This blog examines the business implications of IT service trends ranging from software-as-a-service (SaaS) and cloud computing to managed services and other on-demand services.

February 13, 2010

Microsoft Poised to Regain Momentum in 2010

In my latest column for E-Commerce Times, I suggest that “once again, Microsoft may be a late entrant in the market with a set of solutions that lag those offered by today’s industry innovators, but it is still in a good position to regain its momentum and become a dominant force in the rapidly evolving cloud computing marketplace.”

Click here to read why.

January 22, 2010

Microsoft-Intuit PaaS Marriage in the Clouds

This week’s announcement that Microsoft and Intuit are linking their respective Platform-as-a-Service (PaaS) capabilities has attracted lots of attention and generated plenty of speculation. It is also the latest escalation of the PaaS wars I predicted would take center-stage this year.

Although Salesforce.com’s Force.com PaaS has gained the lion’s share of industry attention because of the company’s unparalleled marketing machine, I’ve felt that Intuit’s Partner Platform (IPP) represented a dark-horse in the PaaS race because of the vast installed base of small- and mid-sized businesses (SMBs) using Intuit’s QuickBooks and QuickBase, along with its powerful channel relationships.

I’ve also believed that Microsoft would make considerable progress in penetrating the cloud computing market this year, not because of the technical capabilities of its Azure PaaS, but because of its historical prowess in building a vast partner network of ISVs and developers.

With those thoughts in mind, here’s my take on the strategic business implications of this alliance,

  1. Both companies are aggressively attempting to catch up to Salesforce.com’s Force.com PaaS initiatives both in terms of mindshare and marketshare. Both companies want to quickly expand their reach into the ISV/developer community to strengthen their competitive position in the PaaS market. (Disclosure: I’ve written a series of whitepapers on behalf of Salesforce.com regarding the Force.com capabilities.)
  2. Both companies also want to demonstrate the ‘openness’ of their PaaS capabilities to offset the alliances which Salesforce.com has made with Amazon, Google and Facebook, and capitalize on accusations that Salesforce.com’s Force.com PaaS is limited because it is built on a ‘proprietary’ language.
  3. Gaining greater market penetration via access to the other party’s installed base of customers and partners is a given, but capitalizing on their respective functional capabilities and channel relationships is important.
  4. Intuit is primarily seeking to make its IPP more attractive to developers by expanding the functionality it can provide its PaaS users. Adding Microsoft’s development and collaboration tools, including the Business Productivity Online Suite (BPOS) which consists of SharePoint Online, Communications Online, Exchange Online, and Office Live Meeting gives developers greater functional capabilities to satisfy their customers’ needs.
  5. Microsoft is primarily interested in adding the service management capabilities embedded in Intuit’s Partner Platform (IPP) which include service provisioning and monitoring, along with pay-as-you-go billing and pricing. Adding these capabilities makes Azure more relevant to developers from a business perspective.

While this alliance is squarely focused on small businesses, it could also appeal to the regional offices or small divisions of larger enterprises. It could also attract crossover opportunities in the consumer market, especially when you consider the growing influence of consumerization in the corporate world.

But, most importantly it could open new opportunities within traditional channels and create new channel opportunities for cloud services and vendors. Salesforce.com, Google, Amazon and Facebook have not made much progress penetrating the channel and will face serious challenges gaining the trust and confidence of traditional channel organizations who feel threatened by the cloud computing phenomenon. Intuit and Microsoft can leverage their established relationships with key channel companies to overcome their concerns.

This alliance is the most recent in Microsoft’s escalating efforts to regain its dominant position in the software market which has been quickly slipping away with the accelerated growth of SaaS and broader cloud computing services. Microsoft also announced earlier this month that it is teaming with HP in a three-year, $250 million initiative to develop and deliver a new generation of cloud-based solutions.

Conspiracy theorists will also point out that Microsoft announced last June that it is discontinuing its Money software service, which leaves a convenient gap for Intuit to fill with its QuickBooks solutions.

