Do you hear that sucking sound? It is getting louder.
SaaS, Web services, mobile apps, open source, Enterprise 2.0, outsourced development All of the significant trends that have shaped the software industry over the past decade are being drawn up into the move to cloud computing.
As we look toward the software business in 2010, it is critical to take full stock of the current state of the cloud, the current vendor moves and what software companies must do this year in order to compete in the cloud computing era.
Customers in the cloud
The technology industry has embraced the cloud in force – and the hype has become significant. Yet customers – particularly enterprise customers – aren’t exactly jumping on the cloud bandwagon and migrating or developing their mission-critical applications and business operations to the cloud just yet. They continue to be concerned about the serious technology gaps in security and performance as well as about issues such as vendor lock-in, SLAs, integration, and privacy and control of sensitive data.
In 2010, an increasing number of customers will perform pilot and proof-of-concept projects to get a better idea of the business case for the cloud and to identify what applications and business processes make sense for the cloud. As for the economics, there is compelling track record and evidence of good TCO and ROI from SaaS applications.
But there are still many questions around the TCO of IaaS (Infrastructure as a Service), particularly when this service is used for permanent resource needs rather than merely for short-term demands. PaaS (Platform as a Service) is the least mature service in the cloud and it’s still not clear how this will evolve given all the questions around proprietary platform APIs and components leading to tighter vendor lock-in.
In 2010, customers will be looking for ways to extend their datacenters to use public cloud services and to begin to morph their datacenters (beyond simply virtualization) to benefit from the many desirable characteristics of the cloud (aka the “private cloud”) such as higher utilization through resource pooling, self service, on-demand scaling of resources, and so on.
I believe that 2010 (and beyond) will be characterized by a hybrid approach with enterprise customers using multiple cloud sources to address their business needs and using the cloud as an extension of their own data centers for specific use cases.
We may see very few production applications in 2010 from Enterprise customers. However, the SMB customers are more likely to move into production than their enterprise counterparts.
Software vendors will need to make the cloud “enterprise-ready” this year in order to raise the level of customer comfort and trust. Software vendors need to position themselves to address the unique needs of this segmentation and the hybrid approach.
Opportunities in the cloud
Indeed, the cloud has enveloped the progress of many of the major trends impacting the software industry.
Take SaaS, for example. SaaS is now simply one of the services that is part of the broader definition of the cloud, an umbrella definition which subsumes other relatively newer services such as Infrastructure as Service (IaaS) (including Storage as a Service), and Platform as a Service (PaaS).
If anything, the introduction of IaaS and PaaS have accelerated the SaaS movement as they lower the barriers for companies to deliver software applications as a service with very little up-front investments and very low operating costs.
Additionally, the on-demand elasticity afforded by services such as Amazon EC2 allows these new companies to easily scale up (or down) their operations based on the demands of their customer base. Applications in the mobile arena and Enterprise 2.0 space can be easily moved to the cloud, or provide front-ends to more complex systems residing there.
The open source movement is also poised to benefit. A majority of the current cloud offerings are already based on open source software stacks for the simple reason that proprietary cloud licenses do not have provisions for cloud deployments.
I think the commercial software licensing model software in the cloud is going to be a very controversial and much-debated topic for several years to come. This bodes well for open source vendors creating tremendous up-sell opportunities for follow-on services as the cloud market booms. In addition, this allows open-source developers to easily deploy their work on the cloud further lowering barriers to entry.
As mentioned earlier, the imminent emergence of “hybrid” clouds plays well into the hands of those open source vendors who are already operating in the public clouds. They can now offer support services for private cloud deployments, assist in migrating workloads/data/applications in and out of public clouds. We haven’t yet seen cloud platform providers opening up code for their platforms but this could be a great strategy for them to encourage on-premise adoption in addition to creating standards and an ecosystem of open source developers.
In the outsourcing space, the cloud offers several opportunities for outsourcing vendors. The cloud fundamentally enables companies to easily outsource their non-core services to an external vendor.
Outsourcing vendors can help migrate legacy applications to the cloud, develop new applications for the cloud, and help integrate diverse cloud applications from multiple cloud providers.
The outsourcing vendors can and should take advantage of the cloud to optimize their own market offerings, reduce the cost of their services, and get a leg up on their competition. This could also be a great opportunity for these companies to get into the new cloud computing market by acquiring the cloud-specific application development skills that will soon be hard to find in the market. With the right cloud strategy, the outsourcing vendors can position themselves to move up the value chain towards higher-end advisory and implementation services.
