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Gartner Releases Their Hype Cycle for Cloud Computing, 2012

Enterprises are beginning to change their buying behaviors based on the deployment speed, economics and customization that cloud-based technologies provide.  Gartner cautions however that enterprises are far from abandoning their on-premise models and applications entirely for the cloud.

Based on an analysis of the Gartner Hype Cycle for Cloud Computing, 2012, the best results are being attained by enterprises that focus on a very specific strategy and look to cloud-based technologies to accelerate their performance.  Leading with a strategic framework of goals and objectives increases the probability of cloud-based platform success. Those enterprises that look to cloud platforms only for cost reduction miss out on their full potential.

The Hype Cycle for Cloud Computing, 2012 is shown below:

Cloudwashing and Inflated Enterprise Expectations

While the hype surrounding cloud computing may have peaked, cloudwashing continues to cause confusion and inflated expectations with enterprise buyers.  This just slows down sales cycles, when more straightforward selling could lead to more pilots, sales and a potentially larger market. Cloud vendors who have the expertise gained from delivering cloud platforms on time, under budget, with customer references showing results are starting to overtake those that using cloudwashing as part of their selling strategies.

Additional take-aways from the Gartner Hype Cycle for Cloud Computing include the following:

  • Cloud Email is expected to have a 10% adoption rate in enterprises by 2014, down from the 20% Gartner had forecasted in previous Hype Cycles.  This represents modest growth as the adoption rate of this category had been between 5 and 6% in 2011.
  • Big Data will deliver transformational benefits to enterprises within 2 to 5 years, and by 2015 will enable enterprises adopting this technology to outperform competitors by 20% in every available financial metric.  Gartner defines Big Data as including large volumes processed in streams, in addition to batch.  Integral to Big Data is an extensible services framework that can deploy processing to the data or bring data to the process workflow itself. Gartner also includes more than one asset type of data in their definition, including structured and unstructured content.  The Priority Matrix for Cloud Computing, 2012 is shown below:

  • Master Data Management (MDM) Solutions in the Cloud and Hybrid IT are included in this hype cycle for the first time in 2012.  Gartner reports that MDM Solutions in the Cloud is getting additional interest from Enterprise buyers as part of a continual upward trend of interest in MDM overall.  Dominant vendors in this emerging area include Cognizant, Data Scout, IBM, Informatica, Oracle and Orchestra Networks, are among those with MDM-in-the-cloud solutions.
  • PaaS continues to be one of the most misunderstood aspects of cloud platforms.  The widening gap between enterprise expectations and experiences is most prevalent in this market.  Gartner claims this is attributable to the relatively narrow middleware functions delivered and the consolidation fo vendors and service providers in this market.
  • By 2014 the Personal Cloud will have replaced the personal computer as the center of user’s digital lives.
  • Private Cloud Computing is among the highest interest areas across all cloud computing according to Gartner, with 75% of respondents in Gartner polls saying they plan to pursue a strategy in this area by 2014.  Pilot and production deployments are in process across many different enterprises today, with one of the major goals being the evaluation of virtualization-driven value and benefits.
  • SaaS is rapidly gaining adoption in enterprises, leading Gartner to forecast more than 50% of enterprises will have some form of SaaS-based application strategy by 2015.  Factors driving this adoption are the high priority enterprises are putting on customer relationships, gaining greater insights through analytics, overcoming IT- and capital budget-based limitations, and aligning IT more efficiently to strategic goals.
  • More than 50% of all virtualization workloads are based on the x86 architecture. This is expected to increase to 75% by 2015.  Gartner reports this is a disruptive innovation which is changing the relationship between IT and enterprise where service levels and usage can be tracked.

Bottom line: Gartner’s latest Hype Cycle for Cloud Computing  shows that when cloud-based platforms are aligned with well-defined strategic initiatives and line-of-business objectives, they deliver valuable contributions to an enterprise.  It also shows how Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) are the catalysts of long-term market growth.  The following slide from the presentation  High-Tech Tuesday Webinar: Gartner Worldwide IT Spending Forecast, 2Q12 Update: Cloud Is the Silver Lining (free for download) also makes this point.

Forecasting Public Cloud Adoption in the Enterprise

The economics of public cloud computing are accelerating the pace of change occurring in enterprise software today.

Many of the scenarios that Clayton Christensen insightfully describes in The Innovator’s Dilemma are playing out right now in many sectors of this industry, shifting the balance of purchasing power to line-of-business leaders away from IT.  True to the cases shown in the book, new entrants are bringing disruptive innovations that are being successfully used to attack the most price-sensitive areas of the market.  Winning customers at the low-end and making their way up-market, new entrants are changing the customer experience, economics and structure of the industry.  Salesforce.com is a prime example of how the insights shared in The Innovator’s Dilemma are alive and well in the CRM market for example.  This is an excellent book to add to your summer reading list.

Defining The Public Cloud

The National Institute of Standards and Technology (NIST) have defined the public cloud in their latest definition of cloud computing in their September, 2011 brief you can download here (The NIST Definition of Cloud Computing). The NIST defines public cloud as “the cloud infrastructure is provisioned for open use by the general public. It may be owned, managed, and operated by a business, academic, or government organization, or some combination of them. It exists on the premises of the cloud provider.”   In addition the NIST defines three models including Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS).  Gartner’s definition of public cloud computing is comparable yet includes Business Process as a Service (BPaaS) and Cloud Management and Security.