While ‘coopetition’ is not a new idea or business practice in the tech industry, this week’s Microsoft-Intuit alliance is certainly an important new test of the concept. Whether this proves to be a win-win relationship or simply a Machiavellian maneuver by these companies remains to be seen.

It is also important to note that this isn’t a mutually exclusive alliance. Microsoft is already working with Amazon, for instance. In fact, it will probably spark additional discussions and agreements with the other players by both parties.

January 5, 2010

Redefine Your Business, Redefine An Industry

Google’s new Nexus One Android phone has created a lot of buzz as a ‘game-changer’ in the smart-phone business. Many believe this device, and Google’s new business model which supports it, could redefine the phone industry.

It is always exciting to witness a company challenge the status quo in an established industry by offering a bold new value-proposition to customers.

Yet, most companies have responded to today’s economic malaise and extended downturn with a risk-adverse, reflective stance which has manifested itself in more aggressive cost-cutting strategies rather than more innovations.

I can’t blame them for shying away from the innovation tact. The cynic in me also recoils from the business pub jargon which would have us believe that any company can adopt a bold strategy to recreate themselves in this type of environment.

However, there is plenty to be said for taking this risk and attempting to redefine your business in such a way that you also redefine an industry.

When Apple was struggling to stay alive in the computer business, it decided to recreate itself into a media distribution company, and look at what iTunes, iPod and the iPhone have produced. They’ve redefined the music, movie and broader entertainment industry while also breathing new life into its core computer business.

Or, when Amazon was trying to elevate itself above the clutter of web-based retailers, it rediscovered its roots as a distribution company and started selling processing power by the ‘drink’, giving birth to the cloud computing business. In turn, Amazon Web Services (AWS) has redefined the IT industry.

Apple and Amazon set out to disrupt markets when they were first born, but their originally targets were the computer and retail markets, not media and IT.

While both of these companies had the advantage of bold leaders and plenty of brain-power to push them into new markets, they still represent compelling case study examples for others to emulate.

Let me know of other companies you think fall into this category of innovators, or if you’re looking for help redefining your business and industry.

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January 3, 2010

Key Competitive Battlefields in the Clouds in 2010

As the new year and decade get underway, here are a few of the areas of the cloud computing market which I think will be important competitive battlefields for established and emerging players:

