The risks of cloud computing have been completely turned on their head in the past year. Previously, businesses were wary of the cloud due to issues like security and reliability. Now, with cloud vendors having pushed beyond those obstacles, the risk is waiting too long. Many businesses are learning the hard way that the cloud is a competitive advantage for those who aggressively embrace it, but a distinct competitive impediment for those who sit on the sidelines.
The hype surrounding cloud computing often makes it sound like an old-time panacea. It’ll cure vendor-lock. It’ll ease integration pains. And it’s cheap, to boot.
Unlike suspicious cure-alls, the cloud tends to live up to the hype, but that doesn’t always mean the average IT group is able to take advantage of it. IT buyers in the typical enterprise are anchored to expensive legacy systems.
For them, it’s not a matter of whether or not the cloud is viable; rather, it’s a matter of when and how to move to the cloud without abandoning their existing data and systems and, essentially, starting over from scratch.
“I like to use a weather metaphor to discuss the future of cloud computing,” said Chris Weitz, Director of Deloitte Consulting. “There is the weather, which is short term, and then there is climate, which is long term. The cloud computing weather report has all kinds of strange things happening on it. The way the climate is changing, though, is clear.”
While many organizations may be trapped, at this moment in time, by legacy commitments, if they intend to be around in the long term, they’ll embrace the cloud. How they get from here to there, though, fills Weitz’s weather reports with all sorts of strange behaviors.
ARE YOUR ON-PREMISE APPS STUCK IN A COMPUTING ICE AGE?
The quickest way to get beyond all of this clutter is to start small. Many organizations have embraced the cloud for testing or email, while keeping their mission-critical systems in house.
The question now is how long must the getting-your-toes wet stage last, before the typical enterprise is ready to dive in? According to Zach Nelson, President and CEO of NetSuite, what could spark the transition is a tough economic climate. Those relying too heavily on outdated on-premise systems will soon have a tough time competing with their more cloud-aggressive peers.
NetSuite CEO Zach Nelson describes challenges businesses face running core applications on-premise, and many of the advantages derived by running on NetSuite’s cloud.
“Running your core business operations on-premise forces you to cope with a number of problems,” Nelson said. “First, most organizations buy multiple applications for different departments in order to run their businesses. You have one app for accounting, another for sales, another for support and yet another for engineering.”
The typical company ends up paying for a number of duplicate features over and over again, and there is little to no coherence between the various applications. In a down economy, this kind of inefficiency can doom you in the market.
Of course, the easiest way to avoid this sort of duplication trap is to collaborate over the Internet. Here legacy on-premise software fails you yet again. Legacy software wasn’t designed for the Web. Even with newer versions, Web features tend to be poorly functioning add-ons or homespun, less-than-ideal Rube Goldberg workarounds.
Another problem is that legacy software, designed with a one-size-fits all mentality, must be thoroughly customized. An ERP (Enterprise Resource Planning) system for an auto parts supplier will look much different than one for a financial company – even if the two companies are using the exact same application.
“What ends up happening is that customization locks you into a specific point in time,” Nelson said. “The features and configurations that were available when you customized the system are what you are stuck with. In the old model, updates and upgrades force you to abandon all of your customization.”
When you are stuck in time and the climate is changing drastically around you, you run the risk of being as unprepared for new conditions as a woolly mammoth in the tropics.
WITH INFLEXIBLE SOFTWARE NO LONGER ACCEPTABLE, ASAHI KASEI SPANDEX AMERICA EMBRACES THE CLOUD
Asahi Kasei Fibers Corp. is a $10 billion Japanese conglomerate. Its American subsidiary, the approximately $100 million company Asahi Kasei Spandex America, manufactures spandex and other textiles.
Asahi Kasei Spandex America was having trouble with its legacy ERP application from SAP. SAP’s lack of flexibility forced the company into bad trade-offs, constantly adjusting business process to the software rather than the other way around – which is just plain bad business.
An even bigger problem, in these days of tight competition and increasing regulatory pressure, was the fact that SAP could take a month or more to generate financial reports. Finally, the high cost of SAP was tough to justify during such a sharp recession.
Asahi Kasei decided to abandon SAP in favor of the cloud-based ERP platform from NetSuite. Early into the deployment, Asahi Kasei estimated that it would save about $1 million in costs over its previous SAP R/3 software, including licenses and the need for additional employees.
Moreover, the WAN required by SAP was costing $20,000 per month, ten times more than what the company is now paying with NetSuite. Factoring this into the overall budget, Asahi Kasei went from spending 3% of its revenue on SAP to 0.1% with NetSuite, a savings level that was achieved within six months.
