Cloud Computing: Hummer or Prius?

Ryan Nichols

Last week we noticed a similarity in news headlines from two very different industries - automobiles and software.

In the auto industry, U.S. gas prices remain near all-time highs, and car buyers are nervous about economic conditions. The result is a dramatic shift among buyers to emerging technologies. The market for large SUVs is hurting, while the market for smaller, lighter cars and especially electric hybrids is booming. Domestic automakers are scrambling to retool their existing SUV factories to smaller vehicles, and Toyota is poised to overtake GM as the leading global car maker.

In the technology industry, we face a similar situation. CIOs are certainly nervous about economic times. And the costs of operating traditional, on-premise enterprise software is rising. Buyers are reeling from the recent Oracle and SAP price increases (does this move remind anyone else of OPEC?).

So why is Goldman Sachs telling us that CIOs plan almost no investment in cloud computing in 2009? Isn’t this the equivalent of reacting to a gas price increase by postponing your purchase of a Prius, and driving your Hummer for awhile longer?

Goldman based its findings on a set of survey results which the blogosphere has dissected over the past few days. The common theme is that CIOs don’t get it. Billy Marshall of rPath argues on Sandhill.com that CIOs are often the last to know about investments in new technologies. James Staten at Forrester has a similar take, saying CIOs aren’t the target for cloud computing anyway. Todd Ogasawara at O'Reilly claims CIOs simply don’t understand the value proposition of cloud computing.

While the shortsightedness of some CIOs is a contributing factor, we think that the thought leaders in cloud computing shoulder some of the blame. We all get so excited about the potential of cloud computing that it sometimes sounds futuristic, as if it were like some spaceship that will provide commuter service to the moon, instead of like a reliable Prius, perfect for your daily commute. The name “cloud computing” itself, with its fanciful tones, contributes to this "unreal" perception.

The reality is simple. "Cloud computing" is just a big name for business solutions and IT services that are delivered over the Internet, providing more flexibility and scalability at a dramatically lower cost. This is a proven technology with a clear ROI, especially when deployed with a pragmatic eye towards business impact. In the last 15 years consumer technologies have experienced unparalleled advancements all at a diminishing costs. In the same period, enterprise software (e.g. SAP, Oracle, IBM, Microsoft) have failed to deliver innovation and relied on their own lack of flexibility - i.e. high switching costs - to actually increase the cost for ever diminishing returns.

Appirio's customers include CIOs who understand that uncertain economic conditions, and on-premise software price increases, make 2009 a year to increase investment in cloud computing. We hope and predict that many more will follow suit.

Appirio backed by Sequoia Capital: What changes, what doesn’t.

Chris Barbin

In our first blog post as a Sequoia-backed company (news leaked today, press release coming Monday), we thought we’d answer a question we’ve been asking ourselves: What changes about Appirio? What doesn’t?

We have more to say about what doesn’t change than about what does. Sequoia’s backing is an endorsement of some unconventional core beliefs that we’ve been talking about (and blogging about) for months-- convictions about our market's potential, our business model, and our value proposition that absolutely won't change as a result of this announcement. What will change, however, is what you can expect from Appirio: more partners, more products, more talent, and of course more customer success.

What doesn’t change: Day-to-day life here at Appirio won’t change much. We continue to be focused on making our customers successful, developing innovative product and service offerings, forming deeper relationships with our partners, and finding and empowering great people. But we’re doing these things with new external validation about some of the core beliefs that make Appirio unique:

• Web platforms will enable the creation of important companies. Sequoia thinks big-- they measure success by the % of NASDAQ’s total market cap represented by Sequoia backed companies. We’ve blogged before about why we think web platforms have the potential to disrupt $1 trillion of IT spending—it’s great to have Sequoia’s endorsement of this vision.
• Products and services are complementary when powered by web platforms. Conventional wisdom holds that technology companies need to choose whether they are going to focus on products or services, and that VCs won’t invest in businesses that think professional services are important. We believe that this was true with on-premise software, but that the availability of web platforms makes a truly hybrid business model not only possible, but advantageous in successfully turning innovation into customer success, and customer success into further innovation.
• Focus on customer success matters. Appirio doesn’t have the portfolio of complex patents or the single product “big idea” that venture capitalists typically look for. What we do have is an unique approach and an outstanding team dedicated to making customers successful and driving product innovation in the rapidly growing market for on-demand solutions. This is what Sequoia found unique, and the core of what they are investing in.