A quick check of the term public cloud on Google Insights shows the rapid ascent of interest in this area.  A graphic from Google Insights is shown below:

Public Cloud Adoption in the Enterprise 

In the many conversations I’ve had with CIOs and CEOs of manufacturing companies the role of cloud computing comes up often.  There’s a very clear difference in the thinking of CIOs who see their jobs as selectively applying technologies to strategic needs versus those who are focused on compliance and risk aversion.  The former see their enterprises moving to public and hybrid clouds quickly to better integrate with dealers, distributors and suppliers at a strategic level.

The public cloud’s pervasiveness in the enterprise is growing rapidly.  This market dynamic is reflected in the report, Forecast: Public Cloud Services, Worldwide, 2010-2016, 2Q12 Update (ID:G00234814).  Gartner breaks out forecasts into the areas of Cloud Business Process Services/Business Process as a Service (BPaaS), Application Services/Software as a Service (SaaS), Application Infrastructure Services/Platform as a Service (PaaS), System Infrastructure Services/Infrastructure as a Service (IaaS) and Cloud Management and Security Services.  Highlights from the report are presented in the following five areas:

Cloud Business Process Services/Business Process as a Service (BPaaS)

  • Gartner is predicting that BPaaS will grow from $84.1B in 2012 to $144.7B in 2016, generating a global compound annual growth rate of 15%.
  • Of the eight subsegments Gartner is tracking in their BPaaS forecast, Cloud Payments (17.8%) Cloud Advertising (17.1%) and Industry Operations (15.1%) are expected to have the greatest compound annual growth rates (CAGR) in revenues generated by 2016.
  • In terms of revenue generated, Cloud Advertising is projected to grow from  $43.1B in 2011 to $95B in 2016, generating 17.1% CAGR in revenue growth through 2016.
  • Cloud Payments are forecast to grow from $4.7B in 2011  to $10.6B in 2016, generating a CAGR of 17.8% worldwide.
  • E-Commerce Enablement using BPaaS-based platforms is expected to grow from $4.7B in 2011 to $9B in 2016, generating a 13.6% CAGR in revenue globally.

Application Services/Software as a Service (SaaS)

  • SaaS-based applications are expected to grow from $11.8B in 2012 to $26.5B in 2016, generating a CAGR of 17.4% globally.  Gartner tracks ten different categories of SaaS applications in this latest forecast with CRM, ERP, and Web Conferencing, Teaming Platforms, and Social Software Suites being the three largest in terms of global revenue growth.
  • The three fastest-growing SaaS areas include Office Suites (40.7%), Digital Content Creation (32.2%) and Business Intelligence applications (27.1%) having the highest CAGRs from 2011 through 2016.
  • SaaS-based CRM will see the largest global revenue growth of all categories, increasing from $3.9B in 2011 to $7.9B in 2016, achieving a 15.1% CAGR worldwide.
  • Web Conferencing, Teaming Platforms, and Social Software Suites will grow from $2B in 2011 to $3.4B in 2016, generating an 11.2% CAGR.  Gartner is including Enterprise 2.0 applications in this category.
  • SaaS-based ERP is forecasted to grow from $1.9B in 2011 to $4.3B in 2016, achieving a 17.3% CAGR.
  • Supply Chain Management (SCM) is an area that Forrester, Gartner, IDC and others have predicted significant growth in.  Gartner’s latest forecast for SaaS-based SCM is $1.2B spent in 2011 growing to $3.3B in 2016, representing a 21.1% CAGR.

Application Infrastructure Services/Platform as a Service (PaaS)

  • Gartner forecasts the worldwide enterprise market for PaaS platforms will grow from $900M spent in 2011 to $2.9B in 2016, representing a 26.6% CAGR.
  • Growth rates by PaaS subsegment include the following: Application Development (22%), Database Management Systems (48.5%), Business Intelligence Platform (38.9%) and Application Infrastructure and Middleware (26.5%).
  • Application Infrastructure and Middleware is expected to be the largest revenue source in PaaS for the next four years.  Gartner reports this subsegment  generated $649M in 2011, projected to grow to $2.1B in 2016, generating $1.5B in revenue and a 26.5% CAGR.

System Infrastructure Services/Infrastructure as a Service (IaaS)

  • With a projected CAGR of 41.7%, this segment is the fastest growing of the five Gartner included in their public cloud forecast.  From $4.2B in revenue generated in 2011 to $24.4B in 2016, IaaS is expected to grow by just over $20B in the forecast period globally.
  • CAGR by IaaS segment from 2001 to 2016 include Compute (43.2%), Storage (36.6%) and Print (16%).
  • The Compute subsegment is expected to see the greatest revenue growth globally, growing from $3.3B in 2011 to $20.2B in 2016, generating a 43.2% CAGR.

Cloud Management and Security Services

  • Comprised of Security, IT Operations Management and Storage Management, Cloud Management and Security Services generated $2.3B in 2011 with a forecast of $7.9B in 2016, generating a 27.2% CAGR.
  • IT Operations Management (38.2%), Storage Management (30.6%) and Security (23.7%) each have relatively high CAGRs through 2016.

Bottom line:  Of the five areas Gartner includes in their forecast, BPaaS  and its subsegments show trending towards greater support for enterprise-wide transaction and e-commerce management. With 76% of the entire 2012 public cloud forecast being in the BPaaS segment, it is clear Gartner is seeing strong interest on the part of enterprise clients to spend in this area.

