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Posts from the ‘SaaS Economics’ Category

Lessons Learned From The 2013 Pacific Crest SaaS Survey

Pacific Crest SurveyDeveloping the ability to upsell existing customers into longer-term, higher value contracts that are multi-year in duration is one of the most critically important skill sets any SaaS business needs to attain.

These and other insights were gained from analyzing the 2013 Pacific Crest SaaS Survey, published earlier this month by David Skok.   The survey is based on responses from 155 SaaS companies, compiled by Pacific Crest Securities.   David’s blog For Entrepreneurs provides excellent content on SaaS metrics, start-up advice and a wealth on insight in the areas of sales and marketing, business models and the specifics of how to manage a SaaS business model profitability.

Key take-aways from the 2013 Pacific Crest SaaS Survey include the following:

  • Median GAAP revenue growth increased by 41% in 2012, projected to reach 47% in 2013 across all 155 SaaS companies included in the analysis.  When smaller companies whose revenue growth projections are excluded, median revenue growth for 2012 was 32%, projected to increase to 36% this year.  The following two figures illustrate distribution of revenue growth by number of companies.

  • The fastest growing SaaS companies have median contract sizes that are between $1K to $25K.  Companies’ with less than $2M in revenue were excluded from this analysis given the smaller deal sizes they generate.

  • The larger the median ACV (Annual Contract Value) the greater the reliance on field sales.  In results from previous surveys Pacific Crest found that mid-tier companies were more reliant on inside sales.  54% of respondents in the $5K to $25K ACV segment of companies this year are reliant on insider sales, up from 33% in 2012.
  • 13% of new ACV is generated from upsells across all SaaS companies, with the largest capable of expanding into other departments and divisions of existing customers.  SaaS companies with sales over $60M are generating 32% of new ACV from upsell strategies. It’s interesting to note that upsell is a more effective strategy at gaining market share versus marketing spending, and this hold true across sizes of SaaS companies.  The following graphic illustrates percentage of new ACV by size of SaaS company and an analysis showing the fastest-growth SaaS companies generate a higher proportion of new ACV from upsells compared to their peers.
  • 76% gross margins are being achieved across all respondents.  This does not change significantly when smaller companies are removed from the analysis.
  • Try-Before-You-Buy is used far more often than Freemium because it generates additional sales.  The following graphic shows the expected contribution of each to ACV in 2013:

  • Professional Services are 12% of 1rst year ACV across all customer segments.  Selling professional services into the enterprise generates 23% of first year ACV according to the study.  A graphic showing the distribution of first year ACV as a percentage of professional services by customer segment is shown below:

  • SaaS companies who primarily rely on Internet-based distribution methods are attaining the highest growth rates.  When companies with less than $2M in revenue were taken out of the analysis, those companies primarily based on inside sales grew 10% more than field sales.  The following graphic presents this analysis, excluding companies with less than $2M in revenue.

  • 37% of respondent companies rely on field sales as their primary means of distribution followed by inside sales (29%) and Internet sales (17%).  When smaller companies with sales less than $2M are excluded, field sales jumps to 50% of all respondents using this method as a primary means of distribution.  Inside sales (29%) and Internet sales (8%) are second and third.  While Internet sales is the cheapest form of distribution, it also leads to the highest churn rates (9%) recorded in the survey.

IDG Cloud Computing Survey: Security, Integration Challenge Growth

cloud computing survey 2IDG Enterprise recently published Cloud Computing: Key Trends and Future Effects Report, showing how enterprises continue to struggle with security, integration and governance while finding immediate value in collaboration and customer relationship management (CRM) applications.

IDG’s methodology is based on interviews with 1,358 respondents, stratified across CIO, Computerworld, CSO, InfoWorld, ITworld, and Network World websites, in addition to respondents contacted via email, and LinkedIn forums.  58% of respondents are from executive IT roles; 17% from Mid-level IT; 14% from IT professionals; 8% from middle-level business management and 3% non-manager roles were represented in the study.  High tech industries are the dominant industry represented with 18% of respondents, followed by financial services, government and manufacturing (each accounting for 10% of respondents).  Education (9%) and telecommunications & utilities (6%) are the other industries represented.

Key take-aways from the survey include the following:

  • 49% of executive-level management see cloud computing as transformational to their business strategies.  40% are currently having their IT staff investigate the potential of cloud computing contributing to their businesses, 5% don’t see cloud as an option and 6% aren’t sure.
  • Amazon (32%), Microsoft (23%) and Google (20%) are most often considered thought leaders in the field of cloud computing by respondents to the IDG survey.
  • Enabling business continuity (43%), greater flexibility to react to changing market conditions (40%), speed of deployment (39%) and improving customer support or services (38%) are the top four drivers of investment in cloud computing technology according to the survey.  The following graphic provides an analysis of each driver by level of relative importance.   This image is from Cloud Computing: Key Trends and Future Effects Report.