What will change: So while it is mostly business as usual here at Appirio, you will notice a couple of changes in how we talk about and grow our business—Sequoia’s backing has empowered us to "think even bigger" about Appirio. While we’ll have a lot more to say about each of these topics over the next couple of months, we wanted to provide some hints of what new to expect from Appirio:

• More Partners: To date Appirio has been very focused on our partnership with Google and Salesforce, and we continue to believe that these two companies offer the most compelling web platforms on the market. But there’s much more to cloud computing than web platforms, and we’re excited to be exploring application and technology partnerships with some of the most innovative and successful companies in these parts of our industry. Stay tuned for more announcements in this area.
• More Products: Appirio’s product portfolio has been tremendously successful to date at introducing companies of all sizes to us and the potential to “connect the cloud.” We want to lower the barriers to trying these solutions, broaden the available market for their deployment, and use them to introduce even more companies to Appirio. At the same time, we’re enhancing our offerings to solve pain points we see at our customers every day, building the type of enterprise-class solutions around which we hope to build a big business.
• More Talent: Appirio has been successful thanks to a team willing to do things well outside their job description to get the job done. Now we’re looking to bring in some outstanding people to focus on what’s going to take our business to the next level: engineers looking to do amazing things with Google and Salesforce, consultants willing to do what it takes to make a customer successful, customer advocates looking to build community around our solutions, and marketing gurus with innovative ideas for how to get the word out about Appirio virally.

What does this mean for you? Everyone can get involved and help accelerate the adoption of on-demand: you can schedule a talk with a client manager, take a trial of one of our products, look into joining our team, or even just contribute an idea. It may be business as usual at Appirio, that’s anything but usual in the traditional world of enterprise software. We know on-demand will unleash a wave of productivity that will drive our industry for years to come and look forward to playing a major part in that transformation.

Microsoft to Partners: We Still Don't Get SaaS

Chris Barbin

The on-premise titans trying to transition to on-demand face considerable challenges, well-documented in this blog and elsewhere. One of the most significant mistakes companies make trying to transition is pursuing a "hybrid" strategy. We've watched SAP and Oracle stumble into all sorts of problems trying to seek the middle ground, and now it seems Microsoft wants to join the party. Recently we were invited to listen to Microsoft's new CRM pitch , designed to recruit existing Salesforce.com partners. The pitch centers on a benign-sounding notion, the "power of choice" (see screenshot at left). Microsoft's lack of a choice (on-premise vs. SaaS) is the core issue. Choice when used in the context of technology architecture typically points to a vendor with a conflicted or transitional strategy. They're not quite ready to make the full commitment, so they spread their attention, development, marketing, and operations resources across fundamentally different paradigms.

What is deemed a choice actually represents a company trying to provide two conflicted models. Would you expect the company who sold you a backyard well to be able to offer a water utility? Would you expect the company who sold you a diesel generator to be able to offer you the benefits of a utility company? Nick Carr did a good job exploding the general myth of "choice" as an alternative to "progress" in The Big Switch, where he extends the electricity analogy to the current age of IT technologies.

We recently blogged, and were quoted in eWeek, saying that companies like Microsoft build "physically and emotionally closed solutions." This makes them unable to meet the challenges of tomorrow's enterprises.