Software vendors in the cloud
The battle lines are being drawn now, with large software industry vendors lined up on opposite sides. On one side, Microsoft and IBM are betting on a hybrid world–a software-plus-services world which mixes and integrates public cloud and on-premise solutions. IBM, in particular, is gearing up for and building products and services for significant private cloud deployments in 2010 and beyond. Microsoft is building massive datacenters around the world as it rolls out its Microsoft Azure Platform which is scheduled to go live in January.
On the other side, we have Google (and other “pure” cloud or Web-only players like Salesforce.com) banking on a markedly improved HTML5 mark-up language and Google’s Chrome Browser, Chrome Web OS, and Mobile OS Android. These products enable development and delivery of rich, Web-only, enterprise-ready office and collaboration applications with the potential to reach the sophistication of their on-premise counterparts.
Having hit the one-billion-dollar revenue mark, Salesforce.com is already the premier player in the SaaS world. The company will continue to rake in new customers and new markets as the cloud gets increasingly adopted by enterprise companies. Cisco, HP, Oracle (with Sun), and VMware are each jumping into the battle with their own strategies.
In the quest for standards, there really aren’t many widely-adopted industry standards in the brave new world of cloud computing just yet but there are several standards bodies working to solve the interoperability puzzle. Cloud-Standards.org lists a growing and impressive list of standards development that is being undertaken currently. The main challenge for standards development is that it has to delicately balance the customer’s need for openness, interoperability, and flexibility with the vendor community’s and industry’s need for innovation and rapid growth in the still-nascent cloud computing market. The market isn’t going to wait around for standards committees.
Lock-in can occur at all layers of the cloud stack: At the top SaaS layer, it’s data lock-in; at the middle PaaS layer, it’s API- and component lock-in; and at the bottom IaaS layer, it could be VM, control, and management lock-in. The lock-in typically gets tighter as one moves up to the stack.
Given the proprietary nature of interfaces provided by many cloud vendors, customers should perform comprehensive vendor due-diligence to identify lock-in situations, their own interoperability and customization requirements, and the scope/cost of any migrations, integrations, and workarounds as part of their business case for moving to the cloud.
Vendors on the other hand should work together to create standard service definitions that are cloud agnostic, much like the API that Delta cloud has. Right now, once you pick a PaaS platform, you are pretty much locked-in with it, much like you would be stuck if you pick a particular Database like Oracle, Sybase, or SQL Server.
The bottom line
Cloud computing will be the most critical initiative for almost all of the major software vendors in 2010. One key challenge is identifying “real” cloud vendors. We believe that in order to truly be considered a cloud offering, software products must offer the following characteristics:
1. On-demand elasticity - the ability to increase or decrease of services/resources as demand goes up or down
2. Pay-as-you-go and associated “metering” or measurement of the service - customer only pays for the services consumed
3. Resource pooling - multi-tenant architectures meaning resources are shared among many customers
4. Ubiquitous anytime, anywhere access – via mobile, Internet, PDAs, laptops, and so on
5. Automated self-service capabilities
Lacking some of these characteristics makes the business case for the cloud very confusing and many enterprise customers are beginning to test the waters for themselves by deploying pilot projects and estimating ROI, TCO, and other business benefits from these projects. As a result, we will see many more enterprise customers deploying pilot projects using private and hybrid clouds in 2010. The SMB market will continue to increase their use of the public cloud.
In order to gain a first-hand insight into what customers are really doing, the Sand Hill Group is working on a research study titled “The Business Case for the Cloud.” The study will research and analyze why, how, and when a broad range of customers (Global 2000 enterprises, government departments, and SMB customers) plan to use and deploy cloud computing.
By interviewing a broad range of enterprise customers and software executives and by conducting a Web-based survey, the study will analyze and present lists of popular and most-frequently completed projects and real-world business scenarios and detailed use cases across multiple industries; the pain points/challenges enterprise customers are facing; and the ROI and business benefits they are realizing.
In short, the hype around the cloud will get tested seriously in 2010 as the rubber meets the road and the benefits and challenges of cloud will become more transparent. Though it will continue to be fashionable to be associated with the “cloud” in any way possible, software companies that use the year to crystallize and deploy sound product strategies for cloud computing will thrive in the next decade.
Do you agree? Will the cloud be key to the future success of today’s software companies? Will 2010 be a pivotal year for strategic action? We welcome your opinion. Feel free to post comments below.
M.R. Rangaswami is publisher of SandHill.com.