Gartner Search Analytics Shows Spike in Hadoop Inquiries in 2012 – Good News For CRM

Hadoop was one of the most-searched terms on Gartner’s website in 2011 through 2012, spiking to 601.8% over the last twelve months alone.  Additional insights from the Search Analytics on Hadoop include the following:

  • 27% of all inquiries are from banking, finance and insurance industries, followed by manufacturing (14%), government (13%), services (10%) and healthcare (8%).
  • North America (75.9%) and EMEA (13.5%) are the two most dominant geographies in terms of query volume.
  • Here is the trend line from Gartner Search Analytics:

What’s driving Hadoop’s meteoric rise in searches is a combination of industry hype about big data, CIOs getting serious about using Hadoop distributions that minimize time and risk yet deliver value, and the dominant role Amazon is playing in bringing Hadoop into the cloud.  Today Amazon offers Elastic MapReduce as a Web Service that relies on a hosted Hadoop framework running the Elastic Compute Cloud (EC2) in conjunction with Amazon Simple Storage Service (S2).

Microsoft also scored a major hiring win this week announcing that Raghu Ramakrishnan, former chief scientist for three divisions of Yahoo is now with Microsoft. Raghu is now a technical fellow working in the Server and Tools Business (STB).  He’ll focus on big data and integration to STB platforms.  Big Data on Azure will accelerate now with him on-board.

Hadoop’s Potentially Galvanizing Effect on CRM and Social CRM Analytics

The quickening pace of Hadoop adoption in the enterprise is good news for CRM and especially social CRM. Analytics and Business Intelligence (BI) are the “glue” that unify CRM and keep it in context. One of Hadoop’s greatest potential contributions is the analysis, categorization and use of unstructured content.  Marketing and sales won’t have to run three or four systems to gain insights into customer data, they can run a single analytics platform that fuels the entire selling cycle and lifetime customer value chain of their businesses.  Hadoop has the potential to make unstructured content more meaningful while also reporting the impact of customer insights on financial performance, profitability and lifetime customer value.

Translating terabytes of customer, sales, services and partner data into meaningful analytics and business intelligence (BI) is emerging as a priority for CIOs, who are sharing responsibility for driving top-line revenue growth.   Hadoop shows potential to be the “glue” or galvanizing technology base that unifies all CRM and Social CRM strategies.

To get a perspective on how fast Hadoop is being evaluated and adopted it’s useful to look at the Hype Cycle for Data Management, the latest edition published July, 2011.   This is another indicator of how quickly Hadoop and big data are gaining in terms of CIO mindshare.  Big Data and extreme information management are on the technology Trigger area of the hype cycle.  The Hype Cycle for Data Management is shown below:

Bottom line:  CRM and Social CRM will benefit more than any other area of an enterprise as Hadoop’s adoption continues to accelerate.  CIOs are increasingly called upon to be strategists, and with the ability to translate terabytes of data into strategies that deliver dollars, look for Hadoop’s contributions to drive top-line revenue growth.

Roundup of Cloud Computing Forecasts and Market Estimates, 2012

The latest round of cloud computing forecasts released by Cisco, Deloitte, IDC, Forrester, Gartner, The 451 Group and others show how rapidly cloud computing’s adoption in enterprises is happening.  The better forecasts quantify just how and where adoption is and isn’t occurring and why.

Overall, this year’s forecasts have taken into account enterprise constraints more realistically  than prior years, yielding a more reasonable set of market estimates.  There still is much hype surrounding cloud computing forecasts as can be seen from some of the huge growth rates and market size estimates.  With the direction of forecasting by vertical market and process area however, constraints are making the market estimates more realistic.

I’ve summarized the links below for your reference:

  • According to IDC, by 2015, about 24% of all new business software purchases will be of service-enabled software with SaaS delivery being 13.1% of worldwide software spending.  IDC further predicts that 14.4% of applications spending will be SaaS-based in the same time period. Source: http://www.idc.com/getdoc.jsp?containerId=232239
  • The cloud computing marketplace will reach $16.7B in revenue by 2013, according to a new report from the 451 Market Monitor, a market-sizing and forecasting service from The 451 Group. Including the large and well-established software-as-a-service (SaaS) category, cloud computing will grow from revenue of $8.7B 2010 to $16.7B in 2013, a compound annual growth rate (CAGR) of 24%. https://451research.com/
  • Forrester forecasts that the global market for cloud computing will grow from $40.7 billion in 2011 to more than $241 billion in 2020. The total size of the public cloud market will grow from $25.5 billion in 2011 to $159.3 billion in 2020. Link to report excerpt is here.
  • Deloitte is predicting cloud-based applications will replace 2.34% of enterprise IT spending in 2014 rising 14.49% in 2020.  The  slide below  is from an excellent presentation by Deloitte titled Cloud Computing Forecast Change downloadable from this link.