  1. Collaboration Wars: Collaboration is the ‘killer app’ in the Software-as-a-Service (SaaS) segment of the cloud computing market. The rapid adoption of Google Apps has demonstrated the latent demand for these web-based solutions. Now, IBM is promoting the enterprise-class qualities of its LotusLive offering to win a share of the market. Cisco Systems is also intensifying its efforts to promote its collaboration solutions built around WebEx and Telepresence. I also think Microsoft will accept a greater level of cannibalization of its Office products to win a bigger share of the collaboration market with OfficeLive.
  2. Business-Oriented Social Networks: These are closely linked to collaboration and have gained a tremendous amount of attention because of the explosive growth of Facebook and Twitter. Although many corporate executives are still uncertain about how to harness social networks, Salesforce.com’s introduction of Chatter at Dreamforce clearly shows that offering an enterprise-class solution can create a competitive advantage.
  3. Platforms-as-a-Service Wars: Salesforce.com will continue to push its Force.com PaaS capabilities hard. And, Google App Engine will continue to be a popular development environment with start-ups and tech heads. But, I think Microsoft Azure will experience surprising success in 2010 because the company has a better understanding of how to work with third-party developers and is less likely to create channel conflicts because it would prefer not to develop and deliver its own SaaS solutions. There are also plenty of niche PaaS vendors who will be acquisition candidates in 2010.
  4. Cloud Governance: HP, IBM and an assortment of niche players are capitalizing on the lack of unified management systems for cloud computing services. While price competition threatens to commoditize raw Infrastructure-as-a-Service (IaaS) offerings, management vendors that can help the IaaS providers and their customers monitor and control their cloud resources will gain a competitive advantage. HP and IBM are realigning their legacy management portfolios to address these needs. A proliferation of niche players are also seeking to win a share of the market, especially focused on single sign-on and access control.
  5. IT and Service Management: IT professionals are learning about how SaaS-based management solutions can help them do their day-to-day jobs more cost-effectively. In response, a plethora of new web-based players are emerging and established players, such as BMC and CA, are shifting their attention toward SaaS-based solutions. Salesforce.com has also helped to bring greater attention to the ’service cloud’, where other SaaS companies like RightNow and Service-now.com are experiencing rising demand.
  6. Communications-as-a-Service (CaaS): HP and Cisco Systems are on a collision course to compete for unified communications enablement opportunities among service providers and end-user organizations, large and small. Unified communications has been an ideal for over a decade, and now cost-effective, web-based solutions are becoming a reality. CaaS can also be a key enabler of end-to-end enterprise collaboration solutions.
  7. eHealth and Energy Management: With the Obama administration promising to plow billions of dollars into modernizing healthcare systems and everyone trying to reduce the cost of their ‘carbon footprint’, these segments of the market are ripe for SaaSification. Brand-name corporations, as well as a new generation of web-based ventures, will ratchet up their efforts to win mindshare as well as marketshare offering cloud-oriented services to address these important issues.
  8. Millennials and Generation Z: Companies positioning themselves for the longhaul are already trying to win the hearts and minds of our children. Apple has converted years of cultivation work within the classroom into a new generation of corporate workers who prefer Macs over PCs. Google is attempting to do the same by encouraging public school systems and universities to use its Apps. Although many kids use Microsoft’s Xbox, few have any allegiance to Microsoft Office and are adopting Google Apps. Other vendors will try to follow Apple and Google’s lead into the classroom.

Escalating cloud computing battles in these areas will also fuel additional acquisitions by established players seeking to accelerate the rollout of new services and penetration of new markets. Oracle and Cisco have been active acquirers for years. Salesforce.com will likely make additional acquisitions and continue to be a target of acquisition speculation as well.

I also think SAP will make a substantive SaaS/cloud acquisition in 2010, in an attempt to overcome some of the internal obstacles which have prevented it from successfully rolling out its BusinessByDesign solution. An acquisition could also offset the growing success NetSuite has had nimbling away at the SAP customer base.

Let me know if there are other important competitive battlefields I missed.

December 27, 2009

A SaaS/Cloud Computing Scorecard for 2009

Since 2009 is coming to a close, I thought it would be a good time to review how I did with my predictions for the year regarding the Software-as-a-Service (SaaS) and cloud computing market.

1. On-Demand Services Move From Why To How

According to a Sandhill.com/McKinsey survey of over 850 enterprise customers at the end of 2008, 74% were already favorably disposed to adopting SaaS platforms. As a result, Gartner estimates the SaaS market will have reached approximately $8 billion at the end of 2009, a 21.9% rise from $6.6 billion in 2008. Looks like folks have moved past “why” SaaS to “how” to get the most out of their SaaS deployments.

2. New Hybrid Models

The idea of hybrid SaaS and cloud computing models has been abhorred by industry purists, but the reality is that nearly every business will rely on a combination of on-premise and on-demand resources. In 2009, the concept of “location independence” became bi-directional. It not only means that businesses can move their software and systems to the cloud, but they can now also deploy SaaS and cloud computing solutions behind their firewalls via appliances or ‘applets’. This will enable them to meet their business requirements and satisfy their psychological biases. More importantly, it will exponentially expand the addressable market for SaaS solutions and cloud computing services.

3. Short-Term Slowdown, Long-Term Growth

This is not an easy one to quantify because many SaaS/cloud computing businesses are privately held or operate within bigger companies. However, the publicly-traded SaaS players saw continued albeit slower growth. As the VCs like to say, “flat is the new up!”

