Go to market – Despite all the hype, the dominant delivery model for software is still the on-premise one. This means that there may be resistance from customers to adopt the service. You could be too early. Or you may need to offer both a cloud computing service and an on-premise solution.
For cloud, the presence of industry heavy weights such as Google, Oracle, Microsoft et al, reinforces the validity of the market. Maturity will come, but until it does there are opportunities for new start-ups to steal a march on existing players – namely you.
Commercial arrangements The traditional on-premise world was simple: customers paid for a perpetual license for the software and some form of optional annual ‘support and maintenance agreement. But the vast majority of the costs were up-front as part of the implementation project.
With cloud computing things are changing fast. There are different charging models varying from free or ad-funded with little or no support through to managed services with on-going annual, quarterly or monthly costs.
You will also find the customer negotiations on SLAs will be far harder. Before they wanted the software to work. Now they want it to work and be available, which is now your responsibility. Your customers will hold you accountable no matter who you have outsourced elements to.
Annuity revenue stream and motivating sales teams – The appeal of long term annuity revenue is compelling as a long term employee or shareholder but they will be far less excited about the P&L, balance sheet and margins all of which are far worse than the traditional on-premise models.
Career-minded sales teams are used to making big ticket sales and seeing equally large quarterly bonuses. They will not be motivated by promise of a far lower annuity commission stream, locking them into the company for years even though they will be better off in the long term.
One product or two? One company or two? – Should you be developing a new cloud application or migrating your existing offering? Do you need separate development, marketing and sales teams who can openly compete? The answers to these questions are strategically important but will be driven by your market and existing customers and the long term opportunity you see.
Not theory – a practical example – Nimbus, where I am founder and CEO, has been offering its process management system as a cloud offering for five years — long before it was called cloud. But we operate a hybrid model. Many clients, including Nestlé, SAP, Accenture, and Best Buy Europe have used the service to get business projects going quickly with a view to migrate in house after 18-24 months. Others are happy with our long term hosting solution.
The ability to offer a hosted service, particularly when selling to business users is critical. It can take as much as six months out of a sales cycle and there are some other, unexpected benefits. Professional services teams can work remotely with clients reducing travel costs but also the stress and fatigue of constant travel. This can super-charge implementations enabling RBI (return before investment) rather than just ROI.
On the flip side, Nimbus has been a cloud customer using Salesforce.com for the last seven years. Now every operational application needed to run Nimbus is on the Salesforce.com platform; Salesforce.com for Sales, Marketing and Support, and Force.com to develop apps for HR, asset management, business excellence, R&D management, PR, and finance using FinancialForce.com.
The benefits are a single integrated system eliminating messy, error prone and expensive integrations between disparate applications. The business continuity and security built into the system is greater than we could reasonably afford to put in place.
But it is not just about cost saving. The opportunity to expand into new markets and territories without infrastructure investment is huge. This strategy made our 40% year-on-year growth possible.
So to cloud or not to cloud?
With all this in mind, should you give cloud computing a wide berth? It depends. Everything we do in business (and life) carries a risk. The key is to understand the risks that we are taking, and the associated rewards so we can make informed decisions and put the appropriate risk management strategies in place. Critically however, there is a fundamental difference between risk management and risk aversion, with the later typically leading to stagnation, decay and failure.
Ian Gotts is the founder and CEO of Nimbus. He is the author of six books including, Common Approach, Uncommon Results, Why Killer Products Don’t Sell and two “Thinking of …” books on cloud computing. He is a prolific blogger with a rare ability to make the complex seem simple, which makes him a sought after and entertaining conference speaker. His book Thinking of … Offering a cloud Solution? Ask the Smart Questions articulates the opportunities and the challenges ISVs face in their transition to cloud world.