Systems Integrators in the Cloud Era Embracing the Future @DChappellAssoc Copyright 2014 Chappell & Associates
SIs in the Cloud Era The SI world is changing The cloud brings new opportunities and new threats Your business must adapt The changes are different for application development practices and infrastructure practices We ll look at both
Application Development Practices Adapting to the Cloud Era
Building Custom Applications in the Cloud Era Building cloud applications requires some new skills Such as understanding Microsoft Azure But the fundamentals of an app dev practice remain An app dev practice can expand its technical skills without changing its business model Another change is also happening, however: The increasing popularity of creating reusable intellectual property (IP)
Reusable IP A continuum 100% Finished Solutions with Customization Packaged IP Provided by SI Custom Projects Custom Projects Built on SI-Provided Foundation Hosted Finished Solutions with Customization Software as a Service (SaaS) Applications 0% Service Product
Reusable IP A closer look Custom projects built on an SI-provided foundation Finished solutions with customization Hosted finished solutions with customization Software as a Service (SaaS) applications Packaged IP: Reusable frameworks Packaged IP: Customizable application Packaged IP: Customizable hosted application Packaged IP: Multi-tenant SaaS application Typical revenue model: 100% services Typical revenue model: 30% services/70% software Typical revenue model: Per-application, permonth payment Typical revenue model: Per-user, per-month subscription Market characteristics: Repeatable, variable processes Market characteristics: Moderate number of customers with very similar needs Market characteristics: Moderate number of customers with very similar needs Market characteristics: Many customers with nearly identical needs Example: Framework for setting up a data integration process Example: Sentiment analysis with Hadoop on Windows Example: Hosted public key infrastructure (PKI) solution Example: Vertical application built on Microsoft Azure
Packaged IP and Cloud Computing Illustrating the intersection 100% How strong this trend is varies across different parts of the custom app dev landscape Packaged IP Provided by SI 0% On-Premises Cloud
Packaged IP and Cloud Computing A closer look 100% Finished Solution with Customization Hosted Finished Solution with Customization Software as a Service (SaaS) Application Cloud applications: our focus is here Packaged IP Provided by SI Custom Projects Built on SI-Provided Foundation Custom Projects Requires new technical skills 0% On-Premises Cloud Requires new technical skills and a new business model
Illustrating Cloud Applications Hosted Finished Solutions Customer A Customization A Application Customer A SaaS Applications Customer B Customization B Application Customer B SaaS Application Customer C Customization C Customer C Application
Cloud Applications on Microsoft Azure An aside Microsoft partners can purchase a Microsoft Service Provider (MSP) enterprise agreement It gives you a 27% discount off Azure list prices It allows maintaining a separate subscription for each customer And giving the customer a single bill for your application and cloud services But partners can t resell raw Azure services, e.g., VMs You must add value Useful for cloud applications
The Business Model Canvas A tool for thinking about business models Key Key Key Customer Customer Segments Cost Structure Revenue Stream Offering Customer Infrastructure Finance Source: Business Model Generation, Alexander Osterwalder, et al. www.businessmodelgeneration.com
App dev practices today Improve organizations by creating custom business applications Run in customer datacenters Might rely on reusable IP
App dev practices in the cloud era Improve organizations by creating custom business applications Run in customer datacenters and in the cloud Might rely on reusable IP Improve organizations by selling cloud applications Hosted finished solutions with customization SaaS applications
Evaluating Cloud Applications The app dev SI perspective Benefits Offers a path to growth in a commoditized services market Can make sales easier because IT s approval might not be required Can yield bigger margins than selling custom app dev projects Can provide more predictable revenue than selling custom app dev projects Can increase your firm s valuation due to bigger margins and predictable revenue Although you might find a customer who funds a large share of the initial effort Risks Requires some up-front investment with no guarantee of return Requires maintaining two different business models: custom development and cloud apps Requires developing new skills in running cloud apps Steals billable resources from current consulting projects Revenue comes in more slowly than with custom app dev projects
Customer Segments App dev practices today Business leaders They have the desire and the money for custom business apps
Customer Segments App dev practices in the cloud era Business leaders They have the desire and the money for custom business apps With cloud applications Hosted finished solutions: Business leaders SaaS: Business leaders and end users Initial buyers of SaaS applications are often the users of those applications
Revenue Streams App dev SIs today Project fees And updates
Revenue Streams App dev SIs in the cloud era Project fees And updates With cloud applications Hosted finished solutions: Customization fee, monthly fee SaaS: Subscriptions
