Wednesday, April 02, 2014

To be or not to be… in the Cloud. Examining the Motivation

“The undiscovered country from whose bourn no traveller returns” (William Shakespeare)

Yes, it is 2014 and there still are thousands of ISVs who are selling their software in the old, on-premise model.  Surely, many of them are doing quite well, with a large, happy customer base, which is paying for upgrades, new versions and the yearly 20% maintenance fees.
Nevertheless,  I doubt  there is even a single board of directors that is not considering going to the Cloud.
Everyone wants to be in the Cloud. Many ISVs have started offering their services as a Hosted solution (claiming that they provide SaaS) just to have a presence there, and have added a little cloud to their logos or landing page to enhance that impression.

The Motivation
I have been advising ISVs for over a decade on their move to the Cloud (or SaaS as we old-timers still call it).  It is surprising though, how many of the companies I consulted to couldn't articulate why they were doing it.
I always begin with a Motivation session where the C-level staff is gathered to discuss what their thoughts on the matter are, and I find out, time after time, that there is no consensus on this matter.
Since the transition from a Product company to a Service company is so profound, the paradigm change so deep and the costs are not trivial (sometimes they could bring a company to its knees), it is crucial to understand why  the ISV is willing to set on this adventure.
The discussion below outlines the various reasons why an ISV should invest in this process.

Everyone is in the Cloud
Yes, it is fashionable, and I don’t belittle this motivation.  Sometimes a company must have a presence in the Cloud for marketing purposes, just because it is expected and the company brands itself as a forward looking endeavor.  But is this a good enough reason ? I would look into the next items to try to justify the move which is by no means a simple one.

The employees are demanding it
As flimsy as it may sound, this is not dissimilar to the previous motivation. The workforce is getting younger (in age and in mentality). Employees who think that the company is not ‘with it’ might start looking elsewhere, to companies that are more on the bleeding edge of the technology and market. Although this should not be a major consideration, it still is a consideration and might tip the balance toward a decision.

The competition is offering it
As we all know, SaaS solutions are very attractive from many perspectives. If there are a number of new, pure-play SaaS companies that are starting to bite into your customer base, this is a serious consideration. But, it should not be the only consideration; one must examine and compare exactly what the competition is offering. Many times, SaaS companies will offer a small subset, or an over-simplified solution of what your product does. If the competition is up-to-par in most aspects of your solution, you may already be fighting a retreating battle. If not, it is possible that you may lose the smaller customers but could still have an advantage in the larger companies. If this is the case, you should consider the transition to SaaS, while maintaining your advantage, rather than compete with the smaller players.

Your customers are demanding it
That is a very compelling argument. No one knows better that your own customers. If customers are requesting an Cloud solution, the company should listen carefully. Still, it is important to engage with the customers and understand exactly what it is they are looking for in a SaaS solution. Perhaps it is the recurring payment option – that could be done with an on-premise solution as well. Perhaps they are looking for certain features. Maybe it would make sense to offer new options in an integrated version, rather than rewrite the whole application from start.

You want to expand into a new customer base
Often times, the SaaS option will allow a company to reach out into a large customer base that was below the radar because of price or complexity.  While you were selling to the high end customers, there might be a vast group of smaller businesses that could benefit from your solution, but were always out of reach. If this is the great motivator, one should carefully examine what should be offered. Is it the same set of features? Is it a light weight version, or a subset? Are your potential, future SaaS customers different from your existing customer base, not only in size but in their needs ?

You want to expand into new territories
One of the advantages of SaaS is “Anytime-Anywhere”. While the old model necessitated local presence for sales and professional services, the SaaS model will allow the company to sell around the globe without the need to have ‘boots on the ground’.  If your local market is saturated, SaaS is a great venue to reach out to the other side of the globe without the expensive and complex logistics it used to take to make that happen. Here again, it is important to articulate what will you be to selling the customers in the geographies; not necessarily the same as the local offering.

To be – Of course
The discussion above does not suggest that after examining the motivation, one would conclude NOT to offer a Cloud solution. Of course every ISV will have to be there sooner or later, otherwise it will become obsolete. But going through this thinking exercise will allow you to define your approach. Understanding the motivation will help identify the target market, the go-to-market approach, the timing and the offering itself.

As an example:  A large British ISV I worked with, wanted to switch to SaaS by taking its flagship product to the Cloud. After going through the process we came to the conclusion that their product was a cash cow for the foreseeable future, and there was no reason to dive into such a large undertaking at this stage. Instead, the decision was to develop a LITE solution to offer to different customer types in new geographies. This allowed the ISV to experiment with a less demanding task, while learning the ropes of the new architecture and new market approach. I am happy to say that they are launching their SaaS solution these days in two new territories.


Shankar Krishnamoorthy said...

Well written, Dani. Movement to SaaS is a huge transition for any on-premise software product company. It requires a cultural change within the organization. It impacts everything from product engineering to release management to customer service to customer acquisition to cashflow. SaaS decision should be backed by business rationale such as "customer demand", "expansion".

Dani Shomron said...

Indeed, Shankar,
The transition to SaaS affects every Silo within the Organization.
I have actually written a number of posts on this very subject.
Following is a link to list of articles:!articles/vstc2=transition