4. VC/PE Retrenchment

The VCs were also very concerned in 2009 about how they spent their “dry powder”. As a result, they invested in fewer start-ups and only “topped off” a handful of existing SaaS/cloud computing portfolio companies who they believe hold the greatest promise of a solid exit. The most notorious casualty of this strategy in 2009 was LucidEra, who pioneered the SaaS business intelligence (BI) market, but was not able to generate enough sales to win a new round of funding.

5. Industry Shake-Out and Consolidation

There were many other examples of company failures and acquisitions to illustrate the consolidation and shake-out of the SaaS and cloud computing industry. For instance, Xactly acquired Centiveand Makana Solutions disappeared in the sales compensation segment of the market. NetSuite also acquired and merged together OpenAir and QuickArrow in the professional services automation (PSA) market. 

6. Acquisitions/Alliances Accelerate

There were also a number of interesting alliances initiated in 2009. One of the most innovative was Intacct’s partnership with the American Institute of Certified Public Accountants (AICPA)and its subsidiary CPA2Biz who named Intacct as its preferred provider of financial applications. This alliance gives Intacct access to a vast network CPAs who can serve as referral agents. It also gave the SaaS and cloud computing movement an important endorsement among one of the most conservative yet influential professions.

7. Focus On The Channel

The AICPA/Intacct alliance was just one of many new channel arrangements in the SaaS and cloud computing market. A number of SaaS vendors also launched or expanded their VAR programs in 2009. The most newsworthy was Salesforce.com’s new VAR program aimed at broadening the company’s reach beyond its direct sales team.

8. The Google Generation Becomes Mainstream

Google intensified its focus on cultivating a new generation of office workers via its free Google Apps for educators and the government. It is also teaming with Verizon to offer Android-powered cellphones to capture a share of the market and compete against the iPhone tidalwave.

9. Software/Business/Information/Managed Services Convergence

The convergence of software, business and information services has been evolving for a while. The best example of how this process is manifesting itself is Thomson-Reuters’ use of Salesforce.com’s Force.com platform to create and deliver a new wealth management service to its customers. ConnectWise has also emerged as a major proponent for SaaS and cloud computing in the managed services arena to make it easier for IT workers to do their jobs.

10. Obama Policies Promote On-Demand Services

President Obama’s CIO, Vivek Kundra, told the Wall Street Journal in March 2009, “I’m all about the cloud computing notion. I look at my lifestyle, and I want access to information wherever I am. I am killing projects that don’t investigate SaaS first.” In September, Kundra followed through on his promise to foster the use of on-demand services in the federal government by launching a new online marketplace of SaaS applications and cloud computing services, www.apps.gov.

Looks like I did pretty well with my predictions. Of course, I wouldn’t be reviewing them if I knew I had done poorly!

With my past success now behind me, I’ll post my predictions for the new year and decade ahead soon. Stay tuned.

November 27, 2009

Daydreaming About the Cloud and Salesforce.com

As I recover from yesterday’s Thanksgiving festivities, I’ve been struck by two thoughts regarding last week’s Dreamforce conference,

  • Salesforce.com’s new Chatter social computing functionality may be a defensive as well as proactive move.
  • An acquisition of Salesforce.com by Oracle may be a friendly maneuver rather than a hostile takeover.

As I reported in my previous blogpost, Salesforce.com’s introduction of Chatter last week at Dreamforce was met with mixed reviews. Many customers, partners, analysts, press and even internal staff and salespeople were uncertain about the company’s goals and capabilities in this new area.

I believe that building an ‘enterprise-class’ social networking component makes sense and adds a timely new dimension to salesforce.com’s fundamental functionality.

Marc Benioff justified salesforce.com’s move by claiming in his keynote address at Dreamforce that neither Facebook nor Twitter were willing to fortify their services to meet the needs of enterprise users.