  • Accelerating business value by providing access to critical business data and applications (56%); serving as a catalyst of IT innovation (56%); enabling greater employee collaboration (54%); and enabling greater levels of IT agility (54%) are the top four benefits enterprises are gaining from cloud-based applications.  The following graphic provides an analysis of how cloud computing technology is impacting each of the areas shown in respondent’s enterprises. This image is from Cloud Computing: Key Trends and Future Effects Report.

  • Financial Services and high tech companies are projected to have the largest cloud computing budgets based on the survey.  Enterprises are expected to invest an average of $1.5M in cloud-based services during the 2013 – 2014 timeframe.  IDG projects that large companies will spend $2.8M relative to small and medium-sized businesses investing $486K on average.
  • Chief Financial Officers (CFOs) (35%) are the hardest to convince regarding the value of cloud computing, followed by the board of directors or equivalent (24%), the CEO (24%), and the Chief Operating Officer (COO) (16%) third. Chief Marketing Officers (CMO) are the easiest to convince, with just 6% of respondents mentioning this group of executives being a challenge to convince regarding the value of cloud computing.
  • The percentage of organizational IT budgets allocated to SaaS increased from 8% in 2012 to 13% in 2013 according to the last two IDG Enterprise Cloud Computing surveys.  Infrastructure-as-a-Service (IaaS) increased to 10% of overall IT budgets, up from 7% in 2012.  In aggregate, 44% of IT budgets are spent on cloud computing today, increasing to 51% by 2015 in the base of enterprises interviewed for the study.
  • Enterprises continue to migrate applications to the cloud that increase collaboration and enhance customer relationships first.  Collaboration and conferencing solutions (38%), e-mail and messaging (35%) and Customer Relationship Management (CRM)/Sales Force Automation (SFA) (27%) are the top three applications being migrated to the cloud in the enterprises surveyed.  The following graphic shows which applications are moving to the cloud today and the plans for migrating applications in the next 12 months, and over the next 1 to 3 years.  This image is from Cloud Computing: Key Trends and Future Effects Report.

  • 59% of enterprises are still identifying which IT operations are the best candidates for cloud hosting.  33% have identified all IT operations that they are comfortable having hosted in the cloud, given the current security of cloud infrastructure and application design.
  • The three most important factors in selecting a SaaS application provider include the ability to configure and customize the cloud application to meet specific business needs (40%), consistent cloud application performance and availability (38%) and security certification and practices of the SaaS provider (34%).
  • 61% of enterprises have at least one application that is cloud-based in their organizations today.  This increased from 57% in 2012.  24% of enterprises are planning to implement cloud applications in the next 12 months and 15% are planning to between 1 to three years from now.
  • In enterprises with less than 1,000 employees, CEOs (52%) are the most influential role in cloud purchasing, followed by the CIO (39%) and IT/networking staff (33%).  In enterprises over 1,000 employees, the CIO (60%), followed by the IT/networking management (47%) and CTO or IT network architect (45%) are the three most influential roles in the cloud purchasing process.
  • 42% of cloud-based projects are eventually brought back in-house, with security concerns (65%), technical/oversight problems (64%), and the need for standardization (on one platform) (48%) being the top three reasons why.
  • The top three challenges to implementing a successful cloud strategy in enterprise vary significantly between IT and line-of-business (LOB).  For IT, concerns regarding security (66%), integration stability and reliability (47%) and ability of cloud computing solutions to meet enterprise/industry standards (35%) challenge adoption.    The following table compares the perceptions of IT and line-of-business leaders.  This image is from Cloud Computing: Key Trends and Future Effects Report.

North Bridge Venture Partners Future Of Cloud Computing Survey: SaaS Still The Dominant Cloud Platform

6-19-2013-4-19-15-AM-300x223North Bridge Venture Partners and GigaOM Research released the results of their third annual Future Of Cloud Computing Survey today, providing a glimpse into cloud computing adoption trends, inhibitors and drivers of long-term growth.

This year’s survey included 855 respondents selected across business users, IT decision makers and cloud platform and application vendors.  North Bridge and GigaOM Research report that a third of respondents are C-level executives in their organizations.

You can view a copy of the report results here from SlideShare.

The following are key take-aways from the report:

  • Cloud adoption continued to rise in 2013, with 75%  of those surveyed reporting the use of some sort of cloud platform – up from 67% last year. That growth is consistent with forecasts from GigaOM Research, which expects the total worldwide addressable market for cloud computing to reach $158.8B by 2014, an increase of 126.5% from 2011.  The survey also shows significant growth is yet to come in SaaS adoption for business systems and IT management.


  • 63% of those surveyed report Software-as-a-Service (SaaS) is in use in their companies, growing 15% over 2012.  45% are using Infrastructure-as-a-Service (IaaS) today, attaining a growth of 29% from last year.  Platform-as-a-Service (PaaS) is expected to grow the fastest over the next five years, with 72% of respondents saying they expect to use PaaS in their organizations.
  • The survey results also included cloud segments and overall growth analysis forecasts from 451 Research Market Monitor Report.  The graphic showing CAGRs by IaaS, PaaS and SaaS is shown below, with comparisons of 2012 results and 2016 market forecasts.

