Saturday, July 7, 2012

Application Cloud Computing: Back to Basics

I remember in late 90s, my discussion with customers around B2C eCommerce was mostly related to shopping cart functionalty, SSL security, CC authorization, integration with back office order mgmt, etc. In fact, I looked at some of the key challenges facing global electronic commerce in 2000:

  • Security, Reliability and protocols
  • Bandwidth
  • Integration
  • IP Rights
  • Tax
  • Absence of touch and feel
  • Cost, etc.
At that time very few customers were looking at eCommerce as a strategy. Now, almost 15 years later, all these are all given for any eCommerce discussion. My conversation with customers are now around 
  • Integrated eCommerce Channel Strategy to drive growth at a lower cost
  • Customer loyalty improvements to increase average deal size and repeat customers
  • Customer experience, etc.
The point is that whenever there is a paradigm shift, i.e. from offline to online (eCommerce) and now from on-premise to Cloud, initially customers and vendors focus on the basic offerings that enables the transition. In case of Cloud, you will see a lot of discussion around opex vs capex, TCO over time, demand curve optimization for IT services, etc. As most of the major vendors start offering Cloud application offerings, the discussion will shift towards business value. In fact,  in early 2000s, Amazon stock kept going up based on # of eyeballs, page views, etc, that had nothing to do with profitability of the company. The .com companies, such as Amazon,eBay, etc had really high P/E multiple vs their offline peers, such as Walmart, Toysrus, etc. Similar phenomenon is happening in the Cloud Application vendors space, such as Salesforce, Netsuite, etc.(forward looking p/e for CRM is ~69 and N is ~158 vs Oracle ~10 and IBM ~13).  It is true that these companies are growing in double digits and taking share from competitors. However, as discussed earlier, more established vendors will make inroads and the discussion will move from basic SaaS/Cloud benefits to "what are the business benefit of Cloud CRM or ERP for my organization", since the cloud will be a given factor, same as the eCommerce discussion. 

Vendor and customers should focus on building business value tree for Cloud applications such as CRM, etc. These will include the triditional benefits that all customers have realized in traditional on-premise solution. However, there will  be additional significant benefits that will come from Cloud delivery model. Some of these will be related to TCO, etc, but there will be significant amount of benefits related to business process disruption created by cloud computing. Customers and. vendors who will capitalize on these will be the winners.

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