Cloud Applications Pricing Some options Subscription Such as per user per month or per device per year Might discount advance payment, such as first year up front Per unit Such as per transaction, per gigabyte of storage, per connection, etc. Per-month in lieu of project development fee An SI might build an application with no upfront payment, then charge the customer an ongoing monthly fee
Cloud Applications Revenue A core financial metric: MRR MRR = Monthly Recurring Revenue All recurring revenue in the month minus one-time fees or services Money MRR Time Cloud Application Revenue
Microsoft in the Cloud Era Colliding business models? Partner Type What They Do Application Development Practices Infrastructure Practices Independent Software Vendors (ISVs) Hosted finished solutions SaaS applications Create custom applications Deploy hardware and software Manage running applications Sell packaged applications
App dev practices today Principals Sales force
App dev practices in the cloud era Principals Sales force With cloud applications Hosted finished solutions: Principals and sales force SaaS: Sales force, web site Allows free trial and purchase of SaaS application
Sales Process Commissions Changing how you charge your customers implies changing how you compensate your salespeople Cloud applications will probably change your commission structure Without big up-front project payments, traditional commissions don t work as well Spreading commissions over a longer period is common Traditional app dev salespeople don t always adapt well to this new approach
Customer App dev practices today Personal Through principals and sales force
Customer App dev practices in the cloud era Personal Through principals and sales force With cloud applications Hosted finished solutions: Principals and sales force SaaS: Sales force, web site Especially for consumer apps, you are your website
Key App dev practices today Selling new projects Creating custom applications
Key App dev practices in the cloud era Selling new projects Creating custom applications With cloud applications Creating and maintaining a cloud application Running a cloud application Acquiring new customers for cloud applications Supporting cloud customers and getting renewals On-premises and in the cloud
Key App dev practices today Effective sellers With strong relationships Software developers With specialized product and/or vertical knowledge
Key App dev practices in the cloud era Effective sellers With strong relationships Software developers With specialized product and/or vertical knowledge With cloud applications Operations staff And cloud development skills
Key hips App dev practices today Technology vendors, e.g., Microsoft
Key hips App dev practices in the cloud era Technology vendors, e.g., Microsoft With cloud applications Cloud platform provider, e.g., Microsoft Azure
Cost Structure App dev practices today Sales force Software developers
Cost Structure App dev practices in the cloud era Sales force Software developers With cloud applications Cloud application developers Operations staff Cloud platform services
Summary Application development practices in the cloud era App dev practices don t have to change their business model for the cloud era An app dev practice might choose to do this by creating cloud applications Finished solutions with customization SaaS applications
Infrastructure Practices Adapting to the Cloud Era
Categorizing Infrastructure Practices Where does revenue come from? Margins on Hardware and Software Sales -Added Resellers Our focus is here SIs Services
Selling Infrastructure Services in the Cloud Era Infrastructure practices must change their business model for the cloud era The cloud will eliminate much of the traditional work done by infrastructure practices Such as installing servers and upgrading OSs The cloud doesn t just add new things, as it does with app dev practices Doing nothing is not an option
Infrastructure practices today Help organizations use IT more effectively Install and manage clients, servers, storage, and networks Install and manage core applications, e.g., email Manage custom applications Support users Drive IT strategy
Infrastructure practices in the cloud era May run on cloud platforms, e.g.,azure Help organizations use IT more effectively Install and manage clients, servers, storage, and networks Install and manage core applications, e.g., email Manage custom applications Support users Drive IT strategy Done by cloud providers, e.g., Microsoft Azure Done by SaaS vendors, e.g., Office 365
New Customer Services for the Cloud Era Some examples for infrastructure practices today Use cloud storage Create cloud dev/test environments Deploy packaged apps in the cloud Move existing apps to the cloud Why: Lower cost Why: Fast availability, lower cost Why: Fast availability, lower cost Why: Lower cost, IT as opex not capex Cloud Technology: Azure Blobs Cloud Technology: Azure Virtual Machines Cloud Technology: Azure Virtual Machines Cloud Technology: Azure Virtual Machines Example: Extending local storage to the cloud with StorSimple Example: Windows or Linux development environments Example: SharePoint farm on Azure Example: Custom business applications on Azure
Selling Cloud Services How organizations commonly adopt cloud platforms Revenue Potential for SI Move existing apps to the cloud Deploy packaged apps in the cloud Use cloud storage Create cloud dev/test environments Typical Difficulty of Sale
Customer Segments Infrastructure practices today IT leaders CIOs, head of infrastructure, etc.
