Why should businesses deploy the cloud?
Businesses are increasingly looking to cloud technology to increase sales and improve IT processes. But where should they start? Our panelists discuss the importance of evaluating your business objectives and your IT infrastructure to find the right cloud technology and compatible cloud partner to meet your specific needs. To learn more, listen to our panelists on the Astadia Cloud Computing Forum podcast.
- David Deans Cisco
- Blake Wolff Astadia, Inc.
- Lincoln Murphy Sixteen Ventures
Blake Wolff, Astadia:
I think our customers are still looking for the same pain reduction. They’re looking for team collaboration; they tend to be looking for accountability. Maybe a little bit more transparency on what the team is working on whether it’s sales and marketing service teams.
Even to a certain extent they’re still looking for ways in this market to improve their sales and improve their success. The ultimate has got to be a result that is more positive to the organization. Whether its revenue increase or margin expansion, expense reduction. Somewhere along the line, the bottom line’s got to get better and the sale line has to go up. We continue to hear that over and over from our executives that we’re working with.
So when you look at the cloud and say, how does the cloud help you there? It’s going to help them in a couple of places.
One is it’s always going to help in the deployment. Deployments of cloud technologies tend to be faster and more flexible. Let me just talk about that in a couple spots.
One is not the case for process improvement. Like any technology deployment, you still have to go through the process of reviewing the way that your business works, reviewing your business processes. And thinking about which ones are best enabled in the new technology whether it’s cloud or not. And which ones need to be changed. And you still go through the solution architecture work which is how do I take these new and improved processes and enable them on the cloud and through cloud technologies.
Now in the deployment piece, which is the best part of where you’re going to save money in cloud technologies. It’s hosted, typically multi-tenant and when you turn on or buy your first cloud technology, the whole point about it is it’s live. There are no servers you have to buy, there’s no physical deployment of a server or a technology.
The whole premise behind cloud technology is ready for you. But you have to customize it and configure it for your needs. So that’s the piece that typically is faster. In fact, in our own deployments at Astadia, we see the least amount of time in the actual configuration of the technology and more time working with our clients talking about best practices. The whole benefit around cloud technologies is that it’s easier to deploy.
The second piece of that is ultimately in cloud technology it’s going to remain more flexible. In what I mean by that is typically businesses align their strategy multiple times in the year. Meaning, they change their business strategy and say, we were doing this, we were selling this today, but today and tomorrow we’re going to do this instead.
The technology is still going down the path that you set it down. You set it down a path and it’s going to continue to go down there. The benefit of cloud technologies is they tend to be easier to configure and easier to change. They’re more flexible and you can bring cloud technologies back in line much easier with your business strategy and your business objectives.
So when you change an objective and your technology’s not supporting it. It’s always easier to change cloud technology to support your new direction.
Lincoln Murphy, Sixteen Ventures:
You certainly need to define cloud computing and then define what the ROI can be for end users of cloud computing services. The way that we define Sixteen Ventures cloud computing is basically broken up into three pieces that at least with the categories that we care about with your multi-tenant environments.
Basically, you have software as a service at the top of the pyramid if you want to look at it that way. Then you have platform as a service below that. Then you have infrastructure as a service below that.
Infrastructure as a service is obviously just infrastructure. There may be some sort of a abstraction layer that sits on top of virtualized hardware. But it ultimately you can consume it as a service.
Platform as a service is more of an isolation level from the underlining architecture provides supporting services and you can build custom applications in that.
And the top layer, as I said, is software as a service, which is essentially an analog to what would be desk top applications or server applications. And a data center with the added benefit of network eccentricity and network effect data.
So I think to look at the ROI that can be derived from cloud in small to medium sized businesses specifically but also in large enterprises.
I think the first place to look is going to be software as a service. I think that if you don’t currently run your own data center right now, I think looking to low level platforms as a service or infrastructure as a service, especially like Amazon web services and things like that which are essentially raw computing power but on a remote server somewhere.
If you’re not already running your own infrastructure, not sure there’s much benefit to running infrastructure in the cloud. You’re still going to have to have the overhead of dealing with it, whether that’s through internal resources, external consulting resources, additional third party hardware, whatever. The overhead is still going to be there.
I think small to medium sized business are going to have the most benefit derived from software as a service which is going to give them essentially business applications. It’s going to give them access to subject matter expertise. It’s going to give them access to business processes and all of the other elements of software but in a way that they don’t have to run the infrastructure of that software. So I think the greatest hard ROI in terms of cost I think is going to be derived directly from SaaS verses the other lower level cloud services for small to medium sized enterprises.
