There has been a lot of talk about cloud computing tools and services and how it could reshape the competitive landscape.
A very small group of early adopters are using cloud computing in the Enterprise arena. One of the main reasons for the lackluster adoption in the Enterprise is due to the lack of full understanding of the benefits and risks of cloud computing. There is a lot of hype thrown out by marketing and it is hard for executives to sift through it.
The main concerns when it comes to cloud computing is security, business continuity and compliance.
Adoption has been great in small companies and especially, amongst technology startups. But, this evidence is not factored in by the large enterprises. When you see Fortune 500 enterprises using paper and Excel to manage their data (database, what?), one has to wonder how long it will take for them to consider cloud solutions. It is not an easy task to implement a new technology or roll out an application in an enterprise that is busy rolling out consumer goods or airplanes. There are a lot of moving parts and interdependencies which make the move very tricky and expensive. When the mission critical applications are on the line, it is not easy to justify the change.
Marc Andreessen commented that enterprise vendors like Oracle are doomed because everything is moving towards the cloud. He said that the clock is ticking on old-line software and infrastructure companies and they need to cloudify their applications or perish. His evidence is based on his vision and premise that cloud is the future. His evidence that a lot of startups utilize cloud-based alternatives to enterprise software as well as infrastructure is well founded because most startups are cash strapped and cannot afford to cut huge checks to enterprise vendors. It is a boon for startups and helps them keep their costs down and be nimble. But, the same does not hold true to enterprises. There are still a lot of hurdles to clear before enterprises accept cloud computing. They need to see a lot of evidence and benefits in order to make a switch, and still, it will take a decade before we see much traction. Also, specific to the point Mark makes, someone still has to create all the infrastructure and software to run the cloud in the first place. So, there will still be a place (albeit smaller) for the so called old-line software and infrastructure companies.
Based on a report in the HBR, some of the highly valued benefits of cloud computing are:
- Increased business agility
- Flexible capacity
- Faster adoption of new technology
- Lower fixed costs (moving capex to opex)
- Lower up-front costs to develop/deploy IT systems
- Always on newest versions of software without IT updates/patches
The article also lists the following as the advantages of the cloud:
- Makes it easy to experiment at low cost
- Enables deeper collaboration with business partners
- Frees up IT resources to work on more strategic things
- Is a source of competitive advantage for early adopters
- Lowers cost of doing business
- Lowers overall IT costs
Many executives believe that cloud computing can give them considerable advantages, but are still hesitant due to the fact that they do not have answers to their questions on security, reliability and implementation costs. All the information from marketing is not helping either. Technical executives understand the implications of cloud computing, and the gap is in educating the non-technical executives and getting their buy-in.
Salesforce has successfully made in-roads into enterprises and there are lessons to learn from this case study.
Aaron Levie, the CEO of Box.net makes an interesting observation (read full interview here) when it comes to enterprise software. He talks about the disconnect in the customer-vendor relationship. He says "There are literally lawsuits from vendors to customers and customers to vendors in that industry. It's kind of a crazy industry because there's this asymmetry where you'll sell software to an enterprise, and they will pay you regardless of whether that's successful or not. That's entirely unlike SaaS where customers will only pay us if we're successful."
From a common sense perspective, this makes a lot of sense. Why would you pay for a car one year before its delivery, only to find out that it is not at all what you wanted?
But, the reality is quite different. You are not paying for a run of the mill car, but a custom car with styling and performance characteristics defined by you. Hence, you have to pay in advance and wait a year to have the car delivered.
Majority of the enterprise applications need configuration and/or customizations to suit the client's specific needs. This is what takes the time to create and is what incurs up-front capital investment. Even if we move into the cloud paradigm, this still holds true and the costs are going to be incurred. What is going to be different is that the infrastructure costs will go down since you are renting rather than buying on your own.
Cloud is here to stay, for sure. But there will still be a mix of on-premise and cloud hosted solutions from what I can see, with the cloud being the majority.