But, what if this isn’t true? What if Facebook and Twitter could add a contact database, tracking mechanisms and other features to their services in the future to meet the needs of enterprises? Would today’s consumer-oriented, social networking sites become tomorrow’s corporate customer relationship management (CRM) systems?

Changing the focus of a consumer-oriented online service is possible. Apple is quickly converting its consumer-oriented iTouch into a powerful business-oriented iPhone with thousands of add-on apps from a widening array of third-party developers.

And, IBM is also moving in this direction with LotusLive, transforming the company’s pioneering but dorment on-premise collaboration application into a viable on-demand business service.

So, salesforce.com may not only be responding to growing demand for social networking tools among corporate end-users, but also demonstrating its astute competitive instincts by quickly strengthening its defensive position against future attack from Facebook, Twitter or others in this realm.

On the acquisition front, I’ve been predicting for a couple of years that Oracle would make a hostile bid to takeover salesforce.com to capitalize on the company’s rapid growth and commandeer the growing SaaS movement. I also predicted that Google would be the ‘white knight’ who would come to salesforce.com’s rescue to preserve this important path to the enterprise market.

However, my views have changed over the past month with Marc Benioff’s invitation to speak at Oracle OpenWorld and the publication of his new book, “Behind the Cloud”.

Having Benioff speak at OpenWorld clearly showed that Oracle doesn’t view salesforce.com as a simple competitor. Instead, it illustrated the more complex relationship between the companies.

While Larry Ellison has enjoyed making disparaging remarks about the long-term profitability and viability of the SaaS business model, he has also been very happy to accept salesforce.com’s money as one of Oracle’s biggest database customers.

At the sametime, Benioff is recognizing that he no longer has to play the role of revolutionary to evangelize about the business benefits of SaaS and ‘cloud computing’. Instead, he now knows that it is more important to convince a broader cross-section of enterprise decision-makers – both IT and executive – that SaaS and cloud computing services are not radical ideas and can easily integrate into their legacy environments and enhance their current operations.

This tact exponentially increases salesforce.com’s addressable market opportunity by appealing to a broader array of organizations who may have been too risk-adverse to accept SaaS and cloud computing alternatives if they viewed them as an ‘either-or’ proposition.

With Oracle on the cusp of acquiring Sun Microsystems (depending on the disposition of various regulatory hurdles), it may be ready to make a more aggressive move to consolidate its position in the SaaS and cloud computing marketplace by moving ahead with a salesforce.com acquisition.

I no longer believe Benioff would resist such a move. Throughout his new book, Benioff repeatedly gives Ellison credit for his personal success and the success of salesforce.com. He refers to Ellison as his personal mentor and describes instances in which Ellison’s decisions helped salesforce.com overcome critical challenges.

So, if Benioff doesn’t view Ellison as an adversary will he be willing to risk the future success of salesforce.com by accepting an Oracle acquisition. It won’t be his decision. If Oracle offers a good enough price, Benioff is obligated to accept it.

The question is now whether Google, Cisco Systems or another company will try to outbid an Oracle offer to enhance their own position in the SaaS and cloud computing market.

November 7, 2009

Making Connections at the ConnectWise Partner Summit

I was invited to attend the fifth annual ConnectWise Partner Summit in Orlando this past week and was surprised to discover that it has become one of the premier meeting places for aspiring Managed Service Providers (MSPs) and industry enablers.

I was also impressed with the amount of attention ConnectWise’s executives, other event speakers and sponsors, and the conference attendees gave to the convergence of Software-as-a-Service (SaaS), managed services and cloud computing.

ConnectWise may not be a household name in the SaaS or cloud computing markets, but it is a key player in the managed services arena. Although ConnectWise calls itself a professional services automation (PSA) provider for IT professionals, its software also helps them manage their helpdesk operations and sales processes. 