I think larger enterprises that already have infrastructure expertise in house that already have network engineers and the like, in programmers. I think they can probably benefit from some of the lower level cloud services because they already have that expertise. They’re going to have to transition it, there’s going to be some new things to learn, but ultimately they’re going to benefit from a cost savings at the actual physical infrastructure and associated cost level.
But for small to medium sized businesses, I think they should focus on SaaS. I think that’s where they’re going to find the most benefit. Where they have current expenses for infrastructure, whether that’s internal resources or whether that’s actual infrastructure in investment. I think that can be repositioned now to bringing in people that can actually help them drive their business forward.
So you’re basically replacing IT-specific resources, whether that’s head count or in investment in hardware. Now you can actually transition that and focus that on people that actually have domain expertise and help you further your business so you’re increasing your hard ROI but reducing the expenses associated with your computing by shifting those resources out to the cloud.
But you can potentially increase top line revenue simply by bringing more domain experts in house and repositioning where your funds are going in house.
I think that’s one way ROI in cloud services can be seen directly just by simply repositioning where your internal funding is going whether shifting it away from IT over to folks that can actually help drive the business forward. Number one is if you can bring in the resources that can actually help you move your business forward by having that domain expertise.
Looking at examples, if I am in retail and I have someone that can help me. I sell to retail stores; I have someone who can help me position our company in a better way with our retail clients. That’s going to be much more effective in driving that top line revenue than hiring an IT person.
So I think SaaS, by allowing me to basically get rid of all my in house, or a lot of my in house IT expenses, I can now hire someone to actually help me drive business forward.
But that’s really shifting costs. I think SaaS in particular can provide the opportunity to its end users to actually drive top line revenue in other ways. One of the defining characteristics of SaaS in our estimation is again, it’s multi-tenancy, because everyone is basically using the same version of the application.
And through that we also say it’s network centric and it has network effect so what that means is basically everyone is using the same structure, everybody’s using the same software and it ends up with this collective intelligence.
So let’s use the same small manufacturer that sells to Kmart, Target, Wal-Mart, these types of organizations. Ultimately it’s a supply chain application we’ll talk about. The manufacturer that is now using this SaaS version of the management system can now look at a category as it pertains to everyone else that’s selling that same category item to those retailers in aggregate and sort of see where they stack up against the other players that are selling in that same channel.
This can give you a leg up; it can help you better understand how you’re doing in the market compared to others. This isn’t something you wouldn’t necessarily get from a standalone application. That particular use case is one that shows exactly how - just based on the application, not any sort of cost shifting, that we can drive a higher ROI from it, simply due to the network’s interest in network effect of the application itself.
There are some specific examples where having that collective intelligence, being in that network effect can really drive that top line revenue higher. And of course the unemphisis that we all know about SaaS and the fact that we don’t have to manage the software anymore, we don’t have to manage the hardware that the software’s on, all those reviews the cost.
So we increase top line revenue, driving down bottom line expenses and of course increasing the profit margin there. That’s one example of where SaaS can actually help drive that top line revenue.
Buyers of the application, the end user, needs to be aware of these potential benefits of SaaS. This is a great point. I’m specifically focused on the SaaS cloud computing world here because I think it has the most benefit to again small and medium sized businesses.
But SaaS itself is a loosely defined term at this point. Ventures define SaaS as a business architecture. That includes network effect, includes multi-tenancy, it’s a web native technology architecture. But, ultimately, the definition is still somewhat in flux and I think that in the market there are people that are simply saying, look you want SaaS, we’ll give you our legacy product on a monthly payment structure. Or, you want SaaS, we’ll give you our legacy product that we would normally install behind your firewall. We’ll go ahead and spend enough on a virtual server somewhere and call that SaaS and you can have it on a monthly basis.
That may be OK, but that’s not SaaS. And the reason that we care about that, it’s not just semantics, we care about SaaS because of its multi-tenancy, because of the network effect, and the collective intelligence. If you have two vendors, one will spin up a single instance for you, basically your own application on Amazon web services, let’s say.
And you have another vendor who has a true SaaS application that’s multi-tenant, that has all these other defining characteristics, and ultimately the actual cost of it is relatively the same. You would want to probably to look at, in more depth, the SaaS version to make sure the SaaS vendor’s version, to make sure that it meets all of your core needs but also to look at the additional network’s centricity, network effect, elements of it to see if it can also not only reduce your cost or be the same as the other vendor’s but how it can actually help you increase your ROI or increase your top line revenue.
