Traditional software companies won’t fly in the clouds
Microsoft’s recent launch of its Azure platform made me consider again whether they are likely to succeed in moving their whole business to a new model. Something that has interested me for quite a while is how hard it seems to be for traditional software companies to succeed with their ‘Cloud Computing’ efforts. There are at least two problems.
The first problem is that simply building the technology and getting the whole company (and their partners!) committed to the model is always going to take a while: educating technical staff in new architectures that can scale massively with all the implications that has, delivering applications on a new platform which was foreign to those staff, building systems for which over-the-web delivery isn’t just a bolt-on – it’s the whole point. Significantly being a player in the new world seems to require a conversion to open principles – whether these are the adoption of open standards for data transfer or open architectures. Compare, for example, Google’s approach to that of Microsoft: Google even have a team endearingly called “the data liberation front” whose role it is to make it easy to move data away from their software.
I think a second problem is more significant: that a move to the cloud brings with it a change of business model – from licensing software for the duration of that software’s useful life to a different model based on paying for what is used. Those companies in the ‘traditional’ camp have large direct and indirect sales forces which are comfortable (and paid to succeed in) selling software on a single, up-front payment. Contrast that with cloud computing where the model is that you pay for what you use: this plays havoc with those sales teams’ traditional pay structures. Incenting those sales staff to move to a new model without cannibalising their existing installed base and deferring valuable cashflow may be just too hard: effectively these companies have to build a whole new business in parallel with their existing one and manage the inevitable conflict between the two businesses and channels.
It will be interesting to see if any of Microsoft, Oracle or IBM ever get to the point where a majority of their revenue is from software delivered as a service. Of the three I suspect IBM has the best chance given their history in renting Mainframe operating systems and software. It seems more likely to me that other players, led by Google but including a host of new entrants which are unencumbered by adherence to a traditional software model, will dominate the cloud computing space.
Workbooks was founded on a conviction that applications are best delivered from the cloud so that for our customers there is “no hardware, no software, no hassle”. Who will our competitors be in five years time?