  • 52% of organizations are using cloud-based applications to advance business priorities, compared with 36% that use applications that advance IT initiatives.
  • CRM, marketing (including marketing automation) social business & collaboration and file sharing cloud-based applications are in use by more than 50% of all organizations in the sample.
  • North Bridge Venture Partners reports that cloud investments by venture capitalists totaled $1.6B in 2010, increasing to $2.4B in 2011.  Investments in 2012 dropped to $1.8B and through May, 2013, venture-based investments in cloud computing application and services providers totaled $281M.  Subscription fee-based business models dominate with 77% of cloud vendors relying on this strategy.
  • Gaining greater business agility (54.5%), scalability (54.3%) and cost (48%) are the three main drivers of cloud adoption today according to the survey results.  Mobility was mentioned by 25% of respondents as a major driver for adopting cloud applications and platforms, behind cost.
  • Security concerns (46%), vendor lock-in (35%), interoperability (27%), concerns over reliability (22.3%) and complexity (21%) are the top inhibitors to cloud adoption.  Regulatory compliance (30%) and privacy (26%) are he next most frequently mentioned inhibitors to cloud computing adoption according to the survey.
  • 39% expect to increase training, and 17% expect to hire outside resources as a result of increased cloud adoption.
  • Amazon (14.3%), Microsoft (10.96%) and Google (7.88%) are the three most used cloud platforms by the organizations who responded to the survey.

Five Ways CIOs Can Prepare For The Cloud: Lessons Learned From ServiceNow

ServiceNow2ServiceNow (NYSE:NOW) is a global leader in providing cloud-based services used by enterprises to streamline and automate their IT operations.  They’re known for their expertise in IT Service Management (ITSM), speed of development cycles, and commitment to open source including MongoDB and NoSQL.  ServiceNow also has one of the most enthusiastic, rapidly growing and loyal customer bases in enterprise software.  Matt Schvimmer, VP Product Management at ServiceNow, credits the goal of attaining 100% customer referenceability combined with intensive focus on user experience design as contributing factors to their rapid growth, in addition to continuous feedback cycles they use for capturing and acting on customer feedback.

Update from ServiceNow’s Financial Analyst Day and Knowledge13 

On May 13th they held their Financial Analyst Day at the Aria Resort & Casino in Las Vegas, the same location they hosted Knowledge13, their annual user conference held May 12th through the 16th.  You can download a set of the slides presented at the Financial Analyst Day here, and view videos and presentations from Knowledge 13 here.   ServiceNow executives are calling the next phase of their growth ERP for IT. Both in the Financial Analyst Day presentation and the presentation given by President and CEO Frank Slootman at the Pacific Crest Emerging Technology Summit on February, 13th, this concept is shown.  Below is a slide from the February 13th presentation given at the Summit.  You can download the slide deck from the Pacific Crest Emerging Technology Summit here.

ERP for IT

Five Ways CIOs Can Prepare For The Cloud

HS_Arne_Josefsberg (1)I had the opportunity to catch up with Arne Josefsberg, CTO of ServiceNow during Knowledge13.  He shared insights into how ServiceNow’s core customer base, predominantly CIOs and their IT Departments, are driving greater business value into their organizations using the Service Automation Platform.  Arne mentioned that ServiceNow sees IT Operations Management (ITOM) and Platform-as-a-Service (PaaS) as critical to their growth, in addition to enabling those without programming expertise (ServiceNow calls them Citizen Developers) with intuitive, easily used application development tools.

He also shared lessons learned and five ways CIOs can prepare for the cloud, which are listed below:

  • Adopt Cloud Architectures With An Open Mind And See Them As Business Value Accelerators.  Arne advises CIOs who are considering cloud-based initiatives to concentrate on capturing and communicating business value first, including time-to-market, cost and time savings advantages.  Getting beyond a purely cost-cutting mindset is critical for IT to become a strategic partner with business units.  He says that he’s seeing CIOs gain a greater voice in strategic planning initiatives by clearly defining the business value of cloud-based development while pursuing rapid application development.
  • Taking a leadership position in application development leads to gaining greater influence and involvement in strategic plans and initiatives.  This point galvanizes the entire ServiceNow executive team, they all speak of enabling the Citizen Developer to create new applications on their platform without writing a single line of code.  ServiceNow and their customer base have bonded on this issue of rapid application development.  And watching Fred Luddy, Chief Product Officer of ServiceNow move quickly through application development and deployment scenarios during his keynote showed how deeply engrained this value is in the company’s DNA.
  • CIOs need to realize that their resource and human resource management needs in five years will shift to business transformation away from IT alone.  There is a shortage of IT analysts and professionals who are adept at being business strategists, capable of leading transformational application development.  IT analysts and experts need to be trusted partners with business units, continually moving IT-related barriers out of the way while streamlining new application development.  Arne cited how General Electric is excelling on this dimension, consolidating 17 incident management systems into a single ServiceNow application.  All that was possible because the IT teams at GE are an essential part of business unit operations.
  • CIOs need to move beyond managing IT using cost and efficiency alone and think in terms of opportunity-to-cost instead. Arne’s point is that the most respected and counted-upon CIOs he knows today are either making or have made this transition.  They have moved beyond an IT legacy mentality of managing just to cost or efficiency.  Instead, the CIOs emerging as strategists and core members of the executive team are aligning IT as a core part of their company’s ability to compete.
  • Use cloud architectures and rapid application development to make IT more strategic in scope now.  The companies winning awards at Knowledge13 for their applications showed a common thread of anticipating and acting on the strategic needs of their business quickly, often delivering completed applications ahead of schedule and under budget.

