Cloud computing providers have a difficult marketing challenge, in my opinion. Think about it--no matter what service model or deployment model a provider is delivering, they must differentiate their service while meeting the "commodity" needs of as many customers as possible. It would seem these businesses are stuck between providing least common denominator service capabilities and being accused of intentional customer lock-in.
(Credit:
Jake Shepherd/Flickr)
From a customer perspective, it is equally challenging when one is "looking for servers and storage" and must choose between a bunch of services that essentially run Linux or Windows and store your files. How does one choose? How do the cloud providers set themselves apart in the customers' eyes?
Unfortunately, I've been inundated of late by an increasing number of cloud service announcements that lack any sense of differentiation. Hosting providers are announcing "on-demand server capacity billed on a pay-as-you-go basis." Platform vendors are simply announcing what language they support, and how much they charge for services. Software-as-a-Service vendors have the easiest job to differentiate service, as they can do so based on functionality alone if they wish, but even there some vendors struggle to differentiate themselves by anything other than the fact they run as a cloud service.
This has to change. Forrester's James Staten is telling us that clients are getting "cloud weary." I believe a lot of this has to do with the ridiculousness of "cloudwashing" that we've seen for some products and services, and the relative monotony of pitches for things are arguably cloud services, especially in the IaaS space.
Below is a list of five key categories of competitive differentiation for cloud computing. It is not a complete list, nor do I think all vendors would look at this question in the same way. However, if you are looking to acquire cloud services, these are the elements I think you start with as you evaluate any service, be it SaaS, PaaS, or IaaS. If you are selling these services, consider this an outline for your next requirements document.
Ease of operations. Yeah, I could have kept things simple and just said "ease of use," but "use" in the cloud computing service sense is much more than how humans interact with the system. For instance, how does a company with hundreds of applications in the cloud strewn across a dozen or more vendors monitor and manage those applications to manageable service levels?
And yes, phenomenal user interfaces will set some providers apart from others, but it will be the "behind the scenes" interfaces--such as APIs, publish and subscribe event streams, transparency and auditability systems, etc.--that will make the most significant differences between providers.
Will many of the aspects of "ease of operations" be standardized? Sure. The Open Cloud Computing Interface (OCCI) is an example of an attempt to deal with a large part of this challenge. However, differentiation will still be possible through extensions, quality of features and--yes--some custom interfaces.
Configurability. One of the things about today's best-known cloud computing environments is that they are essentially infrastructure and software architecture frameworks that dictate a lot about the application architectures that can be built on them. For example, the Amazon Web Services Elastic Compute Cloud (EC2) allows each server to be on one widely shared network. No separation of management traffic from DMZ traffic here (at least not explicitly from the point of view of the OS).
No, application architects are instead forced to consider how they would build and operate their application in the infrastructure architecture given them. Good books have been written with this in mind, but ultimately the complexity of the problems we wish to solve with information technology will dictate the amount of configurability we require from our infrastructure systems--even if they are delivered as a service by a third party.
The low-hanging fruit here for IaaS vendors are things like network architectures, data storage options, server options and so on. Also useful here are services that enhance the infrastructure, like security systems, message queueing, and storage tiering.
Performance. One public relations contact I got recently was quite interesting. A hosting company sent me an email indicating that they have an increasing number of customers coming to them from AWS, and finding that their applications actually perform better in the former than the latter. I haven't confirmed the truth of that claim, but it is an interesting claim nonetheless.
Processing speed, memory speed, storage access, read and write speeds, latency, bandwidth--these are all things that are tunable by the cloud provider, either through technology acquisition, or through superior engineering and operations expertise. And, as with servers and storage, the fastest speeds per dollar spent will generally win.
I would not be surprised if we saw a cloud performance war, similar to the RDBMS benchmark wars, especially in the IaaS category (though it would make sense in the PaaS and SaaS categories as well).
Reliability and security. I debated combining these two elements, as they represent different aspects of the same concept. However, that core concept--risk mitigation--is at the heart of so much of the decision over whether public cloud services are better than private data centers, that I think they will often be viewed through the same lens.
