Maybe this has been staring me in the face for some time now, but in recent conversations I have started to realise that the economics of Cloud make for a deeply profound change for suppliers in the IT industry.
First a bit of clarification. Private cloud – essentially setting up and managing a flexible, virtualised hosting infrastructure, changes little for either customer or supplier. It's still, predominantly, a story about capital investment in large swathes (although financing agreements mean that that CAPEX can become OPEX on an accounting level). For public cloud, however, the cost model becomes a pure OPEX model, where customers pay for the services as they consume them.
An issue for the accountants it might seem – but this is going to have a deep impact on the way in which software companies sell services (as opposed to products). In the traditional model, a sale of software licences is a one-off transaction, and the sales function in the software company will have little or no contact until upgrade or renewal time comes along. The successful adoption of the product is left to the customer, and has tended to be of only indirect concern to the vendor.
However, in the new “as a service” world, revenue from customers is not guaranteed on the signing of a deal, but on the eventual usage of the service. As such, software companies providing services will have to understand how to develop lifetime relationships with their customers either directly or through partners, because revenue depends on driving usage.
This new model is probably more suited to revenue-generating (for the customer) services – a ecommerce site, for example, where usage leads (hopefully) to sales. In a more traditional business systems model, however, where the IT function traditionally is tasked with controlling cost, a pay-per-use service model means potential for conflicting interests between customer and supplier in the future, especially where companies like Salesforce are marketing their products to people in businesses (Sales folk) who may not necessarily have control over the budget for IT (the IT department). There again this latter challenge is no different from Apple heavily marketing iPads to CxOs, I guess.
The impact that these new models of software delivery are going to have are so much deeper than just technology issues, or just new forms of outsourcing. It's a challenging time!
mmitII 