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Blogs > Banks Statement

This Cloud has a silver lining
Martin Banks By: Martin Banks, Proprietor, Lian-James Consultancy
Published: 18th November 2008
Copyright Lian-James Consultancy © 2008

Where there's a recession there is also an opportunity. While excremental in nature, bad economic times can also be just the right fertilizer needed for the next step forward in the application of new ideas or technologies. This one looks set to be a good example of this process in action, particularly in some specific areas of IT.

At one level it is easy to predict that the market sectors which ride out the economic vicissitudes best will be where hardware is not the major investment requirement. This seems to be borne out already with Intel's latest profits warning. The only exception could be where investment in datacentre consolidation, based around tightly managed, high-specification, low-energy, extensively-virtualized servers, could give a boost to the bottom line for some users on the energy-saving front. But even then, the investment would probably be significant enough to make raising sufficient credit difficult. So even gold-plated businesses may find such investments have to be funded from internal resources, making them an even less attractive proposition.

The Cloud and SaaS service delivery models are, however, where the economic clag is most likely to dispense munificence as they can provide low-cost alternative upgrade and enhancement options for users without adding new kit onsite. An example of this is leading SaaS vendor, NetSuite, which just announced a 40%+ rise in like-for-like quarter revenues, while others I have spoken with (all still private companies) happily talk of increasing double-digit growth.

So the penny seems to be dropping for users that Cloud/SaaS does not represent an either/or choice, and a recession is only likely to speed the process. They can add and integrate services that fit both their business needs and their existing onsite resources, a factor which may prove of particular relevance to larger users with well-established IT infrastructures. The fact is that they can use the Cloud/SaaS approach to add resources or services both quickly and cost-effectively. They also have the option to remove the service without being left with the un-used remains of the capital investment, which is likely to be seen as a real advantage in a financial squeeze.

The eventual end of the financial crisis and recession could also be a significant lever in the adoption of Cloud/SaaS into the user community. As the recession ends and growth picks up, the companies with the fastest response to the reappearance of market opportunities will be the ones to benefit most—and they are likely to be the ones that are already experienced in deploying and exploiting Cloud/SaaS solutions.

This could also be the lever that pushes the software vendors to seriously examine their current licencing models, with a move towards the annuity revenue model that will allow pay-per-use Cloud/SaaS business models to flourish. As every business sector is expected to take a financial hit of some kind, now may be a good time for software vendors to take the hit of changing from the upfront one-off licence payment model to the drip-feed annuity model of pay-per-use. None of them have really dared do it during better times as the impact on stock prices would probably have been significant. Now they have an opportunity to do it at a time when stock price fluctuation are no guidance to anything of any current relevance to business.

This is also likely to be the time when new start-up software vendors appear, geared specifically to take advantage of the Cloud/SaaS financial and delivery models. If they avoid the one-off licence payment model they can build their financing around the drip-feed of a growing annuity revenue stream, which should in the long term give them a more stable financial platform.

They will also be looking to exploit the capabilities of the delivery model to deliver flexibility and agility to users within a well-managed environment, for example combining complex mashup capabilities with enterprise-strength governance. Some will also be targeting applications processes that are currently popular as applications but which are not best-suited to Cloud/SaaS delivery models. In both cases, however, collaboration capabilities will be far more important than competitive edge in the marketplace. Software solutions have for years been a collective rather than a single vendor offering and the Cloud will only accelerate this process.

Long term, therefore, this current recession may well end up being seen as the birthplace of Cloud-based Utility Computing, with Service Aggregators meeting end user requirements by brokering packages of services, applications functionality and utilities. They will probably start in vertical market sectors and then grow more horizontal so, yes, there will be aggregators of the aggregators for the biggest users.

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