Cloud computing seems to have struck a chord in a way that application service provider (ASP), On Demand, SaaS and all the previous incarnations never have. Every analyst is blogging and tweeting about it not to mention a slew of conferences around the topic. A surprising number of books have already been published on the subject (including mine).
Business people are embracing the ideas of cloud computing because they can see immediate value from the applications and services being offered. With technology becoming easier to develop, there seems to be no limit to what is being provided in the cloud. With services such as on-line backup, project management, CRM, collaboration and social networking all available through a browser, is it any surprise business users are ignoring applications provided by the IT department?
There is now more than one sort of cloud, as well. Public clouds, government clouds, hybrid clouds and private clouds. I propose “stealth cloud” should be added to the lexicon. As the name suggests, it does its job quietly, unseen, and unnoticed. The use of stealth cloud is on the rise as services are being consumed by business users without the knowledge, permission or support of the CIO and the IT department.
Who can benefit
The stealth cloud is a nightmare waiting to happen for the CIO, but the implications for the independent software vendor (ISV) are profound, as well. Suddenly, there is a way to side step the IT gatekeeper and sell directly to the business buyer, which is important if you are targeting small-medium businesses (SMBs) and critical if your market is major corporations.
Some may remember the book Crossing the Chasm by Geoffrey Moore. He suggested that innovative technologies need to be sold to “early adopters,” who are those consumers who see the business value.
Traditionally, IT departments are “early majority,” as they buy proven technology from the market leader. This means the establishment of a market clearly happens some time after innovation. So the stealth cloud is the perfect answer for small ISVs with innovative technologies as they can sneak them in under radar and sell directly to the early adopter/ business buyer. This means that the ISV needs to adopt a “land and expand” or “penetrate and radiate” strategy.
Hiding in the clouds
Adopting a stealth cloud approach has a number of significant implications for an ISVs; implications that run far beyond the technical “What cloud platform?” question. The business model, go to market, resourcing and funding are all likely to change and not necessarily all for the good.
The business buyer can be targeted directly rather than going through IT. This may be a big shift or a welcome relief for ISVs, but they should proceed with caution as it may be more difficult to identify the correct buyer by job title. In the early days for Nimbus the buyer was the head of Business Transformation, VP Business Excellence, COO, SAP Programme manager or any one of a 100 different titles. However, it is worth navigating the organisations to find the business buyers as they have budgets. With cloud computing, they can spend them more easily as it lies within an Opex rather than Capex budget. They can even hide the spending as marketing, consulting or training but they cannot fund major projects or software rollouts.
Therefore, the go-to-market strategy will need to be “land and expand.” But that has implications on the resourcing of the sales cycle, shifting focus to a more consulting-led effort rather than out and out sales. The good news is that the consulting is often paid for rather than free, but only if the consultants are senior enough to be considered “trusted advisors.”
The sales cycle will be faster, but often there will be more consulting than software revenue for early stage projects. At times the ISV may question whether they are a consulting or a software company. They need to hang in there as there are profitable sales longer term in the “expand” phase. However, they need to get to the longer term and there is a growing barrier. Every project launched makes an enemy of the IT department.
At some point the ISV and their business users will need to confront IT. Business users will want to delay “owning up” to the fact that they have been using the ISVs software for weeks or months without IT’s blessing. The strongest case they have is to present the implementation as a “pilot” with “limited scope” or “POC” (roof of concept) and show that it has delivered an overwhelming ROI. The ISV’s role in the sales cycle is to drive that ROI, then coach and support the business user’s conversation with their IT department.
What can an ISV do?
Below, I’ve outlined some tips for ISVs to get involved with and help business users (and enlighten IT departments on what to look for in the coming months and years as cloud takes hold):
If you are not in the cloud get an offering- It doesn’t have to be 100% cloud. It could be a smaller offering for pilots with the long term roll-out on premise. If you are already in the cloud: Perfect.
Go to market- Think about land and expand and who are the trusted advisors. Your consultants? Partners?
Proposition- Focus on business benefits not features.
Pricing and sales support- Make the cloud offering easy to buy and consume.
Pricing- Price for department-level rollout as there is more money in the long run that holding out for the “big deal.”
Prepare for divorce- What happens when the CIO finds out?
The Cloud has enabled smaller innovative companies a far better than average chance of competing and winning against the largest incumbent vendors, primarily because they can avoid competition by using the stealth cloud to target business buyers.
And it is becoming far quicker and easier to develop and deploy a credible software offering. The barriers to entry are dropping fast. No longer do you need $10M of venture capital to get started. A good idea, a couple of talented people and a credit card and you are in business.
Founder and CEO of Nimbus Partners. Ian Gotts 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 the cloud.