If you were to believe all the marketing material that comes out of the big cloud software vendors, the cloud is the only future. It is has no downsides for the vendor or the client. Even the infrastructure and network providers benefit from increased sales and traffic. And it is the investor’s route to riches.
Everyone wins.
But is this really true? If something seems too good to be true, then it often is. People say I am a cynic, but a cynic is what an optimist calls a realist. So what are my reasons for doubting the fantastic claims?
Firstly, I am the first to acknowledge that there are huge benefits to the new cloud world. And if you are startup, then it is the only way to go. Out here in San Francisco and Silicon Valley cloud-delivered enterprise software is in vogue. Just 2-3 years ago, you had to be a B2C social-something to get any investor interest, press inches or quality recruits. But startups like Huddle, ZenPayroll and Expensify are now cool.
So here are the top five benefits of a cloud offering for the vendor, which are very appealing:
- Rapid sales cycle: With no cost or time to get clients started, and the ability to provide a “try and buy” approach, it is quick and easy to sign up business users. This is often below the IT Department’s radar, something I have called “Stealth Cloud”, circumventing complex and time-consuming procurement.
- Cost of delivery: A self-service, multi-tenant, cloud solution means vendors can offer their solution equally to major corporations and to the “long tail” of SME customers just as cost effectively. No longer do vendors have to focus on the high margin multi-nationals, with their associated high cost of sales.
- Ease of updates: Unlike on-premise solution, the vendor can quickly apply bug fixes or new features that are automatically applied to every client. This should reduce support calls and ensure an innovation lead over competitors.
- Customer Success and benchmarking: With the usage patterns of every customer visible to the vendor, the vendor can make suggestions to drive up the benefits the customers are getting which will lead to further sales. But the vendor can also benchmark across customers to help laggards catch up and this can be another valuable revenue stream.
- Annuity revenue model: The monthly revenue recognition can be painful to start with when cash is king and there is a risk that customers will churn. But in the long term the annuity revenue stream gives a great deal of long-term business confidence.
The five myths of cloud computing
But the story for the customer is not so compelling, thanks to these five cloud computing myths.
It is only for new tech companies
Established vendors can fudge this by hosting their legacy application and then providing a separate instance for every customer, if it is not a true multi-tenant application. This gives the rapid sales cycle benefits of the cloud, however none of the other cost of delivery savings.
The real answer is to rebuild the application so it is multi-tenant and will scale correctly when deployed onto any cloud architecture. This of course may be a non-starter and a new build may be quicker, easier and take advantage of new technologies. So the transition is harder for an established vendor, but not impossible.
Security is the biggest risk
This is often the default objection by client CIOs who are feeling threatened as they watch all the applications which they were paid to manage disappear off their network. The data security of the credible cloud application vendors is often better than their clients.
Of course, the point of greatest risk is using the public Internet from cloud vendor to the client. This can be easily mitigated by a direct connection to the cloud application, or even the CIO providing a private cloud network.
It is quicker to implement
A common myth is that cloud apps are quick to implement. The installation time is down to virtually zero as are upgrades, but the changes to user processes and working patterns still needs to be applied if the benefits of the new application are to be achieved. In fact implementation is even more important as it is the only thing preventing users churning and finding their own alternative cloud application.
You pay monthly
Whilst the cloud vendor websites all give prices monthly by user or some other metric, few if any actually charge monthly. Advertising monthly pricing but charging annually or quarterly is the norm.
In Salesforce’s history lesson Behind the Cloud, one revelation was cash flow benefits of charging annually upfront rather than monthly. Plus you then factor in a reduced workload because they are cutting and chasing one, not 12, invoices per year. But as a client this not only has a cash flow impact, but it also create a level of lock-in.
It is cheaper
How can it be in the long term? Instead of a one-off perpetual license and a 15-25% annual support cost you have an annual charge. At some point the accrued cloud cost must be more than the upfront perpetual cost and annual maintenance. The cost of the infrastructure is also factored into the cloud licensing cost. This may or may not be cheaper than the cost for the client providing an infrastructure.
Now, I agree, you can offset the increased licensing cost in the long run for the lower cost of implementing upgrades. But at some point the on-premise and cloud lines will cross on the cost/time graph.
Don’t rush in
So every cloud does not have a silver lining. In fact, clouds turn bright sunny days a dull grey. And the puns go on….
But the point of this is, before you rush in as a client building the justification for moving to a cloud application on cost and speed of implementation grounds, pause and take a few moments to really think through the implications.
There is really only one compelling reason for implementing a new application – cloud or otherwise. A business reason. The new application will either drive up sales or drive down operational costs. Ideally both. The decision of cloud vs on-premises is more complicated and covered in a recent post.
So let’s not get seduced by the cloud vendors’ claims, many of which are myths.
