Independent software vendors (ISVs) and system integrators (SIs) will have a wakeup call very soon unless they spend some time contemplating how the cloud will change their strategy. What I am seeing around the world is that innovative ISVs and SIs are eating the lunch of traditional and more established vendors and I expect this trend to continue. This is not just a change from client/server era to cloud architectures; the change will have a tremendous impact on how we consume software and what end user organizations expect ISVs and SIs to deliver. My company is getting requests from very traditional end user organizations to move their solutions to the cloud and this is happening in an ever increasing pace. The most logical move is to move email and document collaboration to the cloud to be followed by accounting if you are in the SMB space.
My professional career started when the mini computers were the hot platform for software development. Mainframes were still very much the main platform for large organizations, but mini computers with HP 3000, Digital VAX/VMS and UNIX grew in market share. It did not take long until client/server architectures grew in popularity and this is the era where I led product development of more than 20 software products in the business intelligence/data warehousing and forecasting/planning domain.
Jumping forward to the cloud era (ignoring some trends such as PC etc.), I have heard many people referring that it is the same thing as mainframe era. In some respect it is, but there are considerable differences as well. These differences have to do with how we innovate and how we build software to be consumed by the outside world. The mainframe era was more contained to services inside the corporation and any outside connection was controlled via physical machines or in some cases pre-determined integration mechanisms. Cloud era will not change this, but it will change the way organizations interact from within the organization to the outside world and how they consume services provided by software vendors.
The cloud era is completely different to any prior era when you view it from software development perspective. The software world (Internet at large) includes a massive amount of services providers that expose services that can be consumed by third-party software development organizations. A good example of this is Microsoft Azure platform and the new services Dallas (codename as of now) that allows developers and information workers to easily discover, purchase, and manage premium data subscriptions. In this case it will be more about data, but it could be anything, anything at all that software vendors are melding into their solution and building a composite application. Gone are the times were small ISVs were focusing on building infrastructure elements/components. I can still remember the times when software vendors were developing infrastructure to enable applications development. I have also been forced to spend money on building proprietary communication protocols based on SNA and TCP/IP as it gave our solutions a competitive edge. This is history and will never come back again.
Is consumer buying behavior also changing how corporations will buy software in the future?
I am tempted to claim that consumers are driving buying behavior in corporate world as well. Executives are now exposed to software solutions on the net and are forcing corporate IT to view the cloud world with applications that are consumed based on use. Executives download apps to their smart phones and get exposed by younger generation how apps are used from the net. The question that many executives might have is why some of the internal applications that are used in the corporation are so clumsy to use and any change to the system takes weeks/months to accomplish. You have probably read in business papers and magazines that sales of traditional enterprise solutions are not growing anymore the way they used to. It could be market saturation, but I also believe that there is a fundamental change in adding solutions that take care of the issue and not try to solve all of the problems in the world. This could be very smart for many smaller vendors that sell high quality packages to enterprises with a price point that is very low. It is about easy buying and I know that large enterprise deals are hard to get in today’s economic environment.
There are still enterprise solutions that will not work in the cloud due to many reasons. It could be due to regulatory issues but I am convinced that with time, regulators and lawmakers will have a wakeup call where any country’s competitiveness is founded on openness and not on closing the borders. With the buying behavior changing, some less complex areas are already making huge progress like an interesting software vendor in the security play called Spectorsoft. The company sells and develops Internet monitoring software for home uses, business, education, and government. Most of the sales happen over the Internet and the software is assumed to be easy to install and to use. This will be the most typical scenario when it comes to software purchase.
Software buying can happen in 30 thousand feet
When you review your own shopping behavior, you will also understand how most solutions will be bought in the future. A few days ago on my flight from Seattle to Dallas on American Airlines, a gentleman sitting beside me was doing extensive search on products and made finally multiple different transactions by using his credit card. This has been made possible with innovation in wireless space where American Airlines provides wireless access for its passengers. It is fascinating to think about the new software era and compare it to the era when I started by software career. We can now sign up for CRM solutions without having to talk or consult the software vendor. We can deploy accounting packages in our company such as Intuit Quickbooks Online and we can manage our daily personal financial lives by using cloud solutions such as Mint.com. We can be sitting in 30.000 feet conducting business without really thinking about it. Another gentlemen that was on the same flight was chatting on Microsoft Office Communicator the entire flight with multiple people whereby he did not miss any working hours as we were flying towards east. He seemed to spend most of our 4 hour flight using the messenger.
My company is run in the cloud and any solution that is not SaaS-based, will not be considered
I run my business in the cloud. We have not owned or managed a single server since I started TELLUS more than five years ago. All of our operations are managed from the cloud such as accounting, email, collaboration, project management etc. I do not consider any new solutions that are not SaaS-enabled and this is the situation with many other organizations as well. The market is moving into “targeted” point solutions where we buy and consume services from the cloud. Integration of these solutions to possible onsite applications needs to happen either in the cloud or in some on-premise integration software tool. Integration still remains a factor that prohibits large organizations to move its operations to the cloud, but there are already numerous different solutions that enable integration between on- premise and off-premise (cloud) solutions. With time and new cloud solutions in the enterprise space, integration issues will become easier and new standards and interfaces for integration will emerge.
