Real Estate Technology expert and Lucernex President, Joe Valeri (see Joe’s management summary here), discusses the difference between on-premise software and Cloud solutions and why Cloud is winning.
Software delivery is rapidly changing. Chances are you have heard about “the Cloud”. For many years valid security concerns kept companies, large and small, from investing in Cloud solutions – instead opting for traditional on-premise, behind the firewall, solutions. So what changed; why are so many companies of all sizes switching to Cloud solutions? A recent study by IDC showed that as much as seventy percent (70%) of retailers have or are implementing SaaS solutions.1 While SaaS and Cloud are not the same thing, many SaaS solutions are delivered in a true-cloud environment and those Cloud/SaaS solutions offer the benefits we will discuss here.
In his book The Big Switch, Nicholas Carr provides an explanation of what is driving this change. Mr. Carr’s book provides a number of analogies to similar rapid changes to industry in the past. The simplest explanation as to why companies of all sizes are now rapidly adopting Cloud solutions is cost.
A well designed and deployed Cloud solution will be far cheaper for the buyer in both the short and long term and costs will be highly predictable. In The Big Switch Mr. Carr describes how companies whose profit margins were largely dependent on the cost of electricity experienced a rapid changeover to the electricity grid. The electricity grid provides a shared resource for all businesses and, since the cost of production is shared by a large group, the price of electricity to all is far cheaper than any company could possibly produce on their own.
The Cloud is really nothing more than the electricity grid of the modern age. It is a shared resource that dramatically drives down the price of maintaining networks and software for all users. Cloud software goes a step further by not only deploying all customers onto the same “grid” but, in most cases, utilizes shared services across all customers, centralizing cost of those services and thus lowering the cost for all.
In contrast, every on-premise system deployment is different. The software vendor has to customize the platform to meet the client’s internal guidelines, tools and standards while also allowing customization of the software to meet the clients unique business needs. There is nothing shared about on-premise software except for a base set of software code that all deployments start with and, since each customer is customized, testing changes to that code is an expensive nightmare.
In Mr. Carr’s book, the companies that got to the electricity grid late, in most cases, did not survive. They could not compete on price with competitors who had moved to the grid. The software industry is going through the same change now. Companies that offer solutions in the Cloud can not only offer their solutions at a much lower price while maintaining healthy margins, they can also deliver their solutions instantly, with limited need for internal IT resources. Companies that continue to insist on keeping huge IT departments to manage and build custom implementations of every software solution can not survive long-term if their competitors move aggressively to the Cloud and reap the benefits of much lower IT cost.
So, how do on-premise software vendors compete against Cloud vendors? If the price is that different, why do companies not see it or not care?
1. A lack of knowledge. While this is changing quickly, there has been a lack of understanding of Cloud solutions inside companies, even in IT groups, that made it easy for on-premise vendors to use scare tactics to discredit Cloud vendors or to hide the real price of the on-premise solution.
2. Hidden fees. On the surface, when a buyer compares an on-premise solution to a Cloud solution, they see first year software costs that are pretty similar, especially as on-premise vendors have changed their pricing model to be more SaaS like, replacing a large up front fee and small annual maintenance with a smaller fee paid every year. However, since Cloud vendors do not require the customer to buy and deploy hardware, configure servers to meet unique customer needs or require customizations to product code (all of which are required for an on-premise system) there is a stark difference in up front cost and total cost of ownership that is often hidden by the on-premise vendor.
3. “Cloud washing”2. This term, simply put, is when a provider of software that is not deployed in a true cloud environment slaps a “Cloud” label on what they offer due to the popularity of the term “Cloud”. Since it is hard to “see” the Cloud, many vendors, especially those who are offering their same old on-premise system hosted as a SaaS solution, get away with calling their solution Cloud when it does not actually offer most of the benefits of the Cloud.
4. Complexity. Hidden inside the implementation “estimates” of on-premise vendors is a dirty little secret. Since the complexity of putting their software behind a client’s firewall varies enormously by environment, the estimates provided are often WAY off. Some might even postulate that these vendors may intentionally underestimate the cost by assuming a “simple” implementation to keep their real cost hidden. The retail industry is littered with stories of IWMS vendors whose implementations cost 2x to 10x over the estimate and took months or years longer than expected. Cloud solutions are turned on the day after the contract is signed. Estimated for implementation are very predictable since there is no software code to customize and no client environment to adapt to.
It is important to note that while Cloud software is the obvious future direction for most software solutions that does not mean all Cloud vendors will properly protect your data and intellectual property or deliver a high performance experience. In my view, a new role of IT in large companies should be to develop a process to vet Cloud vendors to ensure data security and performance. Certifications like SSAE 16 Type II3 can be very useful in determining which Cloud vendors are serious about protecting client information.
Another reason companies of all sizes are selecting Cloud solutions is the surge in use of mobile devices in business. Please refer to Impacts of Cloud & Mobile Technologies on Real Estate or the recent Lucernex / Gartner newsletter of the same name.
Lucernex is the only TRUE Cloud solution in the Retail IWMS market using a fully virtualized pure cloud environment that ensures near infinite scalability, the fastest possible performance no matter how many users are online and near 100% uptime. We are both SSAE 16 Type II and ISO 9001:2008 certified to ensure optimal security and customer support.
1 – http://idcrccmobility.itbusiness.ca/wp-content/uploads/2012/02/Predictions_GRI232576.pdf
2 – Definition of: cloudwashing. Pcmag.com. Retrieved April 17th, 2013 from www.pcmag.com.
3 – http://www.ssae16.org/white-papers/what-is-ssae-16.html