Bottom line: Making IT strategic begins by moving away from the constraints of managing to cost and efficiency metrics alone.  Cloud-based platforms and rapid application development technologies are assisting CIOs and their staffs to be more strategic, less tactical, more responsive and focused on line-of-business needs and requirements first.

Disclosure: ServiceNow paid for travel to Knowledge13.  I’ve never held equity positions in ServiceNow, and they are not a client.

10 Ways Cloud Computing Is Revolutionizing Manufacturing

manufacturing floorThe best manufacturers I’ve visited this year all share a common attribute: they are obsessed with making themselves as easy as possible to work with from a supply chain, distribution and services standpoint.  Many are evaluating cloud-based manufacturing applications including Enterprise Resource Planning (ERP) and several have adopted cloud-based applications across their companies.

With so much interest, there is much confusion as well.  I recently spoke with Cindy Jutras, founder and CEO of MintJutras.  Her firm has recently completed a survey of SaaS adoption in manufacturing, distribution and other industries.  She found the following:

  • 49% of respondents in the manufacturing & distribution industries do not understand the difference between single- and multi-tenant SaaS architectures.  Overall 66% of respondents to the survey did not know.
  • SaaS-based applications are 22% of all manufacturing and distribution software installed today, and will grow to 45% within ten years according to MintJutras.
  • The three most important characteristics of a SaaS solution in manufacturing and distribution include giving customers a measure of control over upgrades, consistent support for global operations and allowing for rapid and frequent upgrades.

Cindy Jutras Research May 8 2013

Why Manufacturers Are Looking To Cloud Computing  

Manufacturers are under constant pressure to increase accuracy, make process speed a competitive force, and capitalize on their internal intelligence and knowledge to make every supplier, distributor and service interaction count.  The manufacturers spoken and visited with to gain the following insights are in the high tech, industrial and aerospace and defense industries, where rapid product lifecycles and short time-to-market schedules are commonplace.

Cloud-based strategies give these companies the chance to bring their own innate intelligence and knowledge into every sales situation.  While on-premise systems could also do this, cloud-based systems were quicker to roll out, easier to customize and showed potential to increase adoption rates across resellers.

One manufacturing manager explained how during a new product launch the speed and volume of collaboration was so rapid on between suppliers and distributors that an allocation situation was averted.  That he said, made senior management believers.  These epiphanies are happening daily in manufacturing.

Based on my visits with manufacturers, here are the ten ways they are using cloud computing to revolutionize manufacturing:

  • Capturing and applying company-wide intelligence and knowledge through the use of analytics, business intelligence (BI), and rules engines.  For the many manufacturers who rely on build-to-order, configure-to-order and engineer-to-order strategies as a core part of their business models, using cloud-based platforms to capture knowledge and manage rules is accelerating. A key part of this area is mobility support for analytics, BI and rules engine reporting and analysis.
  • Piloting and then moving quickly to full launch of supplier portals and collaboration platforms, complete with quality management dashboards and workflows.  Among the manufacturers visited, those in high tech are the most advanced in this area, often implementing Vendor Managed Inventory (VMI) and demand management applications that deliver real-time order status and forecasts.
  • Designing in services is now becoming commonplace, making cloud integration expertise critical for manufacturers.  From simplistic services integration on iPhones to the full implementation of voice-activated controls including emergency assistance in the latest luxury cars, adding in services integrated to the cloud is redefining the competitive landscape of industries today.  Revising a product or launching an new product generation with embedded services can mitigate price wars, which is why many manufacturers are pursing this strategy today.
  •  Accelerating new product development and introduction (NPDI) strategies to attain time-to-market objectives. Using cloud-based platforms in high tech manufacturing is growing today as time-to-market constraints are requiring greater collaboration earlier in design cycles.
  • Managing indirect and direct channel sales from a single cloud platform tracking sales results against quota at the individual, group and divisional level is now commonplace across all manufacturers visited.  Dashboards report back the status by each rep and for sales managers, the profitability of each deal.
  • Using cloud-based marketing automation applications to plan, execute and most important, track results of every campaign.  Marketing is under a microscope in many manufacturers today, as marketing automation applications have promised to deliver exceptional results and many manufacturers are still struggling to align their internal content, strategies and ability to execute with the potential these systems promise.
  • Automating customer service, support and common order status inquiries online, integrating these systems to distributed order management, pricing, and content management platforms.  Manufacturing industries are at varying levels of adoption when it comes to automating self-service.  The cost and time advantages in high tech are the highest levels of adoption I’ve seen in visiting manufacturers however.
  • Increasing reliance on two-tier ERP strategies to gain greater efficiencies in material planning, supplier management and reduce logistics costs.  Manufacturers are also using this strategy to gain greater independence from a single ERP vendor dominating their entire operations.  Several manufacturers remarked that their large, monolithic ERP systems could not, without intensive programming and customization, scale down to the smaller operational needs in distributed geographic regions.  Cloud-based ERP systems are getting the attention of manufacturers pursuing two-tier ERP strategies.  AcumaticaCincomMicrosoftNetSuite and Plex Systems are leaders in this area of ERP systems.
  • Reliance on cloud-based Human Resource Management (HRM) systems to unify all manufacturing locations globally.  This often includes combining  multisite talent management, recruiting, payroll and time tracking.  Contract manufacturer Flextronics uses Workday to optimize workforce allocations across their global manufacturing centers for example.

