How To Understand The Economics Of Cloud Computing And Saas

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Bertha Jade White
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1 Business Case Analysis Cloud Computing Economics and SaaS 4 th Session Georg Singer

2 Refresher What did we do during the last 3 sessions? What is cloud computing? What is SaaS? Examples?

3 Agenda License based revenue models SaaS based revenue models What are advantages/disadvantages? Juxtapose classic software consumption model with SaaS model F-Secure Case study

4 Scope of today s lecture Sell software packages (licenses) for local installation Offer service over the cloud - SaaS

5 Economics of software licensing

6 Economics of Software Licensing Many ways to purchase a software license Most common: purchase a license and upgrades Example: Microsoft Office: own the previous version, purchase an upgrade for less than the cost of buying the software for the first time. You are not required to purchase an upgrade, but you may want to. If the people you work with all upgrade, you may want to upgrade too so that you can share documents Example: Intuit, makers of Quickbooks (small business accounting software), is a little pushier. They release a new version of the software every year. You can continue to use your old version. Unless, however, you use one of the services that they also sell, then you have to upgrade

7 Value creation - Software company Minor updates happen frequently and are free major updates require the purchase of an upgrade view (License model)

8 Value to you You realize the value when you upgrade

9 Software License Costs

10 Licensing TCO model

11 SaaS Economics

12 SaaS - Simple definition A company creates a software product and hosts that product in the cloud The company manages the hardware and software and realizes the cost of that management. Customers subscribe to the service getting the right to use the software over the internet, for as long as they continue to pay the recurring subscription fees. The company makes both major and minor updates to the software, and the customers automatically get those updates as part of their subscription.

13 SaaS business impact SaaS sales in 2010 have reached $10B, projected to increase to $12.1b in 2011, up 20.7% from SaaS revenue doubling 2010 numbers by 2015 and reach a projected $21.3b. Customer relationship management (CRM) continues to be the largest market for SaaS. SaaS revenue within the CRM market is forecast to reach $3.8b in 2011, up from $3.2b in 2010 Gartner Group estimates

14 We all are SaaS consumers Facebook Twitter Google Docs Webmail Salesforce.com

15 Value SaaS creation from company side same as license based

16 Saas realized value for customer

17 SaaS costs

18 Is SaaS (cloud) always cheaper?

19 Load provisioning Scenarios for inhouse or cloud decisions - Overprovisioning - When? - How to resolve? - SaaS good cost choice? - Underprovisioning - When? - SaaS good good choice? - Correct provisioning - When is it possible? - SaaS a good cost choice? Above the Clouds: A Berkeley View of Cloud

20 Software Consumer Perspective Pay per use (Google Docs vs. MS office) on a utility basis or per subscription (newspaper, Linkedin) Users avoid CapEX (capital expenditure) Hardware Software Services Device and location independence enable users to access systems using a web browser regardless of their location or what device they are using (e.g., PC, mobile) Upgrades/updates instantly available Security (?) Reliability (?) APIs

21 Software Provider Perspective Marketing Aspects Different sales channel Over the Internet and not through retail Device and location independence sell to wider audience without having to customize as everything works through browser Reliability (?) Security could improve due to centralization of data Business Planning and investing aspects Upfront investment smaller No packaging, logistics etc. Scalability via dynamic ("on-demand") provisioning of resources on a fine-grained, self-service basis near real-time Maintenance of cloud computing applications is easier, since they don't have to be installed on each user's computer. They are easier to support and to improve since the changes reach the clients instantly.

Case Study F-Secure F-Secure Corporation was founded in 1988 in Helsinki F-Secure has also been a front-runner in making use of the World Wide Web and as early as 1994, first to establish a web-based

22 Case Study F-Secure F-Secure Corporation was founded in 1988 in Helsinki F-Secure has also been a front-runner in making use of the World Wide Web and as early as 1994, first to establish a web-based virus information center In 2001, F-Secure signed its first operator agreement. In 2008, F-Secure celebrated its 20th anniversary, a significant milestone for any IT company. F-Secure made switch from license based to cloud based revenue model

23 Questions Why did it take them so long, to get their first customer? How did the landscape look like, when they decided to sell their software as SaaS? What can F-Secure do, to maintain their success from 2008? Future challenges? How will security software be sold? Where will competition come from? what if SaaS becomes the dominant model to consume software? What new capabilities can F-Secure develop to add value to their customers (ISPs)?

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