Companies will need time to demonstrate differentiation in both of these categories, but features can be introduced today to increase the transparency of both operations and security in any provider. Redundant distributed data stores, "early warning" DDoS detection events, auditability APIs; these are all features that would "open the kimono" in a controlled fashion and increase customer's ability to trust that their provider has made the protection and availability of their data and functionality a core competency.
Customer service. After I wrote my closing post for the "big rethink" series, Kevin Magee, COO of ZeroTouch IT, wrote a post in which he noted several additional predictions for the effect of cloud computing on IT. Most notably, he pointed out that cloud will change "[h]ow Vendor Relationship Management will become a key discipline in IT organizations." Amen, brother, and I completely agree.
In a tongue-in-cheek post from early 2008, I noted that system administrators should "get good at waiting on hold for customer service representatives." In reality, there is truth to that, but the providers have a lot of room to craft that experience.
One thing they can do is advance the technical leading edge in terms of customer self-service and operations transparency. (Hmm. Has anyone else noted how often 'transparancy' comes up in this discussion.) I noted some ideas about this in a previous post. Smart providers will find others.
Cloud computing is one of those truly disruptive market opportunities that makes or breaks companies. The winners will find ways to differntiate. Those that don't almost certainly can't win. So, please, no more press releases that fail to differentiate in any meaningful way.
For years, Red Hat sat unopposed at the top of the CIO Insight Vendor Value study. In 2008, however, Google pushed Red Hat aside with its low-cost, easy-to-use enterprise applications. This year, Red Hat has come roaring back to share the top ranking with Google.
Could this be a sign of CIOs' restive relationships with traditional vendors and an increasingly insatiable appetite for the cost and ease-of-use advantages of open source and software as a service/cloud computing?
The answer is almost certainly "Yes." It is telling that old-school vendors like IBM (ranked 20th overall), Microsoft (25th), Novell (29th), and Oracle (35th) are so far down the CIOs' list.
It is equally telling, however, that it is with these apparently less-preferred vendors that CIOs spend the vast majority of their IT budgets. Or perhaps that's the point? In other words, CIOs spend with such vendors today because they have to, but given their druthers, they're going to invest more money in Red Hat and Google going forward.
Red Hat and Google are still rounding errors in the overall IT spending picture, but CIOs seem to be signaling an appetite for more. It's not about reducing lock-in and other colorful marketing phrases, either: it's about great, easy-to-use software at a compelling price.
You know, the very thing that Microsoft used to win CIO plaudits for delivering.
From the report:
CIOs are more likely to try software as a service (than traditional, packaged software), which is better understood and simpler to use and requires no upfront investment in hardware or software.
This is the heart of the CIO uprising. And it's why low-cost, high-value companies like Intel (ranked first overall), Cisco/WebEx (ranked sixth and 11th, respectively), and Sun (sixth) are climbing the charts.
For now, however, Google and Red Hat rule the roost in the Software category of CIO Insight's annual study:
Both Red Hat and Google essentially offer the same thing: great software on a subscription basis. While this model often offers lower prices than competitors, it's important to note that "free" is not the value proposition here. (If it were, for example, Red Hat customers would be leaving in droves for Red Hat Enterprise Linux clone, CentOS. They aren't.)
No, the value proposition is customer control via the subscription model that enables less costly ways to buy into the software, and to turn off maintenance costs, if desired.
It's a winning formula, one that more vendors should consider adopting. Today IBM, Microsoft, and Oracle command the majority of IT dollars, but this survey suggests a rebellion is underway. Inertia can only support the traditional vendors for so long.
The Wall Street Journal, citing unnamed sources and a document it reviewed, reports that Oracle is developing a set of online software offerings--seven new products, to be exact--in what could signal a shift in focus from traditional software to software as a service.
Reuters later confirmed the Journal report, also citing an unnamed source who was not authorized to publicly discuss the plan.
The online software is being developed to help customers "handle marketing and product management as well as a product targeted at the insurance industry," the Journal writes, citing the document. No word, however, on when the products will be available or much else in the way of details.