  • Gartner predicts Small & Medium Business (SMB) in the insurance industry will have a higher rate of cloud adoption (34%) compared to their enterprise counterparts (27%).  Gartner cites that insurance industry’s opportunity to significant improve core process areas through the use of technology.  The following figure from the report, 2011 SMB Versus Enterprise Software Budget Allocation to Annual Subscriptions indicates the differences in software budget allocation for annual subscriptions by vertical market from the report:

2011 SMB Versus Enterprise Software Budget Allocation to Annual Subscriptions

  • Gartner is predicting that the cloud system infrastructure (cloud IaaS) market to grow by 47.8% through 2015. The research firm advises outsourcers not moving in that direction that consolidation and cannibalization will occur in the 2013 – 2014 timeframe  The providers named most often by respondents were Amazon (34%), SunGard (30%) and Verizon Business (30%). Of the global top 10 IT outsourcing market leaders, only CSC appears on the list. Source: User Survey Analysis: Infrastructure as a Service, the 2011 Uptake  Claudio Da Rold,  Allie Young.

External Service Providers Being Considered for IaaS (or Cloud IaaS)

Transactions and Complex Selling: Strong Catalysts of Cloud Computing Growth

Enterprise software vendors need to challenge themselves to deliver significantly more value if the potential for cloud computing is going to be achieved .

Instead of just going for the low-end, easily customized processes within analytics, CRM, supply chain management, ERP, pricing or service, vendors need to take on the more challenging, complex hard-to-solve problems enterprises have.

As I am completing more research on personas, I’m finding what CIOs really look for in SaaS apps.  Flexibility and ease of workflow support, intuitive user interface design without sacrificing functionality, and support for analytics, business intelligence and knowledge management systems integration are all mentioned often.

Nearly all of them also mention that the existing generation SaaS applications on the sell-side, from CRM to order capture and order management aren’t taking on the more challenging areas of their strategies.  The result is the CIOs are still relying on legacy, on-premise apps in areas of their companies that are ready for change to SaaS-based applications.  Cloud platforms are taking on these more complex, challenging problem areas, yet innovation still lags the needs in the market.

Transactions Are The Fuel of Cloud Infrastructure Growth  

CIOs are focusing on how to exceed the expectations of their internal customers at the workflow and interface level while infusing SaaS apps with analytics, business intelligence and knowledge management support.  What’s missing is the killer transaction platform layer and transaction-based applications.  Gartner’s report, A Workforce Without Humans: Three Ways Technology Will Eliminate Skilled Jobs in the U.S. Through 2020 by Kenneth F. Brant by Johan Jacobs has the following graphic which shows CIO’s estimates of migration to cloud-based IT infrastructure and applications which supports this point.

Source: Maverick Research: A Workforce Without Humans: Three Ways Technology Will Eliminate Skilled Jobs in the U.S. Through 2020 by Kenneth F. Brant by Johan Jacobs

Much of the report is based on the results of Gartner’s 2011 survey of U.S. CIOs. Additional insights from the survey include the following:

  • Virtualization and cloud computing are the two top-ranked U.S. CIO technology priorities for 2011.
  • 83% of U.S. CIOs estimated that more than half of their transactions would be conducted on a cloud infrastructure by 2020.
  • 79% of the respondents predicted that more than half of their transactions would be completed on applications leased using the SaaS platform by 2020.

For cloud infrastructure platforms and SaaS applications to deliver that level of transaction volume and support, there needs to be a major shift in how enterprise vendors develop software. Making better use of analytics, business intelligence and knowledge in the enterprise is key. Designing applications that make information and knowledge sharing intuitive is critical.

The following figure from the same report cited earlier shows the relationship of technologies to potential business value.  Many CRM and sell-side vendors tend to focus on being a substitute or just barely delivering increases in human productivity.

Going after the hard work of optimizing pricing strategies, call centers, making multichannel selling strategies profitable and getting the most out of social networks to make the customer experience exceptional will deliver major gains in productivity.  It’s been my experience during the persona interviews that for any SaaS vendor to really excel here they need to get beyond human productivity and make it possible for enterprises to deliver exceptional customer experiences daily.

Creating SaaS applications that take on real complexity earns trust too, which no amount of pure efficiency can compete with.

Source: Maverick Research: A Workforce Without Humans: Three Ways Technology Will Eliminate Skilled Jobs in the U.S. Through 2020 by Kenneth F. Brant by Johan Jacobs

An Example: SaaS in Manufacturing

The following table compares the strategies and systems used in a typical manufacturing company.  Enterprise apps vendors for the most part are focused on make-to-stock and assemble-to-order automation and efficiency (SAP ByDesign for example).

As the continuums move from left to right, the process, systems and strategy challenges exponentially increase.  As a result there are only a few vendors who can manage the more complex engineer-to-order requirements in manufacturing for example. Transactions there are very small in number, yet orders of magnitude more profitable.  This is just an example of many areas in enterprises that need major improvement.

Instead of just focusing on the easy processes and strategies on the left, vendors need to go after the more difficult, complex selling and transaction challenges on the right.  This is why CIOs want SaaS applications that are easy to customize from a user interface and workflow standpoint, while at the same time supporting analytics, BI and knowledge management.  The goal is to slot them into these more challenging areas of their business and transform their company’s intelligence and expertise into profitable growth.

Bottom line: The true catalyst of cloud computing growth isn’t just SaaS economics; it’s how effectively enterprise software vendors address the very difficult transaction, order management and selling challenges their potential customers face all the time. When that happens, the many optimistic forecasts of cloud adoption in the enterprise will take a step closer to being fulfilled.

Enterprise Software as a Service Market Forecast: The Future is Already Here – It’s Just Not Evenly Distributed

The prescient quote by William Gibson aptly describes the worldwide Software as a Service (SaaS) market today, especially in the enterprise.