ConnectWise’s solutions are typically used by IT service providers, including VARs and MSPs, and it has built its success on a highly leveraged partner strategy. Its software is enhanced by and embedded with nearly 3000 third-party developers, vendors and service providers. In fact, the company’s partner strategy has succeeded in permitting ConnectWise’s solutions to support over 32,000 organizations via these partners, with a staff of less than 200. Approximately 40 companies were on display at the Partner Summit, ranging from small, niche players to Cisco, Intel, Xerox and Google.

Google’s presence at this event was particularly interesting. Although the Google representatives were primarily promoting its current Apps capabilities, it was obvious that they were also laying the groundwork for a broader array of cloud-services aimed at MSPs in the future. The attendees I spoke with already see Google affecting their businesses, most notably the organic growth of Gmail which is threatening to commoditize their managed email services.

The treat of commoditization was high on everyone’s agenda and to ConnectWise’s credit they scheduled Chris Anderson, editor of Wired Magazine and the author of the Long Tail and Free, as one of the keynote speakers to discuss the strategies to survive the ‘freemium’ phenomenon.

The company’s co-founder and CEO, Arnie Bellini, has also become an evangelist for the power of the ‘cloud’ and opportunity to leverage SaaS solutions to permit VARs to migrate their businesses to managed services and enable MSPs to survive in an increasingly competitive market. He gave a convincing opening presentation about how rapidly changing customer needs are dictating a migration to the cloud and driving ConnectWise’s SaaS strategy.

He has not only positioned ConnectWise as a partner-friendly vendor, but as a facilitator of industry best practices via a combination of online resources and regional user groups.

He also demonstrated during his opening talk the company’s willingness to admit to its shortcomings by showing the results of a recent customer satisfaction survey which identified areas where it could clearly improve.

It was obvious that his candor and the company’s efforts to improve the quality of its products and services, along with its partnership approach, have won it tremendous good-will in the industry.

As a result, ConnectWise has succeeded in putting itself at the epicenter of the managed services industry and its Partner Summit has become the ‘go-to’ event for many of the attendees I met.

The energy at the Summit reminded me of Salesforce.com’s Dreamforce conference. And like Salesforce.com, ConnectWise is rapidly increasing its partner network by opening up its application program interfaces (APIs) to third-parties. The importance of the partner network as an influential channel to market was reiterated by the company executives who I met from HTG Peer Group, CoreConnex, SonicWall and Reflexion Networks.

Both companies also have bold and candid evangelistic CEOs who see themselves leading a revolution. Marc Benioff has become the poster-child for SaaS and the Cloud. In ConnectWise’s case, Arnie Bellini is becoming the spiritual leader of the “IT Nation” and MSP community.

For me, this event represented the convergence of the SaaS, cloud computing and managed services worlds. The Summit was also further proof that the world is moving rapidly in this direction because these on-demand alternatives are increasingly generating tangible and measurable business benefits for customers and providers alike.

August 26, 2009

Amazon Validates Private Clouds

One of the most controversial aspects of the rapidly evolving cloud computing market among industry insiders is the idea of ‘private clouds’.

Purists insist that cloud computing is all about exchanging legacy, on-premise, inhouse IT resources and functions with online, shared resources via the Internet (i.e., the ‘cloud’).

While this is the origin of the cloud computing concept, a variety of forces have conspired to create an alternative approach referred to as ‘private clouds’.

These include valid customer concerns regarding privacy, security, reliability and performance; along with proprietary concerns among various hardware and software vendors seeking to usurp some of the spotlight away from cloud upstarts like Amazon, Google and Salesforce.com.

In addition to the sourcing and marketing forces fueling the idea of private clouds, there are various debates regarding the technical implementation of private clouds which have raised questions about the viability of this idea.

Just as it pioneered the practical deployment and delivery of public clouds, Amazon Web Services (AWS) is now taking the lead in offering ‘virtual’ private clouds as well.

Anyone who shares my background and experience in the telecom world, can easily see the parallels of today’s AWS announcement with the evolution of the virtual private network in the 1980s to meet the peculiar needs of individual organizations.

