As a mentor and coach to emerging technology companies in the Portland area for the Oregon Entrepreneurs Network I see quite a few software start up’s.  And, no big surprise, they’re all cloud-based delivery models.  Yet, as I look at many established software companies (the ones with real customers) they are typically traditional, on-premise software solutions.  Why is that?  Is it because the upstarts just don’t “get it?”  Is it because “real” software companies just don’t do SaaS?  

Or is it, perhaps, because established software companies find it very hard to transform themselves to this new model?  My personal experience is that it’s this last reason that is holding many companies back - it’s not an easy change - and it seems so much less risky to “stick to the knitting” and keep doing what is tried and true.  And what about those customers, certainly they don’t want to make this big a change?  Or do they?

An April 14th New York Times article entitled “The Business Market Plays Cloud Computing Catch-Up” published a very good job exposing some of these challenges but also the inevitability of this change.  A change that already has transformed the B2C sector and now is getting significant attention and investment in the B2B sector.  A very telling indicator is the US government’s “Federal Cloud Computing Strategy” report that has identified one quarter of the government’s total IT spending, that’s $20 billion by the way, as a “potential target” for migration to the cloud.  And then there’s IBM, the epitome of corporate, B2B technology, that forecasts it will have $7 billion in cloud-based revenue by 2015.  

Could it be that sticking to the “tried & true” may not be the safest choice for traditional, on-premise software companies these days?  My vote is that it’s not, and those loyal, locked-in customers may not be quite so loyal and locked-in as some companies are counting on.  The fact of the matter is, the real driver for all of this is not technology at all, it’s simple customer value.  The traditional, on-premise model is very expensive and problematic for both the provider and the customer.  From purchase, implementation, upgrades, availability, use, quality, affordability and even security, the cloud offers clear and substantial benefits over the “legacy” approach.  LinkedIn’s IPO (the first in a projected flood) is pretty compelling evidence that there’s substantial value. 

Customer value has driven the technology industry from the earliest days - ok it’s not always been clear and clean, but it’s been like gravity - a force that you ignore at your own peril.  But in this case, the value is also great on the provider side, now more than ever.  From Amazon’s BeanStalk, Google’s App Engine, Salesforce’s Force, VMWare’s Cloud Foundry even Microsoft’s Azure, the (last?) bastion of on-premise computing - they all are radically changing the economics of developing and delivering software applications in the cloud.  So, we have the perfect storm for industry transformation - high perceived customer value, low cost production and delivery and boat-loads of investor’s money convinced that this is the best place for a great return.  

The Spanish philosopher, George Santayana said in his famous quote: “Those who cannot remember the past are condemned to repeat it.”  And, the past is littered with thousands of companies (even whole industries) that have disappeared because they failed to adapt to new market realities.  I think the cloud qualifies as one of these industry-changing “new market realities”.

And, if I’m right you have a choice - remember & transform or forget & fade away.

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    John Geffel

    Value is a much abused, misunderstood and misused word, everyone thinks they provide it but so few show real evidence that they do!

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