Tag Archives: cloud

cloud services for the enterprise

The Innovator’s Dilemma describes how the choice to sustain an incumbent technology may need to be weighed against pursuing disruptive new technologies. Nascent technologies tend to solve a desirable subset of a problem with greater efficiency. They change the game by making what used to be a costly high-end technology available as a commodity that is affordable to the masses. It turns out that high-end customers can often live without the rich capabilities of the costly solution, and they would rather save on cost. Meanwhile, with the success that the low-end solution is gaining in the market, it can invest in maturing its product to encroach into the high-end market. Eventually, the incumbent product’s market is entirely taken over by the rapidly growing upstart, who was able to establish a foothold in a larger installed base.

That is the situation we find ourselves in today with enterprise applications. Large companies rely on expensive software licenses for Customer Relationship Management, Enterprise Resource Management, and Human Capital Management applications deployed on-premise. Small and medium sized businesses may not be able to afford the same kinds of feature rich software, because not only is the software license and annual maintenance cost expensive, but commercial off the shelf software for enterprises are typically platforms that require months of after-market solution development, customization, and system integration to tailor the software to the business policies and processes specific to the enterprise. The evolution to cloud services aims to disrupt this situation.

Let us explore the ways that cloud services aim to be disruptive.

As described above, traditional enterprise software are platforms. An incumbent product that wants to evolve to cloud without disrupting its code base will merely be operating in a sustaining mode, not achieving significant gains in efficiency. Being more PaaS-like, the prohibitive cost and onerous effort of after-market solution development remains a huge barrier to entry for customers. To become SaaS-like, a cloud service must be useful by default, immediately of value to the end users of its enterprise tenants.

Cloud services are disruptive by providing improved user experiences. Of course, this means a friendlier Web user interface that is optimized for users to perform their work more easily and intuitively. User interfaces need to be responsive to device screen size, orientation, locale, and input method. Cloud services also provide advantages for enterprise collaboration by enabling the work force to be mobile. Workers need to become more decoupled in space and time, so they can be more geographically dispersed and global in reach. Cloud services should assist in transforming how employees work together, not just replacing the same old ways of doing our jobs using a Web browser instead of a desktop application. Mobile applications may even enable new ways of interacting that are not recognizable today.

Cloud services are disruptive economically. Subscription pricing replaces perpetual software licensing and annual maintenance costs along with the capital costs of hardware infrastructure, IT staffing to operate an on-premise deployment, and on-going infrastructure maintenance, upgrades, and scaling. Subscription pricing in and of itself is not transformational. It is only superficially different by virtue of amortizing the traditional cost of on-premise deployment over many recurring payments. The main benefit is in eliminating the financial risk associated with huge up-front capital expenditures in case the project fails. Migrating a traditional on-premise application into the cloud is not really financially disruptive unless it can significantly alter the costs involved. In fact, by taking on the capital cost of infrastructure and the operational cost of the deployment, the software vendor has now cannibalized its on premise application business and replaced it with a lower margin business with high upfront costs and risk—this is a terrible formula for profitability and a healthy business.

Multi-tenancy provides this disruptive benefit. Multi-tenancy enables a cloud service to support users from multiple tenants. This provides significant cost advantages over single-tenant deployments in terms of resource utilization, simplified operations, and economies of scale. Higher deployment density translates directly into higher profit, but by itself multi-tenancy provides no visible benefit to users. The disruption comes when the vendor realizes that at scale multi-tenancy enables a new tenant to be provisioned at near zero cost. This opens up the possibility of offering an entry level service to new tenants at a low price point, because the cost to the vendor is zero. Zero cost entry-level pricing is transformational by virtue of making a cloud service available to small enterprises who would never have been able to afford such capabilities in the past. This enables innovation to be done by individual or small scale entrepreneurs (start-ups), who have the most radical, risky, and unconventional, paradigm-shifting ideas.

Elastic scaling provides another disruptive benefit. It enables a cloud service to perform as required as a tenant grows from seeding a proof-of-concept demonstrator to large scale (so-called Web scale) production. The expertise, techniques, and resources needed to scale a deployment are difficult and costly to acquire. When a vendor can provide this pain-free, an enormous burden is lifted from the tenant’s shoulders.

Cloud services evolve with the times through DevOps and continuous delivery. Traditional on-premise applications tend to be upgraded rarely due to the risk and high development cost of customization, which tends to suffer from compatibility breakage. Enterprise applications are often not upgraded for years. “If it ain’t broke, don’t fix it.” Even though the software vendor may be investing heavily in feature enhancements, functional and performance improvements, and other innovations, users don’t see the benefits in a timely manner, because the enterprise cannot afford the pain of upgrading. When the vendor operates the software as a SaaS offering, upgrades can be deployed frequently and painlessly for all tenants. Users enjoy the benefit of software improvements immediately, as the cloud service stays up-to-date with the current competitive business environment.

Combining the abilities to provision a tenant to be useful immediately by default, to start at near zero cost, to scale with growth, and to evolve with the times, cloud services provide tools that can enable business agility. A business needs to be able to turn on a dime, changing what they sell and how they operate in order to stay ahead of their competitors. Cloud services are innovative and disruptive in these ways in order to enable their enterprise tenants to be innovative and disruptive.

vertical integration

Applications have been pursuing operational efficiency through vertical integration for years. This is generally understood to mean assembling infrastructure (machine and operating system) with platform components (database, middleware) and application components into an engineered system that is pre-integrated and optimized to work together.

Now, the evolution to cloud services is following the same pattern. IaaS is integrated into PaaS. IaaS and PaaS are integrated with application components to deliver SaaS. However, just as we see in on-premise enterprise information systems, applications do not operate in silos. They are integrated by business processes, and they must collaborate to enforce business policies across business functions and organizations.

Marketing is deeply interwoven with sales. Product configuration, pricing, and quotation are tied to order capture and fulfillment. Fulfillment involves inventory, shipping, provisioning, billing, and financial accounting. Customer service is linked with various service assurance components, billing care, and also quote and order capture. All components need views of accounts, assets (products and services subscribed to), agreements, contracts, and warranties. Service usage and demand all feed analytics to drive marketing campaigns that generate more sales. What a tangled web.

What is clear from this picture is that vertical integration does not end with infrastructure, platform, and a software application. Applications contribute components that combine with business processes and business policies to construct higher level applications. This may continue for many layers of integration according to the self-similar paradigm.

The evolution to cloud should recognize the need for integration of SaaS components with business processes and business policies. However, it does not appear as though cloud services have anticipated the need for vertical integration to continue in layers. To construct assemblies, the platform should provide a means of defining such assemblies, so that they can be replicated by packaging and deploying them on infrastructure at various scales. The platform should provide a consistent programming and configuration model for extending and customizing applications in ways that are natural to being reapplied layer by layer.

Vertical integration is not an elegantly solved problem for on-premise applications. On-premise application integration is notoriously complex due to heterogeneity and vastly inconsistent interfaces and programming models. One component’s notion of customer is another’s notion of party. Two components with notions of customer do not agree on its schema and semantics. A product to one component is an offer to another. System integration projects routinely cost five to ten times the software license cost of the application components, because of the difficulty of overcoming impedance mismatches, gaps in functional capabilities, duct tape, and bubblegum.

Examining today’s cloud platforms and the applications built upon them, it is looking like we have not learned much from our past mistakes. We are faced with the same costly and clunky integration nightmare with no breakthrough in sight.