So you have to do some due diligence here because people are throwing around these terms to the point where they almost don’t mean anything. Hopefully the vendors understand that people aren’t buying SaaS, that people aren’t buying cloud necessary, they’re simply buying ways of getting the job done. They need to be able to make more money and save money in the process.
If SaaS vendors can come to market with a message that says, Mr. End User, Mrs. End User, we just want to help you get your job done better, take your mind off all these other things that are costing you money, causing you headaches, all of that. Here are some other things that we can bring to the table to help you process these things that we refer to as collective intelligence. I think that that’s the way to go.
You don’t want to go to market, tell your end users that they’re going to be buying SaaS. That doesn’t mean anything, especially if you have companies out there that are co-opting the term to mean anything from a subscription revenue stream to just something in the cloud. Anything in the cloud, anything on the web is SaaS and that’s not true.
So we have to be very careful when we’re doing our due diligence in vendor selection, what exactly they are. You ask the questions, are you multi-tenant? If you are multi-tenant and you do offer some data aggregation, you need to make sure they are conforming to any sort of laws or any sort of regulations or even just industry standards, those kinds of things. Make sure that your data is private and that any aggregation they’re doing is anonymous. But if it is and they’re doing it right then you’re doing to benefit from it directly.
You have to understand what SaaS is at its core level and then forget about it in terms of marketing-speak and start asking the hard questions. And that’s when you can do an apples to apples comparison among vendors.
Blake Wolff, Astadia:
The executives we’re talking to today are interested in cloud technology. I think early on because of this speed of the ROI. They can have a cloud technology up depending on what it is in 30 days or 90 days. Much faster than a traditional technology deployment. And in this economy, which is even harder than it was a year ago, to prove out the returns. The cloud technology allows them to say, look if I deploy this technology, I’ll be able to see this return faster, and I need to see this return faster. I can’t wait a year. Firms today don’t have, in this economy, they don’t have two quarters to fix a number. They have 90 days to fix a number.
And cloud technologies allows them to get to that actual utilization of technology much faster than saying, look I’m going to deploy this old traditional technology and it’s 18 months or 12 months and I hope that it’s OK with everybody because that’s as fast as we can get there. That’s not what the Boards and the CEOs and Presidents want to hear. They want to hear, look we can make this change if we use this technology and we can make it over the next X amount of months.
David Deans, Cisco Systems:
One phenomenon that seems quite common is you’ll find the IT leadership continues to find articles in the media or very establishes sources that indicate that there are risks. One of my favorites is, “Security with Cloud Computing and Adopting Third Party Cloud Services.”
If you actually go back four decades to the beginning of computing, we actually had a model called “Time Sharing” where people’s corporate data and various other proprietary information was being stored by a third party and was being portioned in that system away from other users of that time sharing service.
So just as we were able to overcome those kinds of concerns in the past. Of course those four decades of experience along those lines have enabled us to overcome most of the security concerns regarding the application of cloud computing services.
But there’s a common occurrence of the IT leadership consistently bringing up a litany of reasons not to proceed with cloud services. It’s really difficult to overcome that resistance. I think embracing a hybrid model where you’re utilizing both internal IT resources and external shared resources requires an open mind. There’s really no way around that if you are adamantly opposed as an IT leader to using outside resources then cloud computing is doomed to fail in your environment because you have to have an open mind.
A simple analogy I like to use is, to go back many years ago, and it was quite common for people to change the oil in their car and then when the services evolved to really be able to accomplish that task, that routine task in such a way that really most people had no intention of changing the oil on their own vehicle. They gave that task to someone who can again, truly deliver that capability cheaper, faster, better and people just typically don’t do it themselves.
However, there’s a certain segment of the market place, the automobile aficionado if you will, that will never let anyone else put their hands on their automobiles and they feel compelled to do even the most rudimentary tasks themselves.
I feel sometimes that people, CIO or the IT Director-level approach business technology from the same point of view. They are so intimately involved with that technology that they cannot separate the utility function from the strategic function. I think the trend is so compelling, both to businesses and to IT leaders who have an open mind that it’s not a matter of if or when. It’s not a matter of which applications, but how do I manage that hybrid environment that I mentioned earlier, where both internal and external resources co-exist under the same business application technology model.
If you bind to that whole notion that that co-existence is happening, will happen and will continue to happen at an accelerated rate, then one just has to prepare for that. Both mentally, physically, organizationally and business process wise.