Numerous members of the AWS ecosystem have been offering enhancements to its public cloud capabilities to make it more palatable for enterprises to use individually in a safe and secure fashion. Now, AWS is lending more of its resources and reputation to extend their capabilities further to meet users’ unique requirements.

This move will stimulate more customer interest in cloud computing and spark more competition among legacy vendors seeking to legitimize their private cloud efforts.

July 13, 2009

Google and Microsoft’s Duel In The Clouds

Much has been written regarding Google’s latest challenge to Microsoft–its announcement last week that it plans to unveil a new operating system (OS) in the second half of 2010.

There is no question that Google’s ambitious plans can have a significant impact on the computing world. And, because computing has become an integral part of everyone’s day-to-day world, the Google-Microsoft war deserves plenty of attention, even in the mainstream media and among Main Street businesses.

However, it shouldn’t come as any surprise that Google would move in this direction. It has been nibbling away at the edges of Microsoft’s fortress for a number of years.

Google Desktop does a better job finding files within Micrsoft Office than Microsoft’s own software. Gmail is easier to use than Outlook. And, Google Apps have become a viable alternative to Microsoft Office within a growing number of businesses, non-profit agencies and governmental institutions.

Even more importantly, Google has been making a concerted effort to penetrate the education sector in the same way Apple did over the past three decades to win the hearts and minds of a new generation of computer users–college, high school and middle-school students. Their teachers are even bringing Google Apps into the classroom unilaterally to encourage greater collaboration and make it easier to track school-work.

Despite the fact that many of these same kids grew up with Microsoft Xbox, Microsoft has failed to convert their affection for its games, which are increasingly played online, into any real allegiance to Microsoft’s Office or OS.

So, while Microsoft has been obsessed with derailing Google’s dominance in the search business, Google has been equally focused on dislodging Microsoft from its OS and office ‘productivity’ perch.

Since Microsoft now appears to be making some headway in attacking Google’s core search business with its new Bing search engine, Google figures the time is right to ratchet up its efforts to attack Microsoft’s core OS business as well.

Since last week’s announcement, some analysts have questioned whether the world needs another OS. Widespread dissatisfaction with the costs, complexities and security issues associated with Microsoft OS, applications and Internet Explorer has left the door wide open for a viable alternative to emerge.

Other commentators have questioned whether Google can truly disrupt Microsoft’s monopoly. Industry statistics already show a decline in Microsoft’s marketshare as a result of greater acceptance of Open Source Linux and Apple OS. Yet, neither can be considered as potent a potential competitor as Google.

The recent decline in Microsoft’s quarterly revenues and profits may be another indicator that customer defections are on the rise, and the market shift toward web-based, Software-as-a-Service (SaaS) and cloud computing alternatives.

In the late 60’s, few people took Japanese cars or electronics seriously. Today, American automakers are struggling to survive, and there are no major American electronics companies making their own equipment.

The Japanese auto and electronics manufacturers outflanked their American counterparts by producing simpler, more reliable and less expensive products. They also adopted more streamlined manufacturing, distribution, marketing and sales operations. But, most importantly they were willing to be patient, establishing a ten-year plan to achieve their long-term business objectives.

Google is also promising to deliver a simpler, more reliable and less expensive alternative. It has also put a long-term plan in place. However, don’t be surprised if it rolls out its new Chrome OS before the late 2010 due date.

I suspect that many of the technical aspects of the new OS are already being tested and could easily be delivered before the second half of 2010. However, Google knows that its biggest challenge isn’t perfecting the technology, it is putting the right skills and mechanisms in place to properly support corporate customers.

Organizations will not migrate to a new OS until they are convinced that the vendor is fully prepared to support them. Google’s executives acknowledged that they must do a better job of convincing customers that they can support their needs by putting an end to their “Beta” branding of their Google Apps. Businesses don’t want their day-to-day operations to depend on half-baked applications or operating systems.

