Predictions for 2011: getting ready to compete in real time

2010 was a transition year for the tech sector. It was the year when cloud suddenly began to look realistic to the large companies that had scorned it. It was the year when social media suddenly became serious business. And it was the year when hardware and software were being united as a platform – something like in the old mainframe days – but different because of high-level interfaces and modularity. There were also important trends starting to emerge like the important of managing information across both the enterprise and among partners and suppliers. Competition for ownership of the enterprise software ecosystem headed up as did the leadership of the emerging cloud computing ecosystem.

So, what do I predict for this coming year? While at the outset it might look like 2011 will be a continuation of what has been happening this year, I think there will be some important changes that will impact the world of enterprise software for the rest of the decade.

First, I think it is going to be a very big year for acquisitions. Now I have said that before and I will say it again. The software market is consolidating around major players that need to fill out their software infrastructure in order to compete. It will come as no surprise if HP begins to purchase software companies if it intends to compete with IBM and Oracle on the software front.  But IBM, Oracle, SAP, and Microsoft will not sit still either.  All these companies will purchase the incremental technology companies they need to compete and expand their share of wallet with their customers.

This will be a transitional year for the up and coming players like Google, Amazon, Netflix, Salesforce.com, and others that haven’t hit the radar yet.  These companies are plotting their own strategies to gain leadership. These companies will continue to push the boundaries in search of dominance.  As they push up market as they grab market share, they will face the familiar problem of being able to support customers who will expect them to act like adults.

Customer support, in fact, will bubble to the top of the issues for emerging as well as established companies in the enterprise space – especially as cloud computing becomes a well-established distribution and delivery platform for computing.  All these companies, whether well established or startups will have to balance the requirements to provide sophisticated customer support with the need to make profit.  This will impact everything from license and maintenance revenue to how companies will charge for consulting and support services.

But what are customers be looking for in 2011? Customers are always looking to reduce their IT expenses – that is a given. However, the major change in 2011 will be the need to innovative based on customer facing initiatives.  Of course, the idea of focusing on customer facing software itself isn’t new there are some subtle changes.  The new initiatives are based on leveraging social networking from a secure perspective to both drive business traffic, anticipate customer needs and issues before they become issues.  Companies will spend money innovating on customer relationships.

Cloud Computing is the other issue in 2011. While it was clearly a major differentiator in 2010, the cloud will take an important leap forward in 2011.  While companies were testing the water this year, next year, companies will be looking at best practices in cloud computing.  2011 will be there year where customers are going to focus on three key issues: data integration across public, private, and data centers, manageability both in terms of workload optimization, security, and overall performance.  The vendors that can demonstrate that they can provide the right level of service across cloud-based services will win significant business. These vendors will increasingly focus on expanding their partner ecosystem as a way to lock in customers to their cloud platform.

Most importantly, 2011 will be the year of analytics.  The technology industry continues to provide data at an accelerated pace never seen before. But what can we do with this data? What does it mean in organizations’ ability to make better business decisions and to prepare for an unpredictable future?  The traditional warehouse simply is too slow to be effective. 2011 will be the year where predictive analytics and information management overall will emerge as among the hottest and most important initiatives.

Now I know that we all like lists, so I will take what I’ve just said and put them into my top ten predictions:

1. Both today’s market leaders and upstarts are going to continue to acquire assets to become more competitive.  Many emerging startups will be scooped up before they see the light of day. At the same time, there will be almost as many startups emerge as we saw in the dot-com era.

2. Hardware will continue to evolve in a new way. The market will move away from hardware as a commodity. The hardware platform in 2010 will be differentiated based on software and packaging. 2010 will be the year of smart hardware packaged with enterprise software, often as appliances.

3. Cloud computing models will put extreme pressure on everything from software license and maintenance pricing to customer support. Integration between different cloud computing models will be front and center. The cloud model is moving out of risk adverse pilots to serious deployments. Best practices will emerge as a major issue for customers that see the cloud as a way to boost innovation and the rate of change.

