I read a short, interesting article by Ann Bednarz in CIO Magazine over the holidays. The article discussed the down-to-earth approach that large organizations are taking to their cloud implementations. Having interviewed the “IT Chiefs” at 16 large enterprises, Bednarz and her team found that, “everybody is doing some form of cloud computing, but nobody is all in.”
Interestingly, most of the reported interviewees seemed to be comfortable with the SaaS form the public cloud, particularly for applications, “that aren’t mission critical, such as HR management.” Respondents seemed less willing to put applications that offer competitive advantage into the public cloud. Everyone seems to be building private clouds if only for experimentation.
These industry leaders do not seem too worried about security. One says, “those issues are mitigated by cloud computing because the vendors stay up to date on the latest technology.”
My reaction to the article was that this is more evidence that we are living through a transformation of the enterprise software landscape. In the future, instead of being sold as on site, licensed software (often ripe for customization), generic applications like HR management will all be served up as SaaS. In my opinion this should mean lower costs for the software product providers because they will not have to maintain as many legacy versions of their code. Naturally, this will mean fewer developers, testers, etc. will be needed.
The software providers will probably also get less revenue from the “special” customization projects that have traditionally been commissioned as part of (and a condition of) major new sales and eventually find their way into the standard product. In the software product developers are mindful of this trend, they should be able to recoup lost revenue and maybe even grow through revenue from smaller business than they would typically be able to address in the old license sale model. From what I have seen so far, some software providers are responding positively to this trend, some are not.
Another part of the software industry is being impacted by this trend. Traditionally, software product sales have “pulled through” sales of supporting hardware and software technologies that are sold to the customer – through the software product vendor or directly to the end customer. The software technologies include operating systems, development environments, databases and so on.
These changes in the “software ecosystem” are certain to affect the market players and the way that software is developed and maintained. While customization will never die – just take a look at the software customization driven by salesforce.com – enterprises that decide applications can be SaaS because they are not mission critical are less likely to have teams of developers maintaining and extending those applications.
Is your organization transforming its software development to meet the changing software ecosystem? Does it worry you? Give me a call.
You can find the Bednarz’s article here.