A Practical Guide to Transition your Business into the Cloud – Pt.1
Martin Moran, Executive VP Global Selling Services, ServiceSource
Throughout history, we’ve seen many examples of companies – or whole industries – confronted with the stark new realities associated with emerging technologies and shifting market trends. Faced with strong resistance and insurmountable challenges, these companies needed to make some very painful decisions to reinvent themselves and remain relevant.
Several years ago, both Apple and Kodak were confronting daunting challenges in rapidly changing marketplace. Kodak, the preeminent camera company, was quickly facing obsolesce with the advent of digital cameras. In the same way, Apple faced obsolescence from the personal computer industry dominated by the Wintel (Microsoft +Intel) monopoly.
Standing at the crossroads, Apple and Kodak asked themselves: Where is the market going? Is my existing business model still relevant? Will my employees and sales force adapt to a new culture? Are my internal systems and technologies aligned? And most importantly, will my customers follow?
Apple embraced innovation and made bold moves, rethinking its core business model, culture and internal processes. Kodak, on the other hand, only took half-measures – even though they held critical patents for digital cameras. We know how this story played out within the marketplace resulting in one spectacular success, and the other in bankruptcy.
Today, we’re witnessing a similar transformation within the technology industry. The rapid ascent of cloud computing has fundamentally turned the IT industry on its head. In particular, the legacy software and hardware vendors, which have dominated the past two decades with premise-based business models, are facing pressure by faster, more nimble best-in-class software as a service (SaaS) companies.
As companies increasingly replace application, server and networking infrastructure with cloud services, existing IT vendors are facing a dwindling IT spending pie. Similarly, the cloud-based delivery of software is democratizing the technology spend, allowing employees and managers to whip out their credit cards and procure services from the emerging class of SaaS providers, without going through IT.
In 2012, cloud subscription revenues experienced a whopping 22.7 percent average growth rate. Compare these double-digit growth rates with flat growth for companies whose primary revenue streams today are in on-premise technology and maintenance and support revenues. As companies become more reliant on cloud-based resources and less dependent on traditional IT, vendors are now facing a their own fork in the road. Although the impact on established vendors is slight today, by 2016, the pain will be visibly evident.
With an eye to the future, traditional software and hardware vendors are acquiring nimbler SaaS startups, creating new SaaS solutions, and rapidly moving their legacy technology offerings into the cloud. But, are these changes enough to transform today’s technology companies into the successful SaaS companies of tomorrow?
In the next installment we explore how new business models demand new mindsets.