Maybe not this year or the next, but I am convinced that solutions will be based on “good enough” concept where organization buy solutions they consume on the need, and not on the “elephant” model we have been used to. A typical ERP project with customizations will probably be forgotten in the future and workflows and processes will be built in a new way that does not take down the company from both cost and labor perspective.
Large organizations with ongoing cost cutting can stifle innovation
What makes the new cloud ecosystem interesting is the innovation that can happen around it. Any software company, anywhere in the world and of any size, can bring new innovation and become something in the new cloud era. Some large organizations have been focusing on cost cutting avoiding risks instead of taking bold moves to create new market entries or new products. One of these fatalities has been Nokia as it has been reported by the press like New York Times recently.
According to the press, Nokia has had many of the ideas and prototypes built that Apple is now riding with, but management has not had the courage to make them to become true. Then on the other side of the spectrum is Apple that is known for bold moves such as iPhone that Nokia positioned to consumer with marginal importance. It reminds me of Nokia’s miss on the Motorola flip-phone market with the results of huge downfall in the US markets. With new leadership by Stephen Elop Nokia is trying to change its course. The change has already started by two senior executives leaving the company. The first announcement was when Nokia smartphone head Anssi Vanjoki decided to leave. The second noticeable departure was last week by Mr. Ari Jaaksi, the leader of MeeGo platform. I am sure we will hear more news in the upcoming weeks of additional changes. The incumbent Apple has also been able to put many established smart phone vendors in disarray and the rise of Android phone software platform will give additional grief to all vendors, including Apple.
Software is everywhere and software will be embedded in our daily lives.
I expect the software market to bring new innovative solutions that combine the cloud with smart devices that communicate to the cloud. This will create new opportunities for ISVs around the world and the winners will be the ones that are innovative and create new solution areas and products. Software is part of our lives already today and will continue to be even more so in the future. Embedded software will continue to rise in importance which will also create new opportunities for rising ISVs around the world.
One of the leading software development tool vendors MetaCase has been able to penetrate the embedded software space with its innovative domain-specific modeling tool that enables more effective variation of software products from a platform. This type of software product line engineering will also be of great importance to enable rapid variation of embedded software solutions and still maintaining the quality of the end product.
A couple of weeks ago I had TXU Energy install two new thermostat controllers to my house that enables me to control heating and cooling in our two story house. We have two cooling units and each of them can now be controlled from the Internet and enables us to save hundreds, if not thousands of dollars each year. The temperature in Texas is brutal in the summer so any optimization of cooling has a big impact on our electricity bill. I can create multiple profiles based on our family patterns (when we are in and out) and the system feeds information to the cloud and the cloud provides me information how to optimize my electricity consumption. This is a terrific example of intelligent use of web services, where I have much better handle of my daily/weekly/monthly electricity use.
Another example of smart devices is Fitbit device that enables me to track and control my calories burnt, steps, distance and sleep quality automatically. Whenever I am close to my laptop with the Fitbit device, it automatically loads data of my daily movement to the cloud. I can compare other people in the same age and get additional information of my health based on real data, and not on some assumed numbers that I have estimated. This is made possible by intelligent and embedded software that is becoming even more relevant in the future.
Cars are full of software devices and embedded software. My son and wife has a Ford car and both of them have Microsoft Sync that enables automated synchronization of music playlists, phone books and hands free phone use when driving. The system also provides information about vehicle health, business search, traffic alerts, 911 assist and many other things. All this is managed by GPS, wireless and Internet technology.
Software ecosystems with cloud will change ISVs whether they want it or not.
Some software domains have been slow to move to the cloud space, but this is also changing and I will be writing another blog entry of this topic very soon. One of these domains is business intelligence/data warehousing space. There as some challenges in the BI/DW arena concerning the cloud, but many of these perceived obstacles will hopefully go away sooner or later with new innovation and solutions.
Some ISVs in smaller countries/regions have been protected from competition, but the cloud will also change this slowly but surely. There will always be new software vendors (ISVs) that are soliciting business across borders and many organizations are willing to test out new solutions even if they do not know anybody from the software company. Yet again, watch your own behavior when consuming web services/solutions. Do you really care where the solution is from? The only thing you might want to make sure is that the SaaS/Cloud vendor has an option to take backups of the data to a local environment in case the vendor disappears from the marketplace.
ISVs can’t avoid developing for the cloud anymore. I am surprised how some enterprise vendors and SMB ISVs defend their turf by concluding that cloud is not an option in their software world. Not only are these conclusions wrong, they might be lethal for the company when considering the future. According to research, cloud adoption is accelerating specifically in the US market and if old trends are intact, rest of the world will see similar kind of growth as well.
Another clear trend that I have noticed is that organizations do not care anymore to have hugely complex applications/solutions and prefer to buy user friendly solutions that can be quickly deployed. I am convinced that the famous multi-year ERP deployment era is gone and organizations require solutions that can be easily purchased and quickly deployed. What ISV organization have to recognize is that the perception of solutions is changing whether we want or not and the price points and the usability and deployment is change forever. It will still take a few years for most organizations to move towards consumption-based software world, but it will happen as we have seen in so many cases.
If you are an ISV, you do not want to miss this window of opportunity to be innovating something new and get your footprint in the market. Does your company have a strategy for the cloud yet? If you don’t, you should take action now before your competition will eat into your market share.