Global adoption and growth of SaaS within enterprises is unevenly distributed yet growing rapidly.  One of the primary catalysts moving this forward are Amazon Web Services, Google, Microsoft, Salesforce and other platform providers lowering the barriers to creating new applications, continually investing in security technologies, and streamlining rapid prototyping, testing, and release of SaaS applications.

This week Salesforce showed how extensive the momentum is in their global base of developers during Dreamforce ’11.  The Developer Zone had the most innovation per square foot of any venue at this conference.  Insights gained from visiting the sessions at Dreamforce, speaking with Force evangelists and tech staff, and also with attendees form the basis of the following analysis and insights.  On Friday of last week Gartner also released the report, Forecast: Software as a Service, All Regions, 2010-2015 by Sharon A. Mertz, Chad Eschinger, Tom Eid, Yanna Dharmasthira, Chris Pang, Laurie F. Wurster, Tsuyoshi Ebina, Hai Hong Swinehart, which validated several of the trends seen in the Developer Zone at Dreamforce ’11.

Forecasting the Growth of SaaS in the Enterprise, 2015

In speaking with developers, vendors and after reviewing the Gartner report, here are several insights gained that illustrate how SaaS adoption will vary by region over the next four years:

  • APIs are getting more adept at managing multi-party transactions across all platforms.  Marc Benioff and Chuck Phillips alluded to this when Infor announced Inforce this week at Dreamforce.  It was also evident in how partners in the Developer Zone were demonstrating frameworks for supporting more advanced enterprise software application development.  These included supply chain management, the ability to manage complex project plans more effectively using apps based on these APIs, and greater control over collaboration development.  Gartner published their total software revenue forecast for SaaS delivery, 2007 – 2015 back in June, and a table from that analysis is shown below.  Their forecast reflects in large part depth of REST APIs which are part of Web Services.   This table is from the report, Forecast: Software as a Service, Worldwide, 2010-2015, 1H11 Update, 22 June 2011, ID:G00213816, Sharon A. Mertz, Chad Eschinger, Tom Eid, Chris Pang, Laurie F. Wurster.
  • Graphical interface flexibility, usability options, localization, and local language support dominate EMEA concerns about SaaS.  In Dreamforce sessions attended and in the Gartner report, it’s clear Salesforce is struggling to make localization work more effectively via their programming platforms and tools in EMEA.  This came out during many of the discussions in the Developer Zone as well.  All platform providers are facing this challenge, yet the pace of new API enhancements shows significant potential.  As a result the forecast for SaaS revenue in Western Europe is forecasted to be $2.66B in 2011 growing to $4.8B in 2015, achieving a compound annual growth rate (CAGR) of 17% according to Gartner.
  • Total Cost of Ownership (TCO) is aggressively pushed by Salesforce in the U.S. yet is most effective in EMEA.  This became evident in discussions and presentations, and also was validated by the recent Gartner report.  Salesforce also has extensive TCO calculators on its Force developer sites for the U.S. yet ironically they are finding they are most effective in EMEA sales cycles.
  • Based on my informal poll 20% of iPad-to-Salesforce account demos failed at Dreamforce.    Dozens of companies were hyping their iPad clients at Dreamforce, yet I found nearly one in five failed to deliver reliable performance. While the sample is hardly scientific, it does show that the iPad to Salesforce integration so heavily hyped by so many vendors is still nascent.  It’s as if these companies invested so much on iPad clients they ran out of time to make the back-end integrations work reliably.  Gartner found that lack of integration is the single greatest inhibitor to SaaS growth in North America.
  • Ease of speed and deployment, limited capital expense, and lower TCO are the most critical factors driving SaaS growth in U.S. enterprises today.  This became evident from listening to customer testimonials during the many vendor sessions in Moscone West, in addition to discussions with developers.  The impact of these factors is also evident in the total software revenue forecast for SaaS delivery within enterprise application software markets by region, 2008 – 2015.   This is from the Gartner report, Forecast: Software as a Service, All Regions, 2010-2015. Sharon A. Mertz, Chad Eschinger, Tom Eid, Yanna Dharmasthira, Chris Pang, Laurie F. Wurster, Tsuyoshi Ebina, Hai Hong Swinehart.

  • CRM continues to dominate SaaS usage across all enterprise applications, closely followed by Web conferencing and e-learning in North America and Northern Europe.  Both North America and Northern Europe have comparable adoption trends regarding these SaaS applications, with Western and Southern Europe lagging in terms of adoption and spending.
  • Asia/Pacific continues to be the most fragmented of all regions when it comes to SaaS adoption in the enterprise.  Countries with greater stability of their Internet infrastructures including Australia, Hong Kong, Singapore and South Korea are experiencing greater SaaS growth, and also contributing to Salesforce’s success in these regions.  Salesforce has 14.5% CRM share in this region, third behind SAP and Oracle. Emerging countries are the most rapid adopters of SaaS-based accounting, e-mail and collaboration-based apps.
  • China, India and Malaysia are experiencing the most rapid adoption of SaaS-based enterprise applications in the Asia/Pacific region.  WiPro’s decision to invest so heavily in Dreamforce as a promotional event is a case in point.  The Developer Zone had  several companies from this region offering their programming and system integration services as well.

Bottom line: SaaS adoption continues to accelerate globally across enterprise software, growing from $12B in 2011 to $21B in 2015, achieving a 16.3% CAGR annually. Platform providers are knocking down the barriers to market growth by using events including Dreamforce to educate, entertain and enable developers to quickly turn concepts into applications.