The Journal's sources had reportedly expected Oracle to talk about the new software at an event next week, but they changed their tune and now say an announcement will take place at a later date.
Reuters reports that the Internet-based programs would help businesses manage human resources functions, including employee recruitment. It also says Oracle is expanding its customer relationship management or CRM software, which competes with the likes of Salesforce.com's SaaS programs.
Oracle last month bought Sun Microsystems for $7.4 billion, and industry watchers have predicted Sun's assets will give Oracle more flexibility to adapt to cloud computing trends enabled by the Web and ever-improving bandwidth.
This was originally published at ZDNet's Between the Lines.
Salesforce.com turns 10 Monday and in the last decade it has cemented its standing as a leading enterprise software vendor and leader of the software as a service and cloud computing charge. However, the next 10 years may be much more interesting.
Salesforce.com, officially launched in a San Francisco apartment March 16, 1999, finds itself at an inflection point. The company is posting solid financial results, saw fourth-quarter sales jump 34 percent from a year ago and continues to poach customers who are sick of high maintenance costs. And the company is the first of its ilk to hit the $1 billion revenue mark.
The big question: Where does the company go from here? It has developed Force.com, a platform for on-demand applications and a marketplace for software, but is largely a software-as-a-service (SaaS), customer relationship management software firm (its ticker is "CRM"). Salesforce.com is increasingly targeting large enterprises--the playground of Oracle and SAP, two companies with a lot more sales resources. Here's a look at my five top unresolved issues for Salesforce.com in the years ahead:
Can Salesforce.com continue to grow at its current pace?
Here's a look at the company's financial results going back to 2005:
(Credit:
ZDNet)
As you can see the company has been growing at a rapid clip and it is projecting fiscal 2010 revenue of $1.3 billion to $1.33 billion. But it remains to be seen whether that pace can continue. Ultimately, the laws of large numbers catch up with companies. And while Salesforce.com isn't to the point where the growth figures will slow too much, the trip to $5 billion in revenue will require different techniques. The company currently has about 55,400 customers worldwide.
Salesforce.com's regulatory filings tell the tale (albeit in a boilerplate fashion):
Our recent revenue growth rates may not be sustainable and may decline in the future. We believe that period-to-period comparisons of our revenues, operating results and cash flows may not be meaningful and should not be relied upon as an indication of future performance.
In addition, SaaS purchases are becoming more scrutinized. In fact, some enterprises have determined that SaaS wasn't the way to go, according to a Forrester report:
Does Salesforce.com need to develop a suite?
To date, Salesforce.com's success can largely be attributed to focusing on commodity software markets that lend themselves well to the on-demand model. The primary example of one of those commodity software markets is CRM. Salesforce.com has tried to expand its service via AppExchange, a marketplace for cloud computing apps that run on the company's Force.com platform.
However, it's unclear whether that will be enough to build out a full enterprise suite.
A Forrester report recently highlighted bevy of enterprise software categories moving toward an on-demand model. Forrester handicapped what categories would be successful under the SaaS model:
Clearly Web conferencing and CRM are leading in adoption and growth. That's the good news. The bad news is that these two categories are the closest to hitting equilibrium and their eventual decline. The challenge for Salesforce.com is finding that new category before on-demand CRM growth slows.
Simply put, Salesforce.com needs to find a few new software categories. Does it need a suite? Forrester's data is mixed on the subject.
Human resources, collaboration and IT management have a high degree of success under the SaaS model. But ERP and supply chain management only has a moderate degree of success under SaaS, according to Forrester. Meanwhile, business intelligence--arguably the most important category in enterprise software--has a low chance of SaaS success.
Add it up and it's possible that Salesforce.com goes for the suite much like NetSuite has, but a far better option would be to develop HR, collaboration and IT management apps.
Here are the leading players via Forrester in each category where Salesforce.com could tap into new growth:
• Human resources: ADP, Plateau, SuccessFactors, SumTotal, Ultimate Software. Takeaway: Could be fertile ground for Salesforce.com to buy or build software.