Bottom Line:  Using cloud-based systems to streamline key areas of their business, manufacturers are freeing up more time to invest in new products and selling more.

Microsoft’s Cloud Computing Strategy and Roadmap Evident at Convergence 2013

cloud-multi-tenancyKirill Tatarinov’s keynote this morning at Microsoft’s Convergence 2013 marks a subtle, yet very significant shift in how this technology leader is marketing itself to partners and the outside world.  They are humanizing their marketing, messaging and products.

Gone is the Spock-like precision of presentations packed with roadmaps, mind-numbing metrics and intricate feature analysis.  The Nick Brophy Band made the keynote complete by delivering excellent sets.

Microsoft is learning that telling a good story trumps terabytes of metrics. They delivered a strong keynote today starting out showing how attendees reached out to the local community and helped Habitat for Humanity.  Kirill then based the majority of his keynote on four customer success stories taken from the Microsoft Customer Excellence Award winners. Chobani, Shock Doctor, Revlon and Weight Watchers shared how they were able to better connect with customers and run more efficient businesses using Microsoft Dynamics.

The only aspect of these award winner’s stories that fell short was how the complexity of back office system integration was glossed over.  No mention of third party or legacy system integration was made, which could have shown how far Microsoft and its partners have progressed on this point, especially with the help of integration partners like Scribe Software.

Microsoft’s Cloud-First Strategy Playing Well With Partners

For Microsoft to succeed with Windows Dynamics and Azure, they are going to need each partner and reseller to believe in the vision of a cloud-first strategy, then translate their unique expertise into sales.  That’s going to be a challenge that Microsoft will have to deal with daily as it looks to further strengthen its partner and reseller base.  The recent Azure outage caused by an expired SSL certificate is on the minds of many partners and resellers here too.  Microsoft is promoting their Windows Azure Service Dashboard heavily here as a result.

Despite that recent outage, Microsoft’s ecosystem on Dynamics is flourishing , as is evidenced by the attendance and participation in this show.  The cloud-first strategy has infused a sense of hope and anticipation in many partners and resellers.  Walking the floor yesterday and today, nearly eight of every ten partners offered up how they are planning on the cloud without being asked about it.

Microsoft 2013 Roadmap Embracing the Cloud, Devices and Services    

Kirill Tatarinov’s keynote underscored how committed Microsoft is to becoming as cloud, devices and services company.  He cited the statistic that there are more devices connected to the Internet today than there are human beings on the planet.

Through several examples he also showed how Microsoft is moving full speed into being a devices and services business.  Microsoft Windows Azure is the foundational component to this strategy.  While Kirill did not specifically say that, it is clear from an architectural standpoint Windows Azure will be the foundational element of their devices and services strategy.  Microsoft is already competing with market leader Amazon Web Services, Google, Rackspace and many others.  For more information on the competitive landscape of this market, please see my previous post, Demystifying Cloud Vendors.

From a roadmap perspective this will also force Microsoft to support many more mobile operating systems and environments than they ever have before.  For their device and services strategy to succeed for example, they will have to support Google Android and Apple iOS device interfaces capable of integrating with SQL Server, at a minimum.

The following table showing recently announced updates to the 2013 Microsoft Product Roadmap first appeared on the Redmond Channel Partner website on march 18th.

Microsoft roadmap analysis

Source: Redmond Channel Partner Magazine  

Microsoft reports that Office365 will go to an accelerated release cycle, further capitalizing on the nature of a cloud-based architecture.  Resellers at this conference like the  Office 365 Open licensing program because it allows them to direct-bill customers for use of the suite, in addition to paying for the bundle of their services. Windows Azure-hosted versions of Dynamics NAV and Dynamics GP will arrive in mid-2013 according to the article as well.

For the cloud, device and services strategy to succeed Microsoft must also succeed in convincing enterprise accounts to migrate their applications to Windows Azure.  This is one of the most critical areas for the future of their cloud strategy in the enterprise, so expect to see customer stories and ongoing messaging on this point.

Bottom line: Microsoft is transitioning to a more humanized approach to marketing while embracing a cloud, device and services strategy. It will be the partner ecosystem that transforms that vision into a profitable reality.

Why Cloud Computing Is Slowly Winning The Trust War

Cloud computing Seeing skeptical CIOs agree to cloud-based pilots of Customer Relationship Management (CRM), Enterprise Resource Planning (ERP) and other applications is evidence of how cloud computing is slowly winning the trust war.