Gartner Releases Hype Cycle for Networking and Communications, 2011

It is ironic that a framework meant to define the relative level of hype associated with new technologies adds in seven new ones, an increase of 20% within just a year.

Are all those technologies really significant enough to be included in a framework whose purpose is to cut through hype?   With less than 1% adoption throughout enterprises for over 50% of these technologies, it may be time for a more rigorous screening process.

After reading this Hype Cycle several dominant themes emerge. They include modernization of IT infrastructure to support greater scalability and security, consolidation of IT hardware investments, recognition of hybrid clouds being a central part of networking strategies, and location-based technologies having the potential to re-define logistics, supply chain and customer service strategies.  That’s a lot of ground to cover in a single Hype Cycle, and to be fair, Gartner says this is an aggregated view of the market.  Yet there is still the issue of technologies being included that have not shown any real value to enterprises yet.

Presented below is the Hype Cycle for Networking and Communications, 2011 and key take-aways.

Source:  2011 Gartner, Inc.  Hype Cycle for Networking and Communications, 2011 David A. Willis, Publication Date: 24 August 2011 ID Number: G00216400

Key Take-Aways:

  • Gartner is predicting the technologies that will experience the fastest growth include Virtual I/O, Gigabit Ethernet, Long-Distance Live Virtual Machine Migration, Energy Efficient Ethernet,  Context Delivery Architecture, and Video Telepresence.
  • Hosted Virtual Desktops, OpenFlow (technology also known of as software-defined networking (SDN), Transcoderless and Software-Based Videoconferencing Infrastructures, Mobile Enterprise Applications via SaaS, 802.11ad (Wi-Fi at multi-Gigabit speeds) , 802.16-2009 (consolidates dated WiMAX standards) and Mobile Satellite Services are the latest technologies Gartner has added to this Hype Cycle.  Of these, Mobile Enterprise Applications with SaaS have the most significant potential effect on Total Cost of Ownership (TCO) on CRM and customer-facing enterprise applications.  None of these have greater than 1% adoption in the enterprise today however.
  • Gartner is projecting over 1B smartphones and media tablets will be sold globally by 2015.  This explosive growth is forcing enterprises to react much faster than they initially expected to mobile security, mobile device management, and application support is an essential services.  A recent survey completed by Gartner indicates that CIOs fully expect to support up to three mobile operating systems by 2012 and that 20% of devices will be employee-owned by that year.  Presented below is their forecast for smartphones and media tablets through 2015. The following forecast is from their report, Emerging Technology Analysis: Mobile Business Intelligence, 13 July 2011, ID:G00214124 by Bhavish Sood, Andreas Bitterer, James Richardson.
Worldwide Smartphone and Media Tablet Shipments, 2010-2015
  • Mobile Enterprise Applications via SaaS will see the greatest growth in vertical or specialized and Small & Medium Business (SMB) segments.  It is evident from their analysis that TCO estimates may confuse enterprise buyers into thinking initial set-up costs for SaaS will lead to a lower price than licensed, premise-based applications.  This will not always be the case despite the hype around SaaS economics today.  This Hype Cycle could have been stronger and more prescriptive for enterprise IT buyers by discussing SaaS economics in greater detail.
  • Gartner goes into great depth on location-aware technology yet doesn’t make that convincing of a connection to enterprise-level strategies, initiatives and programs.  There is much technological discussion on GPS, assisted GPS (A-GPS), Wi-Fi, Enhanced Observed Time Difference (E-OTD) and Enhanced GPS (E-GPS) yet hardly any analysis of how this fits into the enterprise.
  • Gartner sees the majority of enterprise cloud-based systems being hybrid.  The Hype Cycle provides a glimpse into private and public clouds being integrated together for workload sharing.  There needs to be more focus on how this will work for a business process standpoint to be of value however.
  • Mobile consumer application platforms (MCAPs) will increasingly become multi-platform based.  Gartner is predicting that Messaging-Based, Browser-Based, Thick Clients/Rich Clients and Streaming Audio/Video will dominate consumer application platforms within the next two years.  They also see this area as the most transformational of all technologies analyzed in the Hype Cycle.

Bottom line: The best way to deflate hype in any industry is to insist on real, measurable results.  From choosing communications and networking solutions to including nascent technologies in a research framework, results attained by real customers are all that really matter.

Gartner Releases Their Hype Cycle for Cloud Computing, 2011

Calling the hype around cloud computing “deafening”, Gartner released their annual hype cycle for the 34 different technologies in a 75 page analysis today.  You can find the Hype Cycle at the end of this post and I’ve provided several of the take-aways below:

  • The industry is just beyond the Peak of Inflated Expectations, and headed for the Trough of Disillusionment. The further up the Technology Trigger and Peak of Inflated Expectations curve, the greater the chaotic nature of how technologies are being positioned with widespread confusion throughout markets. The team of analysts who wrote this at Gartner share that conclusion across the many segments of the Hype Cycle.
  • Gartner states that nearly every vendor who briefs them has a cloud computing strategy yet few have shown how their strategies are cloud-centric. Cloudwashing on the part of vendors across all 34 technology areas is accelerating the entire industry into the trough of disillusionment. The report cites the Amazon Web Services outage in April, 2011 as a turning point on the hype cycle for example.
  • Gartner predicts that the most transformational technologies included in the Hype Cycle will be the following: virtualization within two years; Big Data, Cloud Advertising, Cloud Computing, Platform-as-a-Service (PaaS), and Public Cloud computing between two and five years; and Community Cloud, DevOps, Hybrid Cloud Computing and Real-time Infrastructure in five to ten years.
  • There continues to be much confusion with clients relative to hybrid computing.  Gartner’s definition is as follows ”Hybrid cloud computing refers to the combination of external public cloud computing services and internal resources (either a private cloud or traditional infrastructure, operations and applications) in a coordinated fashion to assemble a particular solution”. They provide examples of joint security and management, workload/service placement and runtime optimization, and others to further illustrate the complex nature of hybrid computing.
  • Big Data is also an area of heavy client inquiry activity that Gartner interprets as massive hype in the market. They are predicting that Big Data will reach the apex of the Peak of Inflated Expectations by 2012.  Due to the massive amount of hype surrounding this technology, they predict it will be in the Trough of Disillusionment eventually, as enterprises struggle to get the results they expect.
  • By 2015, those companies who have adopted Big Data and extreme information management (their term for this area) will begin to outperform their unprepared competitors by 20% in every available financial metric. Early use cases of Big Data are delivering measurable results and strong ROI.  The Hype Cycle did not provide any ROI figures however, which would have been interesting to see.
  • PaaS is one of the most highly hyped terms Gartner encounters on client calls, one of the most misunderstood as well, leading to a chaotic market. Gartner does not expect comprehensive PaaS offerings to be part of the mainstream market until 2015.  The point is made that there is much confusion in the market over just what PaaS is and its role in the infrastructure stack.
  • SaaS performs best for relatively simple tasks in IT-constrained organizations. Gartner warns that the initial two years may be low cost for any SaaS-based application, yet could over time be even more expensive than on-premise software.
  • Gartner estimates there are at least 3M Sales Force Automation SaaS users globally today.

Bottom line: The greater the hype, the more the analyst inquiries, and the faster a given technology ascends to the Peak of Inflated Expectations. After reading this analysis it becomes clear that vendors who strive to be accurate, precise, real and relevant are winning deals right now and transcending the hype cycle to close sales.  They may not being getting a lot of attention, but they are selling more because enterprises clearly understand their value.

Source: Gartner, Hype Cycle for Cloud Computing, 2011 David Mitchell Smith Publication Date: 27 July 2011 ID Number: G00214915 © 2011

Predicting Cloud Computing Adoption Rates

From conservative, single digit adoption rates to hockey-stick projections of exceptional growth, analyst firms, venture capitalists and government ministries are weighing in on how they see cloud adoption progressing.

While each of the adoption rate predictions vary significantly in terms of their methodologies and results, all rely on the assumption that SaaS applications including CRM will continue to gain momentum.  The user adoption rates vary on how fast the momentum is, yet all share this assumption.  Speed, increased user adoption rates, and the ability to more closely align software to business goals are cited most often as the biggest benefits.

Where the projections vary most is whether enterprises will eventually migrate the majority of their applications to the cloud or not.  Forrester, Gartner and others see a hybrid cloud architecture emerging in the enterprise and forcing the issue of legacy systems migration by 2015.  As would be expected, vendor-driven research sees an “all or nothing” world in the near future.

Sanity Check

Wanting to see how reliable the figures were showing rapid cloud adoption in the enterprise, I did a quick sanity check.  Taking the  distribution of sales by segment for Salesforce.com and their annual revenue growth rate, then normalizing it across all segments, enterprise emerges as their strongest segment by a wide margin in 2015.  It had a 15%+ compound annual growth rate (CAGR) from 2011 – 2015 just taking their current sales by segment distribution of sales and extrapolating forward.  Data points like this and the market factors behind them is why SaaS is often used in these studies as a leading indicator of broader cloud adoption.

Adoption Rate Round-Up

  • Forrester found that SaaS will outgrow all other cloud services, achieving 37% adoption in 2011 growing to 50% by 2012.  In previous studies Forrester has shown that SaaS is a major growth catalyst of ongoing investment in IaaS and PaaS in enterprises. Source: Source:  Forrsights: The Software Market In Transformation, 2011 And Beyond Shifting Buying Preferences Lead To New Software Priorities by Holger Kisker, Ph.D. with Pascal Matzke, Stefan Ried, Ph.D., Miroslaw Lisserman  Link: http://bit.ly/ijJy70  The following table is from the report:

  • Microsoft Global SMB Cloud Adoption Study released in March, 2011 is one of the most comprehensive done this year on this topic. Of the many findings, the study predicts  39 % of SMBs expect to be paying for one or more cloud services within three years).  One of the best studies on cloud adoptions done this year Source: Study Results Document (PDF (22 pages): http://bit.ly/gN8yTx

  • North Bridge Venture Partners, GigaOM PRO and over a dozen research partners completed the study The Future of Cloud Computing 2011.  The study found 13% expressed high level of confidence in cloud computing for enterprise applications, with 40% experimenting and 10% saying they will never use cloud-based platforms as they are too risky. A presentation of the results can be found here:

Source: http://futureofcloudcomputing.drupalgardens.com/2011-future-cloud-computing-survey-results

  • Springboard Research (Forrester) completed a study of cloud computing adoption in Asia finding 31% of companies with 50 or fewer PCs will adopt cloud-based applications in 18 months, 56% with up to 500 PCs.  The key findings are available for download from the source URL below the infographic.

