The writing on the wall is clear – there is a visible decline of on-premise hosting and a continuous increase in hosting software on the cloud. If current trends are maintained, the crossover will occur somewhere in 2014. In this year, there will be about equal instances of both on-premise and cloud based software deployment. Thereafter, the cloud will go ahead of on-premise hosting at an ever increasing rate. There is every possibility that the crossover may occur even before 2014 since SaaS is seeing an increasing rather than a linear growth trend.
If you are a cloud service provider, you have to help your customers make the transition.
It’s got to be hybrid for a while…
While the on-premise market may be shrinking, there are still very substantial investments in hardware and software that have gone into the current equipment. Much of this will still have residual life in 2014. Therefore, even though the SaaS model may appeal greatly, a mix of on-premise and cloud based systems will continue to stay for a few years to come. Any cloud service provider that wishes to lay a claim to the business opportunity that exists must find a way to help companies make the transition.
The key questions service providers have to ask are –
- How will the operational changes be accomplished?
- Are there any new offerings that could not have been made with the traditional model?
- Can the cloud vendor innovate and bring new capabilities to the market?
- Will the service provider help the customer make effective use of the cloud technology?
If the top few reasons for a move to the cloud are analyzed, then these are found to be–
- Reduction in IT infrastructure costs
- Reduction in capital expenditure
- Reduction in management and support costs
- Converting fixed costs to variable ones
- Improve business agility
- Improve IT system flexibility
- Improve service quality
- Simplify management
- Speed up implementation
Besides this, users also expect to get benefits such as global operations, obtain a single view of their organization and so on. The cloud service provider has to approach customers keeping in mind the top reasons for the migration and the additional benefits users seek.
Service providers themselves have to change their business model. In the good old days of up front software sales, vendors got their profits at the beginning of a sale. However, with a cloud model, the revenue comes over the years and hence managing a relationship with the client becomes critical. The low revenue per customer per month implies that a larger number of customers have to be registered for the business to make financial sense.
Customer loyalty is a direct function of perceived value. The customer will only make the transition to cloud services if he is confident about the quality of service. This is especially true due to the tight competition among providers; that is why GMO Cloud takes the quality of service it renders very seriously, not only in the core service that they provide but as well as forward thinking on what customers would want after. One example is the Setup Service where professional services ranging from preparations to troubleshooting are rendered.
Key areas of focus
Follow a hybrid approach – as mentioned earlier, existing software investments will mean that on-premise software will stay for some time. In such a situation, going hybrid is the best answer. The cloud vendor has to see where he can add value by moving some functions to the cloud. A case in point is disaster recovery. Even if the primary functions stay on-premise, the vendor can offer DR, back up and long term storage of data in the cloud. Over time, this base will tend to draw the software to the cloud as well.
Introduce additional functionality – While many customers may continue to hold on to their existing software investments, many small businesses cannot afford high end software. This functionality can be offered to small businesses in the cloud to enable them to use most functions at a fraction of the cost. Additional business can be tapped this way.
Manage licensing changes gently – many users of on-premise software have perpetual licenses. If these users are to migrate to the cloud, do not be in a hurry to change the licensing model for these users. Try and extend the licensing to the cloud so that the customer does not lose the incentive to migrate. The licensing model can be changed during the next upgrade cycle.
The key factor in helping your customers move from an on-premise model to a SaaS model is to make proposals that leverage the existing investment that the customer has already made. Add value over and above this so that the customer has the incentive to migrate.
Be Part of Our Cloud Conversation
About the Guest Author:
Sanjay Srivastava has been active in computing infrastructure and has participated in major projects on cloud computing, networking, VoIP and in creation of applications running over distributed databases. Due to a military background, his focus has always been on stability and availability of infrastructure. Sanjay was the Director of Information Technology in a major enterprise and managed the transition from legacy software to fully networked operations using private cloud infrastructure. He now writes extensively on cloud computing and networking and is about to move to his farm in Central India where he plans to use cloud computing and modern technology to improve the lives of rural folk in India.