http://blogs.kuppingercole.com/kuppinger/2009/09/18/cloud-business-models-a-threat-for-vendors/ KuppingerCole Thu, 17 May 2012 05:39:53 +0000 hourly 1 http://wordpress.org/?v=3.3.2 http://blogs.kuppingercole.com/kuppinger/2009/09/18/cloud-business-models-a-threat-for-vendors/comment-page-1/#comment-174 @metaconomy Tue, 24 Nov 2009 19:48:25 +0000 http://blogs.kuppingercole.com/kuppinger/?p=209#comment-174 Is it so much the Cloud model which is the threat or the SaaS model? Margin erosion is going to creep in fast when lift off really occurs but that will be a while yet. SaaS represents something between 3 and 6% of the software market currently, leaving 94% firmly in the hands of vendors and their perpetually protective licensing models. So what does this mean? For the moment at least the uptake will remain slow because the larger enterprises will not throw their investments in legacy systems away to pay more for the services delivered via SaaS (Cloud or not). This is all about the economic model and less about the security paranoias and all the other voiced objections to date. Mid to large enterprises will continue to have their feet in both camps, perpetual licensing with maintenance and EAs, as well as SaaS. Vendors will have to downgrade their dreams of delivering everything across the web from newly formed business units to the more realistic model of hybrid delivery supporting distributors and reseller channels as well as the on-demand channel. Only the adventurous will wander down this road and if we are to believe all the rhetoric from Microsoft about threat to their business model and how Azure is shifting the paradigm well just consider this; they have never been thought leaders or first movers up to now, why would they throw their long haul marketing budgets up the wall to be first movers now? Their investment is all about stalling for time until critical mass has been reached and then in for the kill on price. The question is whether the channels can become more effective and efficient enough to drive vendors into a corner where they have to consider alternatives to 'perpetual' subscription based pricing. Committed Monthly Recurring Revenue benefits only for vendors while pricing is so high. Their customers will suffer long term high pricing until they can demand better bundling, risk based pricing, or drive vendors to be more diligent about their own revenue assurance which in turn will make them more profitable on lower margins. Is it so much the Cloud model which is the threat or the SaaS model?
Margin erosion is going to creep in fast when lift off really occurs but that will be a while yet. SaaS represents something between 3 and 6% of the software market currently, leaving 94% firmly in the hands of vendors and their perpetually protective licensing models.
So what does this mean? For the moment at least the uptake will remain slow because the larger enterprises will not throw their investments in legacy systems away to pay more for the services delivered via SaaS (Cloud or not). This is all about the economic model and less about the security paranoias and all the other voiced objections to date. Mid to large enterprises will continue to have their feet in both camps, perpetual licensing with maintenance and EAs, as well as SaaS. Vendors will have to downgrade their dreams of delivering everything across the web from newly formed business units to the more realistic model of hybrid delivery supporting distributors and reseller channels as well as the on-demand channel.
Only the adventurous will wander down this road and if we are to believe all the rhetoric from Microsoft about threat to their business model and how Azure is shifting the paradigm well just consider this; they have never been thought leaders or first movers up to now, why would they throw their long haul marketing budgets up the wall to be first movers now? Their investment is all about stalling for time until critical mass has been reached and then in for the kill on price.
The question is whether the channels can become more effective and efficient enough to drive vendors into a corner where they have to consider alternatives to 'perpetual' subscription based pricing. Committed Monthly Recurring Revenue benefits only for vendors while pricing is so high. Their customers will suffer long term high pricing until they can demand better bundling, risk based pricing, or drive vendors to be more diligent about their own revenue assurance which in turn will make them more profitable on lower margins.

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