                                     Microsoft Asia is making this available for download here: http://bit.ly/jWjOj1

  • TechTarget published their analysis of virtualization and cloud computing adoption in the study, State of virtualization and cloud computing: 2011.  Of the many findings, a few of the most significant is how pervasive VMware ESXi 4 and later (vSphere) is throughout enterprises today.  The study also shows that 7% of those interviewed had implemented cloud computing in 2010, growing to 9% in 2011 – quite conservative compared to many of the other adoption rate analyses completed.  You can find the results here: http://searchdatacenter.techtarget.com/feature/State-of-virtualization-and-cloud-computing-2011
  • Yankee Group has found that in 2011, 41 percent of very large enterprises (more than 10,000 employees) have already deployed or are considering deployment of platform as a service (PaaS) within the next 12 months, compared to just 32 percent in 2010.  They have also found that mobility is most significant factor driving cloud adoption in the enterprise. Source: http://professional.wsj.com/article/TPCHWKNW0020110722e77q0004d.html

Rethinking Cloud ROI from a Customer’s Perspective

Seeing the proliferation of cloud ROI, TCO and cost calculators brings to mind my economics professors who strove with a passion to reduce complex consumer decisions into simple, very powerful formulas.  Like these calculators pervading the market, my economics professors showed a passion for accuracy, precision and measured perfection.

The only trouble is that people, companies and markets defy and will deliberately not conform to an equation, cause-and-effect strategy or series of artificial incentives to get them to change.  If there is one single, loudly reverberating fact in this economy, it is that marketing and selling strategies based on economic theory alone are failing.  The business benefits of cloud computing need to be more integrated into these ROI and TCO calculators to make them relevant.  They need to reflect more of the customers’ needs to be useful.

It’s Time To Bring The Customer and Their Strategies Into The Equation

Of the many white papers, e-books and websites all claiming to translate cloud computing server usage and capacity planning metrics into business benefits, the Open Groups’ white paper published in 2010 delivers useful insights.  The research and analysis was produced by Cloud Business Artifacts (CBA) project of The Open Group Cloud Computing Work Group.  You can find the entire document here.

The following table is from the section on building ROI for Cloud Computing using Key Performance Indicators (KPIs) and Metrics.  While this table is a start, what’s  missing  are more metrics related to the Web customer experience.  There needs to be more measures of whether customer experiences were successful or not by application, and if and how SaaS-based applications contributed to customers’ expectations being exceeded or not.

One of the biggest benefits all ROI and TCO calculators attempt to quantify is speed of cost reduction and time reduction, but what about speed of strategy execution? For many of these online tools, prospects using them would have no idea how their investment will accelerate their goals.  All they see are costs related to the technology.  Not much if any analysis is provided how the technology relates to their strategies being attained more quickly, completely and profitably.

And what about enabling channels to sell more effectively?  Launching products on time, synchronized across online and offline channels and having consistency of messaging, pricing, services – in short the entire user experience– is rarely if ever mentioned.  Ironically the greater the focus on ROI and TCO calculators, the greater the lack of focus on creating a truly exceptional customer experience while attaining complex selling strategies.

It’s time for the industry’s vendors to wake up and realize that they are selling for the most part to nonconformists not robots.  ROI and TCO calculators that don’t reflect what customers really want to accomplish and stay centered on technology alone are missing huge opportunities to sell on value.

Bottom line: The comfort that comes from attempting to take the chaos of a market and crystalize it into an equation is an illusion – the real test of a vendor’s value is being able to navigate customers to their goals using technology when necessary, not as a crutch.

Cloud ROI and TCO Calculators

Amazon Web Services Economics Center  http://aws.amazon.com/economics/

Amazon Web Services Simple Monthly Calculator http://calculator.s3.amazonaws.com/calc5.html

Astadia Cloud Computing ROI Calculator http://www.astadia.com/products-and-services/IT-cloud-transformation/roi/

Azure ROI Calculator (written in Silverlight)  http://azureroi.cloudapp.net/

Commentary: http://social.msdn.microsoft.com/Forums/en/windowsazure/thread/c4155f48-d51f-4c14-b79c-3f8248ac9646

Azure TCO calculator http://www.microsoft.com/windowsazure/offers/

Cloud Business Review – Cloud Migration ROI Calculatohttp://www.cloudbusinessreview.com/cloud-migration-roi-calculator.html

EMC ROI Analyst (requires opt-inhttps://roianalyst.alinean.com/emc/Welcome.do

GetApp Cloud Computing Calculator http://www.getapp.com/cloud-computing-roi-calculator

Google Cloud Calculator http://www.gonegoogle.com/#/company-name

Rackspace Load Balancer Calculator http://www.rackspace.com/cloud/cloud_hosting_products/loadbalancers/pricing/

Salesforce.com Force.com Business Case Calculator (ROI) http://www.salesforce.com/platform/tco/calculator.jsp?d=70130000000EfON&internal=true

Stelligent ROI Calculator http://stelligent-roi.appspot.com/

VMWare ThinApp Calculator http://roitco.vmware.com/ThinApp/

Sources:

Open Group Publishes Guidelines on Cloud Computing ROI http://cloudcomputing.sys-con.com/node/1376952

Private cloud discredited, part 1 http://www.zdnet.com/blog/saas/private-cloud-discredited-part-1/1204?tag=mantle_skin;content

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