Real Estate Management in the True Cloud

The risk of NOT switching to SaaS Cloud for IWMS

Posted on: Tuesday, March 1, 2011

IWMS expert and Lucernex President, Joe Valeri (see Joe’s management summary here), discuss the risk of NOT buying a Software as a Service (SaaS) Cloud delivered solution.

In October of 2005 Bill Gates sent a memo to Microsoft’s top management sounding the alarm that the rise of utility computing threatened to destroy its core business.1 Microsoft, at the time, was a pure perpetual software vendor, selling all their software to be installed on a customer computer or server and charging large fees up front with a small annual maintenance fee. This is the way virtually all vendors in the IWMS space continue to do business today – large upfront fees with even larger implementation fees to put software on several servers behind the corporate firewall where the company then has to allocate internal IT resources to manage and maintain the application.

As is evident by Bill Gates memo and a fantastic book on the subject of Utility Computing, called The Big Switch by Nicholas Carr, the business model of providing traditional perpetual software licenses simply cannot survive much longer. In his book, Mr. Carr discusses how the introduction of the electricity grid, which companies used to have an internal infrastructure to produce, dramatically shifted competition between companies whose business were driven by how much electricity they could produce to deliver their products. He then draws a telling comparison to how utility computing will cause the same “Big Shift” in how software is delivered. Much like electricity, companies that embrace the utility computing grid can provide their products far cheaper. Companies that lagged behind in adopting the electricity grid were driven out of business. With utility computing, also known as Cloud computing, the same shift has already started and it’s impacting the IWMS industry.

One only needs to look at the rapidly growing success of Salesforce.com to see how a Cloud Computing solution can quickly take over a market. Certainly brilliant business execution plays a major role but how many of you reading this article right now are in a company that uses Salesforce? 10 to 15 years ago you would be using Seibel, which as a Perpetual model, got eaten up by Oracle as the writing on the wall became clear that they could not compete with Salesforce for long.

Who is building the Utility Grid?
Google, IBM, Microsoft and Amazon and several others have invested billions in infrastructure and have thousands of server farms already up and running all around the country and the world supporting a massive cloud infrastructure.

Most IWMS vendors are selling products that are based on a perpetual software license, installed behind the client firewall. This typically requires a large upfront software fee and larger implementation fees. Some of these vendors have recently started offering subscription pricing to make them look like SaaS vendors even though they are not! Cloud Computing is not a pricing model; it is a delivery model. True Cloud vendors have embraced the utility computing model and have redesigned their products and platforms (no small undertaking) to be optimally delivered via the Cloud. In doing so they have taken advantage of the cloud utility grid, like the electricity grid, and have dramatically driven down their operating costs. This is evident in the pricing models of Cloud providers who can offer comparable IWMS products at a fraction of the cost of Perpetual providers. In an effort to compete, the Perpetual providers are dropping their software prices and making up their profit on services fees; a model that is also not sustainable as the overall year one price, compared to a Cloud provider, is still 2x to 8x more.

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So why are so many companies still investing in a dying technology?

What has held most IWMS purchasers back from buying Cloud solutions has traditionally been a matter of perceived security. However, the Cloud providers typically use a third party Cloud hosting center that is in the business of protecting data and of providing high performance networks. No internal IT department can provide more security than a company whose entire business model is data security.

The truth is the real risk when comparing Perpetual (in house) versus Cloud (utility hosted) IWMS providers is now a timing risk – how long will the Perpetual providers last before their business model collapses like so many businesses did in the late 1800’s when the electricity grid came on line. A collapse might mean they go out of business but it will more likely come as a takeover by a VC, or private equity group or by the likes of Oracle or SAP who will kill the product and convert clients to their, non-IWMS focused platforms (which are also still Perpetual models!).

IT departments have been recommending Perpetual models as a way to protect their turf and save their jobs. This shift does not mean the death of the IT department, but it is likely that IT focus will shift to core solutions that drive revenue for your business and a focus on assisting Business Units in selecting the right Cloud solutions.

I will end this Blog with Microsoft as I began it. Microsoft began a process of moving their products to the Cloud after Bill Gates pronouncement in 2005. You can already see this in their push for Microsoft OfficeLive which provides all the benefits of MSFT office in the Cloud, including file storage and free upgrades to new version of Office without the stress of loading it on your computer. It took Microsoft almost 6 years to convert and they have near unlimited resources – do you think your Perpetual IWMS provider has the resources to get it done faster if at all?

Shameless Plug

All Lucernex Web-based products are provided in the Cloud. We began a major redesign of our underlying SaaS architecture in 2008 that now allows us to reap all the benefits of Cloud computing while maintaining the platform that dozens of retailers have been using since 2003 to manage their entire Real Estate Portfolios. Lx IWMS is a full lifecycle enterprise real estate solution that can manage any size real estate portfolio in the Cloud. Lx Contracts, designed by the creator of SLIM, is our newest product, built on the IWMS platform, that provides complete lease administration and rent accounting and, for a limited time, users of legacy lease administration systems can get a free data conversion to Lx Contracts in the Cloud.

Previous IWMS related Blogs

What is IWMS anyway?

IWMS? It’s Location! Location! Location!

The Power of Location Management

IWMS – Why so expensive?

IWMS in the “Cloud”

How Capital Project Management fits in an IWMS
What makes one IWMS easier to implement than another?

Why building real estate software in house is no longer financially feasible

Risks of upgrading Lease Administration Software alone or as part of an IWMS


References

1 – Carr, N. “The Big Switch: Rewiring Edison to Google”. WW Norton. 2009