By Aidan Gallagher

UNLOCKING THECOMMERCIALPOTENTIAL IN YOURCLOUD SOFTWARE

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loud computing is having a trans-formative effect on the IT land-scape. This wave of change has not been seen since the

transition to client / server com-puting that heralded the arrival of

the PC in the 1980s. Although this pres-ents software companies (ISVs) with considerable technical challenges, the cloud overwhelmingly provides even more business opportunities – as long as any transformation lever-ages the full potential of new business models.

HOW INISHTECH’S SOFTWARE POTENTIAL SERVICE HELPS WINDOWS AZURE APPLICATION DEVELOPERS MONETIZE THE CLOUD.

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The business of software is a central feature in the technology landscape, and, unsurprisingly, is ut-terly transformed in the march to the cloud. Very little remains the same when you compare what has become known as the traditional “on-premise” software world with the pure cloud software as a service business.

As with any dramatic industry shift, there will be win-ners and losers: A hegemony rarely lasts and an en-vironment as fluid as IT can hardly hope to be an exception. Consider that nine of the 11 largest com-puting companies from the pre-client server era are no longer with us; there is no reason to expect that the cloud will be any less efficient in upsetting the current order. This change is being played out in ev-ery nook and niche of the software industry today, as agile new entrants offer cloud-based software as a service that can deliver a comparable solution for a fraction of the price and in a fraction of the time of their old-world counterparts.

The cloud presents what is possibly the greatest challenge for established software vendors yet. How do they reinvent their business for the new age? They have mature existing technology and an established presence in the market with pay-ing customers, ongoing projects, legal obligations, and support and maintenance contracts. On the face of it, a shift to the cloud will cannibalize their business, erode their market share, and destroy their pipeline. And if the customer doesn’t ask for it, why would they invest in such a major distraction?

However, adopting a “wait and see” attitude will not win this particular battle. The most important consideration for the indecisive ISV is cloud comput-ing’s undeniable appeal to customers. Simply put, it’s a better way of doing things. With the move to the cloud the customer is the ultimate winner, and because the customer is always right, the ascension of cloud computing is guaranteed to be the next logical step in the evolution of computing.

THE CLOUD TRANSITIONRegardless of the difficulties posed for established software vendors in trying to reinvent their business to flourish in the cloud era, it is nevertheless some-thing they must do. It is simply a choice of evolve or die.

Everything about the software business is different in the cloud, starting at the most basic level. Soft-ware vendors are no longer Independent Software Vendors, or ISVs as they have long been known. They are now Cloud Service Vendors, or CSVs, re-flecting the fundamental swing away from being a

developer of software applications to being a pro-vider of software as a service. This presents a need for the software professional to make a drastic and challenging change – like the dynamic engine of computing, they are coded to conceive, build, and sell their software applications. Now they must op-erate and service those applications, too. Look at the brightest and best new technology companies of the past decade; Google, Amazon, Facebook, LinkedIn, Twitter, and Salesforce. Very few, if any, would define themselves as software companies, but collectively they are probably creating more software than most classic ISVs. You can see a simi-lar, if less pronounced, shift in established software leaders like Microsoft, Apple, IBM, Oracle, EMC and SAP – all of which now have significant cloud service operations across their extensive global businesses.

So, perhaps the most difficult aspect of the cloud transition is accepting this new definition of what business you are in and evolving it accordingly. The second problem software companies will face is that very evolution – understanding exactly how to adapt their business to take advantage of the op-portunities offered in the cloud.

Too often, this second challenge of “How do we move to the cloud?” is tackled before the switch in the psyche of the business--the acceptance that they are now in a whole new business--has taken root. If that is the case, and the full weight of the business is not committed to the cloud, the initiative tends to get downgraded to a technical exercise. The software application itself gets ported, rebuilt or moved across to a cloud-based environment – usually a branched version of the core application. Then the ISV will attempt to sell this “new” solution, often into a new market, where the on-premise so-lution was previously unaffordable.

Initiatives such as these are doomed to failure. If the cloud fundamentally affects every aspect of a software business, then expecting your engineering team to accomplish the transition alone is unrea-sonable and shortsighted. If you think of the task ahead as an iceberg, where the majority of the ice is below the surface of the water, hidden from view, then the technical challenge is the ice you can see, and the business challenge is the ice that is hidden. The cloud doesn’t just determine how your software is built and delivered, it also changes how your soft-ware is marketed, sold, packaged, licensed, de-ployed, and improved.

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MONETIZING THE CLOUD The technical transition to the cloud is an important and significant step that must be made, not just by established software companies but also by start-ups. In the past, the SaaS model of software deliv-ery has been out of reach for many ISVs because it involved building a substantial computing infra-structure on which to run the application. The cloud changed all that, providing ISVs with a ready-to-go set of choices for development, hosting, manage-ment, data processing and storage, and service and support options. The Windows Azure platform from Microsoft is an example of a full service cloud platform that removes many of the hurdles of provi-sioning. By providing an easy-to-access, affordable and highly scalable platform as a service, Windows Azure enables ISVs to offer their applications as SaaS without the cost and complexity of setting up their own data centers. This allows ISVs to make cloud-based offerings an extension of their on-premise ap-plications to capture new markets and new clients where a SaaS solution is more compelling.