• Collaboration: Atlassian, Cisco (WebEx), Daptiv, Google, IBM (LotusLive Engage), Microsoft (SharePoint). Takeaway: A very crowded space and few companies Salesforce.com could acquire.
• IT management: HP, Service-now. Takeaway: A possibility for Salesforce.com, but large players-HP and IBM-may wind up dominating.
In any case, Salesforce.com's mission will be to build new areas beyond CRM.
It's hard to box the big boys
One of the larger issues for Salesforce.com in the next few years will be competing with established rivals, notably Oracle and SAP, with more resources.
Salesforce.com CEO Marc Benioff noted that the company was poaching customers from its largest rivals. On its last earnings conference call, Benioff said:
In face-offs with Oracle, Microsoft, and SAP, customers moved to the cloud in record numbers in FY '09.
Meanwhile, Oracle CEO Larry Ellison also has Salesforce.com in its sights. In December, Ellison said:
When we compete head-to-head with Salesforce we win more deals then we lose and that's new in the last couple of quarters.
Toss in SAP and its BusinessByDesign SaaS effort and you have a multifront war. The problem for Salesforce.com: This war is fought on the sales front lines and Benioff's army is outnumbered by a wide margin. Salesforce.com has 3,566 employees as of Jan. 31 and plans to expand sales and marketing activities. Oracle has 86,657 employees and SAP has 51,536.
Indeed, Oracle and SAP dwarf Salesforce.com. In fact, Salesforce.com would be a fine subsidiary of either enterprise software giant.
SaaS vs. cloud-computing platform
Salesforce.com may be able to avoid a lot of the Oracle and SAP pyrotechnics if it can position itself as a cloud-computing platform. There was a not-so-subtle change during Salesforce.com's last fiscal year as it began referring to itself as a cloud-computing company instead of an on-demand software outfit.
See Feb. 25's earnings report:
Salesforce.com Announces Record Fiscal Fourth Quarter ResultsFirst Enterprise Cloud Computing Company to Achieve Fiscal Year Revenue of One Billion Dollars
And the report from Feb. 27, 2008:
Salesforce.com Announces Record Fiscal Fourth Quarter ResultsFirst Ever On-Demand Software Company to Exceed $850 Million Annual Revenue Run Rate
Salesforce.com's messaging points to the future, but in the present it's an on-demand software company. In its annual report, Salesforce.com acknowledges that "substantially all of our subscription and support revenue comes from subscriptions to our core CRM application services."
How that balance changes may dictate how the next decade goes for the company. The problem is that many other companies--Amazon, Google and Microsoft to name a few--are positioning themselves as cloud platform companies. Salesforce.com said in its annual report:
We believe that as enterprise software application and platform vendors shift more of their focus to cloud computing, they will be a greater competitive threat.
The other wild-card is enterprise demand for cloud computing. According to Forrester, only 5 percent of large enterprises have deployed cloud computing applications.
It's no wonder that Benioff is welcoming Microsoft to the cloud: The Windows giant could validate the movement.
Salesforce.com: A fine subsidiary of...
Given all the moving parts associated with pondering the next 10 years for Salesforce.com, we'd be remiss if we didn't ponder the company as a takeover target.
Google could be a candidate to acquire Salesforce.com. The two companies are long-time partners and Salesforce.com could give Google some enterprise credibility.
Other potential buyers could also emerge, but Oracle would be among the most obvious choices to acquire Salesforce.com. Just the fact that Ellison mentioned Salesforce.com so much on the company's December conference call may indicate interest. He used to beat up BEA too--right before buying it.
Meanwhile, both Benioff and Ellison share a passion: They both like to give SAP hell. If you coupled Oracle's Siebel on-demand unit with Salesforce.com, you'd have the SaaS CRM market locked up to serve as a hedge to Ellison's more lucrative on-premise software business. At the very least, it wouldn't hurt to own your biggest threat.