Further evidence can be seen from how skeptical many of these CIOs initially were, and how successful pilots led to their gradual trust.

This trust hasn’t come cheap however.

Every one of these CIOs spoken with, across a range of manufacturing companies, learned that Service Level Agreements (SLAs) aren’t sufficient to manage the areas of security, privacy and confidentiality on their own.  Cloud computing vendors have used SLAs as a means to imply security standards are met; one CIO told me he had an audit done to see if the SLA targets promised were realistic.  They weren’t and he moved on to another vendor.  That is the level of skepticism and lack of trust many CIOs initially have about the cloud today.  Add to that how much Europe doesn’t trust the cloud, and any CIO of a manufacturing or services business that has operations globally has ample reason to be skeptical about cloud computing.  The highly visible failures of Amazon, Apple, Google, Microsoft continues to fuel skepticism and distrust of cloud computing as well.

Despite these factors, cloud computing is slowing winning the trust war.  Here are the key take-aways from my conversations and visits with CIOs and their departments over the last two weeks:

  • Service Level Agreement (SLA) claims of security, privacy and confidentiality often only partially cover the unique needs of a given business – rarely all of them.  CIOs complained that the SLAs they were initially given for cloud pilots by vendors lacked any insight into their core business, how it operated, and how the cloud-based applications could contribute greater insight and intelligence.  Only after several revisions and additions of performance measurements tied to business strategies did these skeptical CIOs let the pilots go on.  Model contracts for defining privacy, for these CIOs, are also losing credibility.  These CIOs forced the issue of a highly specific privacy plan from vendors and got them.
  • For global cloud deployments, CIOs viewed the development a roadmap and plan for how to deal with transborder data flow restrictions and in-country compliance for data confidentiality, security and personal information protection as critical.  One manufacturing CIO is setting up a two-tier ERP system throughout Europe has to first define the global privacy regulations across each nation and province.  Depending on the European nation this could include defining the physical location, contents and specific configuration of every server used.  Germany has among the most intensive data protection rules and requirements, which further require intensive roadmap and plan development to stay in compliance.
  • The most skeptical CIOs run scenario tests of full data and record extractions during pilots.  This is a safeguard in case the relationship with the cloud provider goes badly, and also to make sure they can quickly get their data back and avert vendor lock-in.  As part of this many CIOs want to see proof that data deletion has worked correctly on the provider’s servers.
  • The most trustworthy cloud computing pilots quickly move beyond basic analytics including ROI to deliver expertise and knowledge specific to the clients’ business.  This is the most powerful dynamic of all in the victories cloud computing is having in the trust war.  When a cloud pilot moves beyond showing how it can automate a process – say payroll for example – and starts making contributions to the expertise and knowledge of a company, trust grows quickly.   At that point trust becomes an accelerator for cloud computing and the platform and applications become part of the IT strategy of a business.

Bottom line:  Trust is the greatest accelerator there is in cloud computing’s growing adoption, and that’s earned when cloud applications get beyond simple metrics to delivering insights and useful intelligence on secured platforms.

Thank you Cindy Jutras and Lisa Lincoln for your contributions and insights on this as well.

Additional Reading and References:

Demirkan, H., & Goul, M. (2013). Taking value-networks to the cloud services: Security services, semantics and service level agreements. Information Systems and eBusiness Management, 11(1), 51-91.

Khan, K. M., & Malluhi, Q. (2010). Establishing trust in cloud computing. IT Professional Magazine, 12(5), 20-27.

John C. Roberts, II , Wasim Al-Hamdani, Who can you trust in the cloud?: a review of security issues within cloud computing, Proceedings of the 2011 Information Security Curriculum Development Conference, p.15-19, September 30-October 01, 2011, Kennesaw, Georgia

Rodero-Merino, L., Vaquero, L. M., Caron, E., Muresan, A., & Desprez, F. (2012). Building safe PaaS clouds: A survey on security in multitenant software platforms. Computers & Security, 31(1), 96. Link:

Roundup of Cloud Computing & Enterprise Software Market Estimates and Forecasts, 2013

157989221When the CEO of a rust-belt manufacturer speaks of cloud computing as critical to his company’s business strategies for competing globally, it’s clear a fundamental shift is underway.

Nearly every manufacturing company I’ve spoken with in the last ninety days has a mobility roadmap and is also challenged to integrate existing ERP, pricing and fulfillment systems into next-generation selling platforms.

One of the most driven CEOs I’ve met in manufacturing implemented a cloud-based channel management, pricing, quoting and CRM system to manage direct sales and a large distributor network across several countries.  Manufacturers are bringing an entirely new level of pragmatism to cloud computing, quickly deflating its hype by pushing for results on the shop floor.

