Real Estate Technology expert and Lucernex President, Joe Valeri (see Joe’s management summary here), discusses why IWMS vendors can’t be both Legacy and Cloud.
Cloud delivered software has a huge advantage over legacy software; one that can never be overcome. It is the same advantage companies that adopted the electrical grid in the 20’s and 30’s had over their competitors who held fast to making their own electricity with water wheels, steam and the like1. There simply is no way a legacy software vendor, who requires 100% of their product to be dedicated to one customer per installation, can possibly compete with the shared Cloud on cost nor can a legacy product that is limited to its set of hardware possibly perform anywhere near as well as the infinitely scalable Cloud. The Cloud will always be much faster, much cheaper and is now at least as secure.
As a result, legacy IWMS vendors are trying to move as quickly as they can to become, or to make people believe that they are, a Cloud provider. The recent Gartner IWMS Magic Quadrant included a number of legacy vendors trying to recast themselves as Cloud or SaaS providers; but is it really possible to switch from being a legacy provider to a cloud provider in a matter of a few months or years?
Pick your idiom, they all provide the same answer, NO, a legacy vendor cannot become a Cloud vendor in a matter of months or even years especially a large legacy vendor with lots of legacy clients. Here are just a few of the obvious reasons:
It’s a black box to most of us but the architecture of software is the heart of how it operates – its speed, its capabilities, its security, etc… A Cloud product is architected from day 1 to utilize the shared, infinitely scalable Cloud. All legacy IWMS products were architected long before there was a “Cloud” and were designed to be installed for a single customer at a time, behind the customer firewall and customized to fit the customers network. You can’t change a legacy IWMS products architecture to be a Cloud product, you have to start over, from scratch. And, no matter what you might be hearing from some IWMS vendors, no product can be both legacy (installed on-premise) and Cloud.
All of the legacy IWMS vendors built their businesses and their client base by charging a large up front fee to license, install and implement their solutions inside the client network. This includes their software, hardware, third party licenses, networking and a host of other fees. Changing the way decades old companies do business is not trivial. Details that seem as simple (and are not) as changing the way sales people are compensated or as complex as how to change investor expectations and messaging don’t happen quickly.
Cloud products are built from day 1 to take advantage of the efficiency of shared resources to deliver a very low and predictable total cost of ownership (TCO) with infinite scalability and the fastest possible performance. Cloud providers do not need to develop the massive staff and infrastructure that is required for legacy product installations, testing or support. Changing from legacy to Cloud, even if the legacy vendor was willing to make the massive investment in re writing their entire application, would take years. No IWMS software vendor can operate both a legacy operation and Cloud operation at the same time – it’s just not financially feasible. And what about your legacy client base that is paying you annual maintenance? The Legacy IWMS vendor needs to either abandon them (many of you have experienced this recently) or try to convert them to a new Cloud or SaaS platform while it is being feverishly built. Neither is a good choice for the legacy customer.
The dirty little secret of legacy IWMS vendors – the real money is in the implementation. If you look at the staff mix of most legacy IWMS vendors you would see that more than half of their staff, often close to 75%, are professional services associates. Since installing their software requires months to years of on site work by a team of people, they have built staffs in house to capture that revenue. Cloud implementations do not need huge implementation teams, take weeks not months and Cloud vendors do not have or want large implementation staffs. What does the legacy vendor do with that staff when trying to become a Cloud provider and how do they live without what currently represents 30% to 70% of their revenue?
Legacy IWMS vendors are, for the most part, not known for their excellent customer service. This is not to say all legacy vendors provide poor customers service, just that customer service is a “cost center”, something they HAVE to do. Cloud software is not installed inside a client firewall and is paid for as it’s used. If the customer is not happy, they switch to another vendor without losing huge sums of sunk costs in license fees, hardware and networking purchases, internal staff costs and third party licenses, as is the case with legacy IWMS solutions. As a result, customer service is a critically important area of investment for any Cloud vendor. Success as a Cloud vendor comes from keeping customers, not just winning them.
“Caveat emptor” – Buyer Beware
Cloud washing: Adding “cloud” to the name of hardware or software in order to make it more up-to-date. Starting in the 2008-2009 time frame, cloud computing became a hot IT topic, and a vendor might rename its product to include the word Cloud if it were Internet based in any manner.”2
So, Legacy IWMS vendors are trying all types of strategies right now to fend off the change to Cloud that is rapidly happening in the industry, especially the big players. Here are a few tactics that you should be able to see right through:
1. Cloudwashing v1. Vendor takes a legacy product and hosts its for a customer, charges annual ‘subscriptions’ and calls it Cloud. At best this is SaaS, but its still the same old product with probably worse performance now that it is not deployed as designed. According the Gartner, “In 2014, using legacy software in the cloud will cost the average enterprise in excess of $1 million more than sourcing a cost-effective alternative”3
2. Cloudwashing v2. Vendor takes a legacy product and has a third party host it for customers and calls it Cloud. Same as above only worse since the third party vendor provides support in place of the vendor.
3. A legacy vendor buys SaaS and/or Cloud companies and then touts how a large percentage of their customers are now SaaS. So now they are not doing two things well instead of just delivering a good legacy solution.
4. Legacy vendors convince their client base that they can, in fact, be all things to all retailers by keeping and continuing to sell their legacy system while promising a SaaS or Cloud product soon to replace it. They may actually be rewriting it, but how many years did it take to write the legacy products? Do they even know how to build a cloud product?
5. Legacy vendors tell the market they are so big they can throw money at the problem to solve it and launch a Cloud product in months. Anyone have an example of when that strategy has ever worked?
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. We also were honored with the Steve Awards highest award for excellent in customer service in 2013.
1 Carr, Nicholas. The Big Switch: Rewiring the World, from Edison to Google. W. W. Norton & Company. January 2008.
2 Definition of: cloudwashing. Pcmag.com. Retrieved April 17th, 2013 from www.pcmag.com.
3 Gartner Research Document. Predicts 2013: New Trends Bring New Challenges for IT Asset Management and Procurement. Schafer, R., Bona, A., Buchanan, S., Published: Nov 27, 2012.