So, in the end, Google’s success will depend on putting together the right combination of technical and organizational capabilities to satisfy corporate customers. Google’s new OS doesn’t have to be more sophisticated. It just has to work better.

After all, no one ever accused Microsoft of having the best OS either. It just happened to have the best business model for the past thirty years.

But, the times and customer requirements are changing.

The on-premise world is giving way to an on-demand environment in the ‘cloud’. Packaged applications and proprietary systems are being replaced by Software-as-a-Service (SaaS) and cloud computing alternatives.

As a result, a changing of the guard is also likely.

May 17, 2009

Is Google Gumming Up the Cloud Computing Movement?

Google’s latest service outage this past week generated a new round of attention and debate regarding the viability of the ‘cloud computing’ movement.

Although Google’s service disruption raises legitimate concerns about the reliability of today’s web-based solutions, the extent of the press coverage also demonstrated how pervasive the cloud computing movement has become.

The incident was not only reported and analyzed in the IT trade pubs, but in all the major business journals as well. This level of coverage clearly shows that SaaS and cloud computing are no longer peripheral trends, but have become popular alternatives to legacy software and traditional systems.

Another indication of this trend is the latest market forecast from Gartner, who I like to call a ‘lagging indicator’, which predicted last week that the SaaS market will equal $9.6 billion by the end of 2009, a 21.9 percent jump over 2008 revenue of $6.6 billion. Gartner forecasts that the SaaS market for the enterprise application markets will total $16 billion in 2013.

These forecasts come even as Gartner estimates that overall IT spending will decline 3.7 percent in 2009, and spending on IT hardware, including client computing (PCs), servers, storage and printing systems will drop 14.9 percent this year.

Gartner’s rationale for its SaaS predictions echo what THINKstrategies has been reporting for a long time. Yet, they are still hedging their bets when it comes to SaaS adoption in backoffice areas, such as ERP, despite the recent financial results of companies like NetSuite and Plex Systems.

Nonetheless, the latest outage at Google raises a new round of concerns among IT and business decision-makers who remain uncomfortable relying on third-parties for their day-to-day enterprise application or computing requirements.

In my view, these are legitimate concerns but should not prevent organizations of all sizes from ultimately adopting SaaS solutions and cloud computing services. McKinsey has produced an interesting comparative analysis of the total cost of ownership (TCO) or inhouse data centers versus SaaS and cloud computing alternatives.

I remain convinced that an honest self-assessment by IT and business decision-makers will lead to the realization that their data center reliability, security and performance palls in comparison to today’s leading cloud computing vendors. In addition, a thorough evaluation of their time-to-market, flexibility, TCO and ROI would also clearly favor the rapidly evolving SaaS and cloud computing alternatives.

Google reported that its outage was caused by ‘human error’, which is often at the heart of corporate data center disruptions as well. IT and business decision-makers have to determine how often and how long their organizations have to withstand these problems when their inhouse staff is to blame, and are their remedies any better than they would be if they turned to an outside vendor via SaaS or cloud computing. As I’ve stated before, this becomes a quality of support rather than a reliability of service issue.

In response to concerns regarding the quality of cloud computing support, my sources tell me that Google is rapidly hiring additional support people and significantly enhancing its enterprise support capabilities. 

While the SaaS industry has gained broad-based acceptance because of its relatively mature ‘packaged’ applications, the cloud computing sector still has a long way to go to win an equal level of adherents among mainstream organizations.

I had the privilege of participating in Cloud Slam ‘09, a virtual conference, on the state of the cloud computing movement last month. Click here to see and listen to my views on the state of SaaS and cloud computing, and the steps to success in making these markets mainstream.

You can also learn more about the cloud computing market this August when I’ll be chairing CloudWorld, in conjunction with Open Source World and the Next Generation Data Center conference, in San Francisco.

This week, I’m off to Las Vegas for Interop where I’ll be attending the Enterprise Cloud Summit and chairing a panel session regarding “SaaS, PaaS, and More”. I hope to see you there.

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