There’s also been an entirely new series of enterprise software and cloud computing forecasts and market estimates published.  I’ve summarized the key take-aways below:

  • Enterprise sales of ERP systems will grow to $32.9B in 2016, attaining a 6.7% CAGR in the forecast period of 2011 to 2016.   CRM is projected to be an $18.6B global market by 2016, attaining a CAGR of 9.1% from 2011 to 2016.   The fastest growing category of enterprise software will be Web Conferencing and Team, growing at a 12.4% CAGR through the forecast period.  The following graphic compares 2011 actual sales and the latest forecast for 2016 by enterprise software product category.  Source:  Gartner’s Forecast Analysis: Enterprise Application Software, Worldwide, 2011-2016, 4Q12 Update Published: 31 January 2013

Figure 1 enteprise spending

Figure 2

figure 3 cloud computing

 public cloud forecast

Forrester Wave

  • IDC is predicting Cloud Services and enablement spending will hit $60 billion, growing at 26% through the year and that over 80% of new apps will be distributed and deployed on cloud platforms.  Their predictions also are saying that 2.5% of legacy packaged enterprise apps will start migrating to clouds.  Source: Top 10 Predictions, IDC Predictions 2012: Competing for 2020 by Frank Gens. You can download a copy of the IDC Predictions here:

First Steps to Creating a Cloud Computing Strategy for 2013

Cloud computing strategy 2013 will be one of the most pivotal years for cloud computing because trust in these technologies is on the line.

Expectations are high regarding these technologies’ ability to deliver business value while reducing operating costs.  Enterprises’ experiences have at times met these high expectations, yet too often are getting mixed results.  Managing cloud expectations at the C-level is quickly emerging as one of the most valuable skills in 2013. The best CIOs at this are business strategists who regularly review with their line-of-business counterparts what is and isn’t working.  These CIOs who are excelling as strategists also are creating and continually evaluating their cloud computing plans for 2013.  They are focusing on plans that capitalize the best of what cloud computing has to offer, while minimizing risks.

CIOs excelling as strategists are also using cloud computing planning to punch through the hype and make cloud technologies real from a customer, supplier and internal efficiency standpoint.  Lessons learned from these cloud computing planning efforts in enterprises are provided below:

  • Cloud computing needs to mature more to take on all enterprise applications, so plan for a hybrid IT architecture that provides both agility and security.  This is a common concern among CIOs in the manufacturing and financial services industries especially.  As much as the speed of deployment, customization and subscription-based models attract enterprises to the cloud, the difficult problems of security, legacy system integration, and licensing slow its adoption.  There is not enough trust in the cloud yet to move the entire IT infrastructure there in the majority of manufacturing companies I’ve spoken with.
  • Reorganizing IT to deliver greater business agility and support of key business initiatives will be a high priority in 2013.  The gauntlet has been thrown at the feet of many CIOs this year: become more strategic and help the business grow now.  Cloud is part of this, yet not its primary catalyst, the need to increase sales is.  IT organizations will increasingly reflect a more service-driven, not technology-based approach to delivering information and intelligence to the enterprise as a result.
  • Recruiting, training and retaining cloud architects, developers, engineers, support and service professionals will be a challenge even for the largest enterprises.  There isn’t enough talent to go around for all the projects going on and planned right now.  State Farm Insurance has 1,000 software engineers working on their mobility applications for claims processing and quoting for example.  And they are hiring more.  Certifications in cloud technologies are going to be worth at least a 30 to 50% increase in salary in specific positions. This is very good news for engineers who want to differentiate themselves and get ahead in their careers, both financially and from a management standpoint.
  • Measuring the contributions of operating expense (OPEX) reductions is going to become commonplace in 2013.  From the cloud computing plans I’ve seen, OPEX is being tracked with greater accuracy than in any other year and will be a strong focus in the future.  The capital expense (CAPEX) savings are clear, yet OPEX savings in many cases aren’t. Cloud computing’s greatest wins in the enterprise continue to be in non-mission critical areas of the business.  This is changing as cloud-based ERP systems gain adoption within businesses who are constrained by monolithic ERP systems from decades ago.  Plex Systems is a leader in this area and one to watch if you are interested in this area of enterprise software.  SaaS is dominating in the area of lower application costs and high user counts, which is the Public Computing Sweet Spot in the following graphic:

Figure 1 Cloud Computing Planning Guide

Source: 2013 Cloud Computing Planning Guide: Rising Expectations Published: 1 November 2012 Analysts: Drue Reeves, Kyle Hilgendorf

  • Start building a SaaS application review framework including Service Level Agreement (SLA) benchmarks to drive greater transparency by vendors.  Gartner forecasts that the SaaS-based cloud market will grow from $12.1B in 2013 to$21.3B in 2015, with the primary growth factors being ease of customization and speed of deployment. CIOs and their staffs have SaaS frameworks already in place, often with specific levels of performance defined including security and multitenancy audits.  SLAs are going to be a challenge however as many vendors are inflexible and will not negotiate them. At a minimum make sure cloud service providers and cloud management platforms (CMP) have certifications for ISO 27001 and Statements on Standards for Attestation Engagements (SSAE) No. 16, as this shows the provider is making investments in availability, security and performance levels.
  • Create a Cloud Decision Framework to keep technology evaluations and investments aligned with business strategies.  Business and application assessments and the vendor selection process need to take into account application requirements, role of external cloud resources, and how the RFI will be structured. These process areas will vary by type of company – yet concentrating in application requirements goes a long way to reducing confusion and forcing trade-offs in the middle of a review cycle.  The following is an example of a Cloud Decision Framework:

Figure 2 Sample Cloud Decision Framework

Source: 2013 Cloud Computing Planning Guide: Rising Expectations Published: 1 November 2012 Analysts: Drue Reeves, Kyle Hilgendorf

  • Mitigating risk and liability through intensive due diligence needs to become any cloud-based companies’ core strength.  Regardless of how the HP-Autonomy litigation is resolved it is a powerful cautionary tale of the need for due diligence.  And let’s face it: there are way too many SaaS companies chasing too few dollars in the niche areas of enterprise software today.  A shakeout is on the way, the market just can’t sustain so many vendors.  To reduce risk and liability, ask to see the financial statements (especially if the vendor is private), get references and visit them, meet with engineering to determine how real the product roadmap is, and require an SLA.  Anyone selling software on SaaS will also have revenue recognition issues too, be sure to thoroughly understand how they are accounting for sales.
  • Design in security management at the cloud platform level, including auditing and access control by role in the organization.  One manufacturing company I’ve been working with has defined security at this level and has been able to quickly evaluate SaaS-based manufacturing, pricing and services systems by their security integration compatibility.  This has saved thousands of dollars in security-based customizations to meet the manufactures’ corporate standards.

Bottom line: 2013 is the make-or-break year for cloud in the enterprise, and getting started on a plan will help your organization quickly cut through the hype and see which providers can deliver value.

SaaS Adoption Accelerates, Goes Global in the Enterprise

In working with manufacturers and financial services firms over the last year, one point is becoming very clear: SaaS is gaining trust as a solid alternative for global deployments across the enterprise.  And this trend has been accelerating in the last six months.  One case in point is a 4,000 seat SaaS CRM deployment going live in Australia, Europe, and the U.S. by December of this year.

What’s noteworthy about this shift is that just eighteen months ago an Australian-based manufacturer was only considering SaaS for on-premises enhancement of their CRM system.  What changed?  The European and U.S. distribution and sales offices were on nearly 40 different CRM, quoting, proposal and pricing systems.  It was nearly impossible to track global opportunities.

Meanwhile business was booming in Australia and there were up-sell and cross-sell opportunities being missed in the U.S. and European-based headquarters of their prospects. The manufacturer  chose to move to a global SaaS CRM solution quickly.  Uniting all three divisions with a global sales strategy forced the consolidation of 40 different quoting, pricing and CRM systems in the U.S. alone.  What they lost in complexity they are looking to pick up in global customer sales.

Measuring Where SaaS Is Cannibalizing On-Premise Enterprise Applications

Gartner’s Market Trends: SaaS’s Varied Levels of Cannibalization to On-Premises Applications published: 29 October 2012 breaks out the percent of SaaS revenue for ten different enterprise application categories.  The greener the color the greater the adoption.  As was seen with the Australian manufacturer, CRM continues dominate this trend of SaaS cannibalizing on-premise enterprise applications.

Additional take-aways from this report include the following:

  • Perceived lower Total Cost of Ownership (TCO) continues to be the dominant reason enterprises are considering SaaS adoption, with 50% of respondents in 2012 mentioning this as the primary factor in their decision.
  • CRM is leading all other enterprise application areas in net new deployments according to the Gartner study, with the majority of on-premise replacements being in North America and Europe.
  • Gartner projects that by 2016 more than 50% of CRM software revenue will be delivered by SaaS.  As of 2011, 35% of CRM software was delivered on the SaaS platform.  Gartner expects to see SaaS-based CRM grow at three time the rate of on-premise applications.
  • 95% of Web analytics functions are delivered via the SaaS model  whereas only 40% of sales use cloud today according to the findings of this study.
  • The highest adoption rates of SaaS-based applications include sales, customer service, social CRM and marketing automation.
  • SaaS-based ERP will continued to be a small percentage of the total market, attaining 10% cannibalization by 2012.  Forrester has consistently said this is 13%, growing to 16% by 2015.
  • Office suites and digital content creation (DCC) will attain compound annual growth rates (CAGR) of 40.7% and a 32.2% respectively from 2011 through 2016. Gartner is making the assumption consumers and small businesses will continue be the major forces for Web-based office suites through 2013.
  • The four reasons why companies don’t choose SaaS include uncertainty if it is the right deployment option (36%), satisfaction with existing on-premise applications (30%), no further requirements (33%) and locked into their current solution with expensive contractual requirements (14%).

Bottom Line: Enterprises and their need to compete with greater accuracy and speed are driving the cannibalization of on-premise applications faster than many anticipated; enterprise software vendors need to step up and get in front of this if they are going to retain their greatest sources of revenue.

Source:  Market Trends: SaaS’s Varied Levels of Cannibalization to On-Premises Applications Published: 29 October 2012 written by Chad Eschinger, Joanne M. Correia, Yanna Dharmasthira, Tom Eid, Chris Pang, Dan Sommer, Hai Hong Swinehart and Laurie F. Wurster


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