I’m in the middle of the TSW conference here in Silicon Valley. So far, the discussions, presentations, and panels have validated several assumptions related to the impact of cloud computing on technology providers:
- Cloud breaks existing financial models
- Cloud is incredibly disruptive to the current go to market models of the tech industry
- Cloud has the potential to devalue the current service offerings of product companies
- Cloud forces technology providers to “declare” their service intentions. Will they focus on providing technology components to others that provide cloud offerings or will they begin offering value added services directly?
- Customers under immense IT budget constraints are anxious to explore new cloud computing options.
Validation always feels good, but it is the impact of cloud I did not understand that is blowing me away right now.
Welcome to the Age of Cloudprem
We all know about technology companies that sell technology that is installed at the customer site. This is called selling “customer premise equipment” (CPE) and this is what all the traditional hardware and software companies do.
Now, there are more companies that are offering software and hardware that is operated out in a centralized location, and customers connect to it. These are “cloud” providers like salesforce.com and Rackspace.
Over the past three months, I have been comparing the financial models, service portfolios, and value propositions of these two distinct models. We want TSIA members to clearly understand the impact cloud will have on their service business models. What I have not been analyzing is the rapidly emerging blended mode where traditional CPE providers are spinning up cloud offerings. They are turning themselves into “cloudprem” providers. Some of their customers are in the cloud, some of their customers are still consuming on premise software.
The Axeda Case Study
This morning I sat in a breakout presentation by Renee Bochman, VP of Support Services at Axeda. Founded in 2000, Axeda is a leading on-demand intelligent asset management company. They started selling software that was installed on the customer site. Today, they also have a cloud based offering. The creation of the cloud offering was driven by market opportunity and the move has proven very prudent.
However, the move turned Axeda into a cloudprem company. And that is a unique business model to optimize. Renee did a fantastic job of inventorying the specific challenges a cloudprem business must manage related to support and professional services. I encourage every TSIA member to download her presentation after the conference.
The state of Axeda is the state many existing technology companies will soon find themselves—operating both cloud and on premise models for customers. Companies that navigate this hybrid model over the next few years will survive this next shift in how IT capabilities are consumed. Legacy technology companies that cannot sustain this hybrid model over the next few years will find their market share slipping away.
Welcome to Cloudy Skies
- One more stunning fact from the conference. I hosted an executive panel with the following industry representatives:
- Matt Porta, Vice President Technology Strategy, IBM
- Tim Dilley, Executive Vice President, Worldwide Services and Chief Customer Officer, NetSuite
- Watson Wat, Vice President, Technology & CTO Oracle On Demand , Oracle
- Tony Kolish, Senior Vice President, Customer Support Services, EMC
Right now, TSIA estimates cloud computing is capturing roughly 5% of the total enterprise IT market. I asked this panel how fast the capture rate for cloud would be increasing over the next five years. There response was universal: FASTER THAN YOUTHINK. They said that even after you take the hype factor out of the equation, they see customers highly motivated to explore cloud computing to help reduce IT costs. Will cloud have 100% of the IT spend in five years? No. But this panel strongly feels cloud will not be limping along with 10% or 15% of the IT spend. The IT skies are turning grey. Perfect conditions for the growth of cloudprems.