Customer Segments Infrastructure practices in the cloud era IT leaders CIOs, head of infrastructure, etc. Business leaders App dev leaders For people avoiding their own internal IT organization For creating a dev/test environment on Microsoft Azure
Revenue Streams Infrastructure practices today One-time projects, e.g., version upgrades Managed services, such as: Monitoring and managing server hardware Monitoring and managing client hardware (desktop and mobile) Monitoring and managing applications in customer datacenters User support, e.g., help desk
Revenue Streams Infrastructure practices in the cloud era One-time projects, e.g., version upgrades Managed services, such as: Monitoring and managing server hardware Monitoring and managing client hardware (desktop and mobile) Monitoring and managing applications in customer datacenters User support, e.g., help desk Growth is in managed services Shrinking and cloud
Managed Services in the Cloud Era Users Clients Applications On-Premises On Azure SaaS Customer SI User Provisioning Help Desk Device Management Application Monitoring Virtual CIO
Managed Services in the Cloud Era Some approaches SIs can offer tiered packages With different services and service levels in each one can start small, then expand to higherpriced packages Services can be offered locally or remotely An SI can manage customers around the country from a central location The SI s prices can reflect costs at its location, not the customer s Great service will be a differentiator As subscription services grow in importance, keeping customers very happy is critical Lost subscriptions churn are the bane of a recurring revenue business
Infrastructure Practice Revenue in the Cloud Era Projects vs. managed services An SI s total revenue might decline for a while Potential for higher and more predictable long-term revenue Money Your new KPI: MRR Subscription revenue builds up slowly Years Revenue from managed services Revenue from traditional projects
Infrastructure practices today Principals Sales force
Infrastructure practices in the cloud era Principals Sales force Compensation might change to reflect the emphasis on subscriptions
Customer Infrastructure practices today For projects, focused on the sale For managed services, focused on the long-term relationship
Customer Infrastructure practices in the cloud era For projects, focused on the sale For managed services, focused on the long-term relationship Might require cheaper sales resources, e.g., telesales, because the money comes in more slowly
Key Infrastructure practices today Selling new projects Installing hardware and software in customer datacenters Managing hardware and software in customer datacenters Supporting users
Key Infrastructure practices in the cloud era Selling new projects Installing hardware and software in customer datacenters Managing hardware and software in customer datacenters Supporting users Cloud
Key Infrastructure practices today Effective sellers With strong relationships Technical staff Hardware: Can install and manage servers, storage, networks, and clients Software: Can install and manage email servers, SharePoint farms, etc. Operations: Can monitor applications Support: Can help users
Key Infrastructure practices in the cloud era Effective sellers With strong relationships Technical staff Increasingly done by cloud providers, e.g., Microsoft Azure Hardware: Can install and manage servers, storage, networks, and clients Still required Software: Can install and manage email servers, SharePoint farms, etc. Operations: Can monitor applications Support: Can help users Shrinking demand due to SaaS
Cost Structure Infrastructure practices today Sellers Technical staff
Cost Structure Infrastructure practices in the cloud era Sellers Technical staff Cloud platform services If you choose to run customer s cloud apps for them; Microsoft Service Provider (MSP) EA can be helpful here
Key hips Infrastructure practices today Software vendors, e.g., Microsoft
Key hips Infrastructure practices in the cloud era Software vendors, e.g., Microsoft Cloud platform providers, e.g., Microsoft Azure
Summary Infrastructure practices in the cloud era Infrastructure practices must change their business model for the cloud era Much of their existing work goes away Managed services become more important As do new cloud scenarios, e.g., deploying packaged apps on Azure
Conclusions The impending switch to cloud computing impacts SI business models App dev practices can choose to change Infrastructure practices must change Doing nothing is not an option The change is unstoppable; adapt now
About the Speaker David Chappell is Principal of Chappell & Associates (www.davidchappell.com) in San Francisco, California. Through his speaking, writing, and consulting, he helps people around the world understand, use, and make better decisions about new technology. David has been the keynote speaker for more than a hundred events and conferences on five continents, and his seminars have been attended by tens of thousands of IT leaders, architects, and developers in forty-five countries. His books have been published in a dozen languages and used regularly in courses at MIT, ETH Zurich, and other universities. In his consulting practice, he has helped clients such as Hewlett-Packard, IBM, Microsoft, Stanford University, and Target Corporation adopt new technologies, market new products, and educate their customers and staff. Earlier in his career, David wrote networking software, chaired a U.S. national standards working group, and played keyboards with the Peabody-award-winning Children s Radio Theater. He holds a B.S. in Economics and an M.S. in Computer Science, both from the University of Wisconsin-Madison.
Copyright 2014 Chappell & Associates www.davidchappell.com @DChappellAssoc