THINK IT Services

Among my predictions for 2009, was that the on-demand services industry will experience a shakeout and consolidation.

I also suggested in a recent post that platform and cloud computing companies which don’t offer a combination of solid enabling technologies plus attractive channels to customers won’t survive the shakeout.

Sure enough, the rumors about the demise of Coghead have come true, and it is among the early entrants to the platform/cloud computing market who are now making an equally early departure.

Coghead may have had terrific technological capabilities, but it lacked a sufficient revenue model to stay afloat in an increasingly competitive market. As a result, investors were unwilling to continue to fund the company and it had to discontinue operations.

The primary reason Coghead couldn’t generate sufficient revenue to stay alive was that it didn’t offer enough value to attract adequate customers. It was a classic ‘Catch 22′ situation – not enough customers bought into Coghead’s value proposition and as a result not enough customers were willing to buy its solutions.

However, it didn’t take long for SAP to capitalize on the situation and acquire Coghead’s assets and a handful of its engineers for a fraction of its paid-in valuation.

The asset sale gives SAP much needed insight into the engineering requirements to play in the Software-as-a-Service (SaaS) and broader cloud computing market.

It comes at a time when SAP openly admits that its internal efforts to develop and deliver a viable SaaS solution are being retooled.

The acquisition of the Coghead technology and engineering team alone will not rectify SAP’s SaaS struggles. But, if this is the first  in a series of acquisitions and alliances, which I referred to as the ‘tugboat strategy’in 2007, it could begin to give SAP the new perspective and skills the company desperately needs to get its SaaS and cloud computing efforts turned around and back on track.

The best indication of whether SAP is serious about its intentions in the SaaS and cloud computing market is if it makes more of these opportunistic acquisitions in the months to come.

Platforms have been proliferating and it is not surprising that there are already signs we may be on the cusp of a shakeout.

Today’s platform players range from start-ups, like Bungee Labs, to Software-as-a-Service (SaaS) and cloud computing movement standard-bearers, Salesforce.com and Google with Force.com and Google App Engine respectively.

This has created a somewhat confusing array of players and platform alternatives which have been divided into various segments.

This week’s announcement about Salesforce.com’s new “Service Cloud” illustrates the way SaaS vendors are leveraging platforms to redefine their business in order to extend their market reach and strengthen their position in the marketplace.

SpringCM is heading down this same path with its new platform which enables independent developers and resellers to build applications or more easily integrate to SpringCM’s electronic content management (ECM) capabilities.

Platforms enable these vendors to convert their internal technologies into development and delivery mechanisms which can be resold to third-parties.

In Salesforce.com’s case, this means reselling the development code which underlies its core customer relationship management (CRM) and salesforce automation (SFA) application, along with the service delivery infrastructure which supports it. It also means that it can recast its business to include web hosting and customer service.

In the case of Amazon, it is repackaging and repositioning its vast data centers and eCommerce capabilities into on-demand development and storage facilities, as well as a distribution mechanism.

Vendors can also use a strong customer base as the basis of a platform strategy. For Facebook and MySpace, their vast user populations provide developers a ready-made channel to market.

Intuit is seeking to leverage its vast user base and powerful brand equity to attract third-party developers to its new Partner Platform, formerly the QuickBase Development Environment.

IBM, Oracle and Progress Software are promoting a combination of database systems and middleware capabilities to position themselves as platform players.

Adobe has also become a key player because of the pivotal role of its development tools and growing assortment of applications. Of course, Microsoft is trying to play catch up by promising its own development platform, Azure.

Here’s a quick list of the essential ingredients which a platform player has to have in place in order to win a meaningful share of the market,

• Easy to use, ’standards’ oriented development code
• Reliable and secure development environment
• Automated and flexible procurement capabilities
• Name recognition and brand equity
• Customer base and channels to market
• Developer/Partner network

Put together, these assets can create a powerful competitive advantage.  However, if a platform player can’t offer a combination of these attributes they have little hope of survival.

An example of the rising risks facing the weaker of the players is the recent rumor on VentureWire that Coghead is in talks to sell itself to an unidentified buyer after failing to secure Series C funding.

Software vendors, enterprise developers and IT/business decision-makers will need to take a closer look at the long-term financial viability and other business assets of their platform suppliers, in addition to their technical capabilities.

This raises questions about the future of the Cogheads of the world. But, it also suggests that relatively new entrants in the platform market, like Intuit and Apple, could become strong players.

How many of us saw Amazon being a leading platform player and major force in the SaaS/cloud computing market 2-3 years ago?