs.  Smart underlings try to tell them, like they did to Bill Gates when Netscape was changing the world, and the boss still won’t listen (like Gates didn’t for a long time).
  5. Sales Entrenchment – with the revenue model shift from up-front licenses + maintenance model to on-demand subscriptions, many companies may offer less attractive sales compensation models.  Or, more likely, the leaders in the field won’t have comfort that they can continue to make as much money with the new SaaS or cloud products (they may be right), so they fight against them.

The bottom line is that most of the traditional old and profitable enterprise software companies are endanger of losing their grip on their markets.  And many do not yet see it.  It’s not too late, but in a couple of years it may be.

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