Cloud and the value curve

Last week Rebecca Wettemann, our VP of Research, published a piece looking at NetSuite’s growth over the previous year (o24 – What NetSuite’s growth means for ERP).  In it she makes the point that an increasing number of organizations normally considered conservative are embracing the cloud, and that’s helping NetSuite along with other cloud focused vendors such as Acumatica, FinancialForce, and Plex.  More importantly she points out that the cloud eliminates the stair step upgrade process, recovering the lost application value from delayed upgrades.

Traditionally ERP was an on-premise application deployed and then customized to meet a specific situation.  The deployment and customization effort was expensive as was the annual care and feeding of the now unique solution.  What organizations learned was that once deployed, the application becomes old, and it continues to age until an investment in an upgraded is warranted. As it ages organizations miss out on the new features and increased productivity that comes with new versions until they can justify an upgrade.  And that upgrade is a lot harder when the solution has been highly customized.  In fact, often the upgrade is justified only after an end-of-life notice from the vendor.  Even then, organizations such as Remedy make a healthy business supporting old and infirmed software versions.

This leads us to an interesting, 2-pronged value proposition. We know the cloud provides a greater ROI through lower initial and ongoing costs (m108 – Cloud delivers 1.7 times more ROI) but it also delivers value through immediate access to the latest features and less disruptive upgrades.

Twitter delivers value

Twitter has been in the news recently, missing a Wall Street expectation that sent the stock downward.  I’m not sure the missed number (241 million user count verses Wall Street’s expected 243 to 250 million) means all that much, or the stock valuation (market cap around 30B!) has any basis in reality, but fundamentally Twitter delivers value, and that means it will be around for some time to come.

Twitter gives organizations a way to communicate directly with their ecosystem (customers, friends, suppliers) in an immediate and easily consumable way. At Nucleus we use it daily and have corporate policies in place to ensure the content on our feed is relevant and valuable.  We put those policies in place because the social norm for Twitter has evolved to encourage brevity, and that’s good.  There are still the few out there who insist on tweeting their every movement but their numbers are diminishing (I expect into a few dark pools of self-congratulating thousands endlessly retweeting each other in a MySpace-like frenzy of follower one-upmanship — you all know who you are).  Anyway, the cool kids have moved on to Snapchat (L.L. Bean boots are in, UGG’s are out) but they are still following twitter (celebs, fashion, etc.), and that’s important.  Twitter remains relevant.  It’s easy, immediate, and valuable when managed correctly. I’m not sure what the stock price will be, but I’m sure it will still be around in 20 years.

Losing to no decision… you’re probably confusing TCO with ROI.

If you can prove that value of what you’re selling then you can sell almost anything to a rational thinking buyer.  Given that, why do sales push or die due to no decision?  It’s likely your marketing message either isn’t building a compelling value case or worse, is focusing on TCO.

I was working with a vendor recently whose entire marketing message was essentially that they were cheaper.  Although their Web site was full of technical discussions there was nothing about the value they deliver but rather a lot of comparison information and emphatic statement about how they’re cheaper and easier to deploy.  I’d like to say that’s okay but it’s really not.  McDonalds sells cheaper hamburgers than Morton’s but that doesn’t make it more attractive to eat at McDonalds or encourage me to eat a hamburger instead of pizza.

Focusing on TCO rather than ROI hurts the sales effort in four ways. First, there’s no compelling reason to move forward with the project unless the customer is replacing an existing solution.  Second, you signal the prospect that there’s no difference between solutions and the only reason to choose you is cost, a byproduct of which is an increase in the number of prospects demanding an additional discount.  Third, you allow your competitors to set the value message and the direction of the discussion.  And finally, you put your project below any other project in the priority list that delivers value.

Always focus on value first.

Jaspersoft and Amazon Web Services

We just published a research note looking at the value of Jaspersoft and Amazon Web Services.  It’s an interesting piece and you can get it here.  In short, Jaspersoft’s business intelligence server is available through the AWS marketplace.  We found a number of benefits for customers but the most interesting may be the pricing model and what it means for technology.

We’ve all watched the evolution from on premise, where you “own” the solution, to on demand, where you “rent” the solution.  There may be a few hold outs but the numbers are relentless and we can declare SaaS the winner.  But hold on a minute.  The Jaspersoft AWS paring takes the next logical step for SaaS from “rent” to pay-as-you-go.  With Jaspersoft and AWS you get the elastic computing of Amazon with a $0.40 per hour price for Jaspersoft.  Pay when you need it, as you need it.  It’s a reasonable and flexible solution that changes the software pricing model.  It makes sense and it’s not hard to imagine we’ll see this pricing model as an alternative from many SaaS providers in the near future.

2011 vs 2013 : Cloud versus On-Premise

Continuing my last post it’s interesting to compare 2011 ROI case studies with 2013 ROI studies and in particular the results of cloud versus on-premise projects. Cloud case studies averaged 522% ROI in 2011 while for 2013 they averaged 359%.  Despite the lower ROI the payback was better, dropping from 12 months in 2011 to 5.8 months in 2013. That tells us 2011 projects were bigger and more impactful while 2013 projects were more modest and incremental.  The total investment costs confirm that view with 2013 projects costing 1/3 that of 2011 projects.  On-premise projects were relatively stable with around a 300% ROI and 8 month payback in both years.  Cloud still beats on-premise when it comes to ROI and payback and in all three years made up approximately 50% of the total projects.

Here’s the interesting part.  In both 2011 and 2013 the ongoing costs during the first 3 years remained surprisingly consistent.  For on-premise projects the ongoing costs made up approximately 16% of the total project while for cloud projects the ongoing costs made up 45% of the total.  The ongoing costs of cloud are higher but don’t seem to be increasing.  The outlook for consultants is a bit less rosy, dropping from 50% of the initial cost in 2011 to 36% in 2013, reflecting the general trend towards less customization.

Facebook and social success

Could there be dark clouds on the horizon for Facebook?  I conducted a very informal survey of teenagers during the holiday week (well, basically I just asked a few of them) and found a growing lack of interest in the social network.  I didn’t find anyone closing their Facebook account but not updating seemed to be a common theme.  It’s “just people bragging” was mentioned more than once while the instant gratification of Snapchat seemed to be the popular alternative.  Now I won’t say the comments of a few random teenagers should generate a call to your broker to dump your Facebook stock but it might provide a bit of pause for companies building internal social networks. Personal profiles of abilities may not be viewed in a positive light if it crosses some magic line to self-promotion. Of course, where that magic line is actually drawn is hard to define but it’s important to know it’s there, and if crossed, your social effort may turn negative quickly.  Beyond the selection of the technology, such as Salesforce Chatter, consider ongoing monitoring of the underlying current in your social network.  Hints of negative feedback may warrant early intervention.