4. Managing highly distributed services in a compliant and predictable manner will take center stage. Service management and service level agreements across cloud and on-premises environments will become a prerequisite for buyers.

5. Security software will be redefined based on challenges of customer facing initiatives and the need to more aggressively open the corporate environment to support a constantly morphing relationship with customers, partners, and suppliers.

6. The fear of lock in will reach a fever pitch in 2011. SaaS vendors will increasingly add functionality to tighten their grip on customers.  Traditional vendors will purchase more of the components to support the lifecycle needs of customers.  How can everything be integrated from a business process and data integration standpoint and still allow for portability? Today, the answers are not there.

7. The definition of an application is changing. The traditional view that the packaged application is hermetically sealed is going away. More of the new packaged applications will be based on service orientation based on best practices. These applications will be parameter-driven so that they can be changed in real time. And yes, Service Oriented Architectures (SOA) didn’t die after all.

8. Social networking grows up and will be become business social networks. These initiatives will be driven by line of business executives as a way to engage with customers and employees, gain insights into trends, to fix problems before they become widespread. Companies will leverage social networking to enhance agility and new business models.

9. Managing end points will be one of the key technology drivers in 2011. Smart phones, sensors, and tablet computers are refining what computing means. It will drive the requirement for a new approach to role and process based security.

10. Data management and predictive analytics will explode based on both the need to understand traditional information and the need to manage data coming from new sales and communications channels.

The bottom line is that 2011 will be the year where the seeds that have been planted over the last few years are now ready to become the drivers of a new generation of innovation and business change. Put together everything from the flexibility of service orientation, business process management innovation, the wide-spread impact of social and collaborative networks, the new delivery and deployment models of the cloud. Now apply tools to harness these environments like service management, new security platforms, and analytics. From my view, innovative companies are grabbing the threads of technology and focusing on outcomes. 2011 is going to be an important transition year. The corporations that get this right and transform themselves so that they are ready to change on a dime can win – even if they are smaller than their competitors.

Eight things that changed since we wrote Cloud Computing for Dummies

I admit that I haven’t written a blog in more than three months — but I do have a good reason. I just finished writing my latest book — not a Dummies book this time. It will be my first business book based on almost three decades in the computer industry. Once I know the publication date I will tell you a lot more about it. But as I was finishing this book I was thinking about my last book, Cloud Computing for Dummies that was published almost two years ago.  As this anniversary approaches I thought it was appropriate to take a look back at what has changed.  I could probably go on for quite a while talking about how little information was available at that point and how few CIOs were willing to talk about or even consider cloud computing as a strategy. But that’s old news.  I decided that it would be most interesting to focus on eight of the changes that I have seen in this fast-moving market over the past two years.

Change One: IT is now on board with cloud computing. Cloud Computing has moved from a reaction to sluggish IT departments to a business strategy involving both business and technology leaders.  A few years ago, business leaders were reading about Amazon and Google in business magazines. They knew little about what was behind the hype. They focused on the fact that these early cloud pioneers seemed to be efficient at making cloud capability available on demand. No paperwork and no waiting for the procurement department to process an order. Two years ago IT leaders tried to pretend that cloud computing was  passing fad that would disappear.  Now I am finding that IT is treating cloud computing as a center piece of their future strategies — even if they are only testing the waters.

Change Two: enterprise computing vendors are all in with both private and public cloud offerings. Two years ago most traditional IT vendors did not pay too much attention to the cloud.  Today, most hardware, software, and services vendors have jumped on the bandwagon. They all have cloud computing strategies.  Most of these vendors are clearly focused on a private cloud strategy. However, many are beginning to offer specialized public cloud services with a focus on security and manageability. These vendors are melding all types of cloud services — public, private, and hybrid into interesting and sometimes compelling offerings.

Change Three: Service Orientation will make cloud computing successful. Service Orientation was hot two years ago. The huge hype behind cloud computing led many pundits to proclaim that Service Oriented Architectures was dead and gone. In fact, cloud vendors that are succeeding are those that are building true business services without dependencies that can migrate between public, private and hybrid clouds have a competitive advantage.