A sign of this and that a company doesn't get SaaS is when it positions on-demand as a transition path to on-premise. This usually means:

1. They are trying to not completely freak out their sales and management teams with the notion that their SaaS offering will cannibalize their traditional software.
2. Their SaaS feature set is way behind their current on-premise product.
3. They don't want a customer to think they made the wrong choice in selecting their on-premise product last year.
4. They still don't get what SaaS means for their products, sales, operations and culture.

Microsoft was so brazen as to promote a financial incentive for partners who help customers move from on-demand to on-premise. Microsoft evidently considers this customer ripoff to be an "Opportunity for Success" for its partners (see second screenshot).

Again, the analogy to other utilities is useful: if a company tried to sell you the benefits of their electric or water grid as a "transition" to a bigger and better backyard well and generator, you'd have reason to question their commitment and ability to deliver the promised utility.

What could be more illustrative of this than Microsoft's attempts to put thin web front ends on on-premise solutions? Look at the screenshot below. This solution is really nothing more than diesel generator hooked up to a electric grid and pretending to be a utility (although this solution is apparently good enough for some other companies 'committed' to on-demand). At best this type of solutions is a stop gap measure; more likely, it demonstrates a lack of understanding for what is required to deliver SaaS to tomorrow's enterprise.

Who is “fit” to provide enterprise apps?

Narinder Singh

The SaaS blogosphere has been abuzz these last couple of days discussing Sergey Solyanik’s assessment that Google’s culture is “not fit” for enterprise apps. We’ll say up front that Appirio runs our internal communication and collaboration using Google Apps, and have helped customers big and small do the same. We have been highly impressed with the quality, reliability, and rate of innovation in these tools, admire and respect the culture that created them, and have no hesitation calling them “enterprise ready.”

But we think that with all this talk about Google’s corporate culture, people are missing the real point—the culture of today’s traditional on-premise technology vendors is no longer “enterprise ready.”

Let me explain-- we believe that there is a cultural mismatch between the needs of today’s businesses and the cultures of traditional on-premise technology providers:

Today’s business needs agility, the culture of enterprise technology is anything but. As the global pace of change accelerates, business leaders need their IT staff and SI/ISV partners to be saying a lot more “yes” and a lot less “no.” It is no longer acceptable for an IT partner to make vague promises about a release 3 years out. When a CIO asked Hasso Plattner at the Churchill Club’s SaaS debate when he should move to SAP’s SaaS solutions, he was told to check back in “5 years, at least.” Is that what it means to have an “enterprise ready” culture?

Today’s business needs openness, the culture of enterprise technology is anything but. Traditional enterprise vendors have in their very DNA the idea that openness is dangerous to their business models. Businesses in all industries have accepted the notion of core vs. context—you focus on what you are good at and rely on seamless connections with a network of partners to provide the rest of your solution. Ironically, traditional enterprise software is one of the last industries to embrace this change. One of Hasso Plattner’s key lessons from SAP’s ill-fated experiment with SaaS is that “what is inside the system has to have a coverage level which is close to 100 percent,” he says. Openness will be there in name only—the intention is that everything you need is inside the system. Such a system has never existed, and never will. Is this what it means to have an “enterprise ready” culture?

So what does it mean to have an “enterprise-ready” culture? Of course, every traditional enterprise vendor wants to be agile and open, and many have made admirable strides in that direction, including SAP through its Developer Community and eSOA initiatives. And there is much more required to deliver enterprise solutions than agility and openness. There are the table stakes of reliability, security, and having a solution that meets a real business need. But today’s business requires IT partners with a culture that can do both-- be deeply rooted in agility and openness while delivering reliability, security, and business value. We think that Google and salesforce.com, the leaders in on-demand, have achieved this goal: Salesforce offers both trust.salesforce.com AND ideas.salesforce.com. Google offers highly innovative applications that scale like no traditional enterprise application will ever be able to.

But whether or not you agree with us that Google’s corporate culture is “enterprise ready," the real point is that its traditional on-premise competitors are most certainly not.