NetSuite CEO Zach Nelson provides an overview of Suitecloud.
Since the American subsidiary must report to its publicly traded parent company in Tokyo, Asahi Kasei Spandex America CFO David Stover says a major advantage of NetSuite is flexibility. NetSuite provides him with the financial visibility to work with multiple reporting options.
Stover adds that since NetSuite is simple to use and easy to customize, managers can tailor it to their business process rather than force their business to conform to the software. “SAP is a dictated business strategy, where NetSuite is an open strategy,” he says. With SAP, it would take a consultant up to a month to make a simple change, whereas with NetSuite employees can configure reports instantly and on the fly.
What this means is that competition will continue to drive prices for infrastructure downward, as spinning up instances will look more and more like commodity offerings.
Part of what weighs SAP down and allows cloud-focused companies like NetSuite to beat it in competitive sales situations is that SAP’s legacy as a complicated, shrink-wrap, on-premise application is a poor fit with the Web and new innovations like cloud computing.
“All the major software providers are getting their software ready for the cloud,” said Weitz of Deloitte. “A year ago, that wasn’t the case. Today, though, they understand they will be left behind if they don’t adapt. The cloud is quickly becoming the new normal.”
While SAP and others like it (Oracle, PeopleSoft, Microsoft, etc.) are trying to evolve, the fact that their developers must focus a great deal of attention on maintaining legacy products means that nimbler vendors who built their products with the cloud in mind have a serious head start in the cloud game.
Even though the incumbents have deep pockets, there is no guarantee that they’ll catch up to the new breed of low-cost, flexible, service-driven cloud software provider. In this case, the dinosaur incumbents may well go the way of the dinosaur.
HOW CLOUD ECOSYSTEMS RADICALLY ALTER INTEROPERABILITY AND COLLABORATION
Another advantage emerging cloud vendors have is that once a vendor reaches a certain level of acceptance, ecosystems develop around core products. Salesforce.com, Amazon Web Services, Google Apps and NetSuite’s SuiteCloud Developer Network (SDN) all leverage active user communities and allow them to develop, trade and monetize any add-on or complementary applications.
NetSuite CEO Zach Nelson discusses security concerns regarding running core business operations from the cloud.
With legacy software, interoperability with other applications – new or not – is a struggle, often even violating licensing agreements. In contrast, applications available in cloud ecosystems leverage the openness of cloud APIs to achieve interoperability quickly and easily.
“Legacy applications have a hard time adapting to Web 2.0 concepts like collaboration,” said Aaron Levie, CEO of Box.net. “If you try to open up SharePoint for collaboration, you’ll find that it’s incredibly hard to do.”
Like NetSuite, Box.net’s content management platform was designed to be a cloud solution. “One thing people run into as they move to cloud-based services is the need to interact with data stored elsewhere,” Levie said. With Box.net for NetSuite, users can access, manage and share content from any number of sources without ever leaving NetSuite.
Box.net’s content management tools enable secure collaboration among various cloud solutions, while also making unstructured data stuck in legacy systems available to cloud applications. “Few people realize that the cloud can actually protect your legacy investments by connecting data stuck in various silos,” Levie added.
This saves you from forklift upgrades when you move to the cloud, enabling a smoother, less disruptive transition. Just because you have to evolve doesn’t mean you should do it all at once.
When it comes to the software-as-a-service (SaaS) market, Stanford graduate Zach Nelson is the smartest guy in the room, as well as one of the most experienced. Perhaps you recognize him, as InternetNews.com did, as one of the Top 10 Visionary CEOs of 2008. Or as CRM Magazine did in 2006 when they named him a CRM Influential Leader. You may not have realized that he was the one who promoted and popularized mainstays of the IT industry, such as the McAfee.com portal or the Sun Solaris operating system, before becoming my youngest-ever VP of Marketing at Oracle. Our paths would cross again when NetSuite – called NetLedger at the time – needed a CEO to take it out of the incubator and into the battlefield.
NetSuite enables companies of all sizes to manage all key business operations in a single, integrated system which includes customer relationship management; order management and fulfillment; inventory management; finance; ecommerce and Web site management; and employee productivity. NetSuite is delivered as an on-demand service, so there is no hardware to produce, no large, up-front license fee, and no complex set-ups. Finally, NetSuite's patent-pending "real-time dashboard" technology provides an easy-to-use view into role-specific business information that is always up-to-date.
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