So happy 10th birthday Salesforce.com. Now get back to work. Your next 10 years are going to be quite eventful.
See also:
• The three routes to cloud computing's future
• Cloud computing: How we got here
When discussing cloud computing, I often think of Joni Mitchell's haunting lyrics from the song, Both Sides Now. In Mitchell's world, clouds can be wonderful "ice cream castles in the air" or annoying disturbances that "only block the sun." This duality prompts Mitchell to declare, "It's clouds illusions I recall, I really don't know clouds at all."
Joni's cloud confusion mirrors current industry bewilderment over cloud computing. Like many other industry initiatives, cloud computing has a number of meanings. Here are a few:
Cloud processing. To me, this is the foundational notion of cloud computing where businesses can rent MIPS (millions of instructions per second)-- a measure of computing capacity-- for computationally intense processing tasks. This is very attractive for basic research and should appeal to universities and small companies that can't afford supercomputers. Nevertheless, this will remain a niche market. On another note, didn't we call this grid computing a few years ago?
Cloud infrastructure. Remember Exodus and Storage Networks? Cloud infrastructure is a more modern version of these Internet boom icons. AboveNet, Rackspace, and Savvis have been making money on basic hosting services for years, but most large companies still want control of their IT assets and are willing to over-provision to maintain control. Cloud infrastructure also brings up tons of privacy concerns, just ask computing godfather Richard Stallman. This area will also remain small.
Internal clouds. The idea here is to set up an IT service and then chargeback for usage. While the cloud folks equate this to a utility services (i.e. simply plug and receive compute and storage capacity) this too is nothing new. Remember IBM's "autonomous computing" initiative? We are still a long way away from this type of simplicity.
Software as a service. Everyone points to Salesforce.com as a model of success and it truly is. Beyond CRM, there are also plenty of successful SaaS offerings for e-mail, security, payroll, etc. Ten years ago, we called these folks ASPs and MSPs. Some, like Salesforce.com, were wildly successful, but most, like Jamcracker, are either ancient history or barely hanging on. This will be where the action is. Why dedicate capital budget dollars toward on-site e-mail security appliances when Google, Symantec, and Trend Micro can provide this as an operational service?
Small businesses that lack capital or human resources are extremely likely to purchase cloud services. I certainly see this in the security market where the volume and sophistication of attacks are far too difficult for overwhelmed IT generalists lacking deep security skills. That said however, we've been throwing the utility "plug-in-the-wall" analogy around for 15 years. Yes, we've made progress toward this goal but the technology and regulatory landscape has also grown more complex in the interim. Are we any closer to this utility nirvana?
Oracle's Larry Ellison recently scoffed at cloud computing by saying that technology vendors were as fashion conscious as the women's garment industry. I couldn't agree more and have no idea why VCs are funding so many fly-by-night cloud companies. Based on my IT industry experience, IT tends to seek help in two areas: tactical high cost operations (think desktop outsourcing), or tasks that demand specialized skills (think security, Web 2.0 expertise, ITIL, etc.). Cloud computing changes the way these services are delivered but little else.
Cisco Systems announced Wednesday plans to acquire e-mail and calendaring software maker PostPath in a $215 million deal.
The acquisition, which is scheduled to close by the end of October, is designed to bolster Cisco's collaboration portfolio by including PostPath's Linux-based e-mail and calendaring software with Cisco's "software as a service" platform.
Cisco's collaborative platform includes instant messaging, voice, video, data, document management, and Web 2.0 applications. PostPath will be folded into Cisco's Collaboration Software Group.
"The acquisition of PostPath complements our strategy to develop an integrated collaboration platform designed for how we work today and into the future, providing real productivity gains and a more satisfying user experience," Doug Dennerline, Cisco's Collaboration Software Group senior vice president, said in a statement.
Over the past two years, Cisco has focused on the collaboration market, with CEO John Chambers touting it as the next wave of innovation in the technology arena.
A major piece of that effort has been Cisco's last year. PostPath's technology will be used to enhance the current e-mail and calendaring capabilities of the WebEx Connect collaboration platform.
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