The cloud offers the software business a whole new world of opportunity, enabling them to get to mar-ket faster with far less investment, and giving them the ability to tap into much broader markets right from the start. But the biggest challenge is the busi-ness transition, the hidden ice. There are several commercial considerations that the Cloud Service Vendor (CSV) must address in order to prosper in the cloud.

Getting the Business Model Right

The cloud expands your addressable market and allows you to adopt new licensing models like pay-to-use and pay-as-you-go. It is very important to establish a business model that can be managed from within your application and is right for poten-

tially diverse clients. By metering and pricing usage appropriately to your target clients, the right busi-ness model can be your major competitive differen-tiator. A tiered pricing model where small businesses would benefit from lower pay-to-use pricing can help win new SMB clients. A pay-as-you-go model for large companies that have cyclical workloads does not force them to pay for peak capacity all the time. This can make your solution much more at-tractive by eliminating the cost of overprovisioning to clients. It also ensures that you get full payment for all licenses used.

The Power of Packaging

A single instance, multi-tenant service does not have to mean a one-size-fits-all application. You can package your service into any number of dif-ferentiated offerings, enabling you to become more customer-centric with your service and win more business. For example, you can package standard, professional and enterprise editions of your software that better suit the cost and functionality needs of small businesses, mid-sized companies, and corpo-rations. You can even package industry specific editions with features tailored to vertical customers. In this way you can address more markets with bet-ter pricing than your competitors.

Focusing on the Process

SaaS is a process-driven business, much more so than traditional software. As the price drops and your reach extends, your service moves toward a more volume-centric model. This requires an ef-ficient system for everything from lead generation and customer provisioning to product updates, payments, and charging. It costs about six times more to acquire a new client than to renew an exist-ing one. Therefore, it is critical to profitability to have efficient processes that deliver outstanding service and maintain customer loyalty and renewals. For example, the process of converting a data entry user license to a business analytics license should be efficient and seamless so that it does not incur days of delay that impact user productivity. A simple is-suing of a new activation key can accomplish this. Likewise, for try-and-buy editions of your software, an efficient process for converting trial licenses to full licenses facilitates the transition to volume.

Managing the Metrics

In the cloud, everything is measurable and every-thing must be measured. Metrics like cost of ac-quisition, cash flow, and churn levels are the life-blood of SaaS and enable you to better manage your business. Regular health checks via a financial dashboard will tell you when things are working and when they are not. For example, if you seed the

 

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market with a try-and-buy edition of your software, you can better tune your offers to increase new cli-ent acquisition by tracking the activation and churn rates by customer types.

Competitive Advantage

Good cloud companies may have very different sources of competitive advantage (e.g., usability, data mining, process, etc.) when compared with their competitors in the traditional software world. But it’s vitally important to build defensible com-petitive advantage (and not just first-mover ad-vantage) in the cloud in order to successfully drive revenue and expand market share. For example, moving a legacy application to the cloud--to elimi-nate the up-front cost of perpetual license acqui-sition by replacing it with recurring payments that add up to the same amount over three years--can more easily be implemented with a financial leas-ing program. Defensible competitive advantage will be achieved when the cloud business model is leveraged by the application through flexible pack-aging, intelligent pricing, and outstanding service.

Data Mining

One sizeable difference between traditional soft-ware and cloud software is that as a CSV, you have a window into your customer’s world; you have ac-cess to an endless stream of information about your customer’s business, and this information can often be more valuable to your customer than the appli-cation itself. For example, retailers can better tailor their promotions to clients that have preferences for purchases in specific product categories.

Business Agility

One of the key benefits of being in the cloud is that it gives you the ability to be agile in your business, whether it’s aligning your product to changing customer requirements, scaling up and down in response to demand, or lever-aging a new sales channel. So, agility should become a core tenet that you adopt for your business, as this is key to survival in the cloud. For example, by designing solutions around a .Net-based, service-oriented architecture that flexibly implements business processes, SOA applications can quickly adapt new business models to provide competitive business ad-vantage to clients.

CONCLUSION The cloud is transforming the software business from selling and maintaining packaged ap-plications to winning long term client loyalty through quality, affordable services that gen-

erate recurring revenues. If you’re building software applications for the cloud, much of the accumu-lated wisdom around building a software business does not translate easily. The cloud is a very different environment and the business hurdles are substan-tial; however, it also presents ISVs with tremendous new opportunities to leverage the cloud business model to expand market reach and acquire new clients.

Software Potential from InishTech is an innovative, cloud-based service that enables ISVs to unlock the commercial potential in your software. With licens-ing, packaging, code protection, and usage ana-lytics all combined into an easy-to-use SaaS service running on the Microsoft Windows Azure cloud, you can manage and control your software like never before.

With several hundred customers depending on the Software Potential cloud service to protect and license thousands of applications, InishTech is al-ready an international leader in the field of software licensing and an innovator in the shift to licensing from the cloud.

ADDITIONAL RESOURCESFor more information, please visit or click www.softwarepotential.com.