Change Four: System Vendors are banking on integration. Does a cloud really need hardware? The dialog only two years ago surrounded the contention that clouds meant no hardware would be necessary. What a difference a few years can make. The emphasis coming primarily from the major systems vendors is that hardware indeed matters. These vendors are integrating cloud infrastructure services with their hardware.

Change Five: Cloud Security takes center stage. Yes, cloud security was a huge topic two years ago but the dialog is beginning to change. There are three conversations that I am hearing. First, cloud security is a huge issue that is holding back widespread adoption. Second, there are well designed software and hardware offerings that can make cloud computing safe. Third, public clouds are just as secure as a an internal data center because these vendors have more security experts than any traditional data center. In addition, a large number of venture backed cloud security companies are entering the market with new and quite compelling value propositions.

Change Six: Cloud Service Level Management is a  primary customer concern. Two years ago no one our team interviewed for Cloud Computing for Dummies connected service level management with cloud computing.   Now that customers are seriously planning for wide spread adoption of cloud computing they are seriously examining their required level of service for cloud computing. IT managers are reading the service level agreements from public cloud vendors and Software as a Service vendors carefully. They are looking beyond the service level for a single service and beginning to think about the overall service level across their own data centers as well as the other cloud services they intend to use.

Change Seven: IT cares most about service automation. No, automation in the data center is not new; it has been an important consideration for years. However, what is new is that IT management is looking at the cloud not just to avoid the costs of purchasing hardware. They are automation of both routine functions as well as business processes as the primary benefit of cloud computing. In the long run, IT management intends to focus on automation and reduce hardware to interchanagable commodities.

Change Eight: Cloud computing moves to the front office. Two years ago IT and business leaders saw cloud computing as a way to improve back office efficiency. This is beginning to change. With the flexibility of cloud computing, management is now looking at the potential for to quickly innovate business processes that touch partners and customers.

The lock-in risks of Software as a Service

I started thinking a lot about software as a service environments and what this really means to customers.  I was talking to a CIO of a medium sized company the other day. His company is a customer of a major SaaS vendor (he didn’t want me to name the company). In the beginning things were quite good. The application is relatively easy to navigate and sales people were satisfied with the functionality. However, there was a problem. The use of this SaaS application was actually getting more complicated than the CIO had anticipated.  First, the company had discovered that they were locked into a three-year contract to support 450 sales people.  In addition, over the first several years of use, the company had hired a consultant to customize the workflow within the application.

So, what was the problem?  The CIO was increasingly alarmed about three issues:

• The lack of elasticity. If the company suddenly had a bad quarter and wanted to reduce the number of licenses supported, they would be out of luck. One of the key promises of cloud computing and SaaS just went out the window.
• High costs of the services model. It occurred to the CIO that the company was paying a lot more to support the SaaS application than it would have cost to buy an on premise CRM application. While there were many benefits to the reduced hardware and support requirements, the CIO was starting to wonder if the costs were justified.  Did the company really do the analysis to determine the long-term cost/benefit of cloud?  How would he be able to explain the long- term ramifications of budget increases that he expects will come to the CFO? It is not a conversation that he is looking forward to having.
• No exit strategy. Given the amount of customization that the company has invested in, it is becoming increasingly clear that there is no easy answer – and no free lunch. One of the reasons that the company had decided to implement SaaS was the assumption that it would be possible to migrate from one SaaS application to another.  However, while it might be possible to migrate basic data from a SaaS application, it is almost impossible to migrate the process information. Shouldn’t there be a different approach to integration in clouds than for on premise?

The bottom line is that Software as a Service has many benefits in terms of more rapid deployment, initial savings in hardware and support services, and ease of access for a highly distributed workforce.  However, there are complications that are important to take into account.  Many SaaS vendors, like their counterparts in the on-premise world, are looking for long-term agreements and lock-in with customers.  These vendors expect and even encourage customers to customize their implication based on their specific business processes.  There is nothing wrong with this – to make applications like CRM and HR productive they need to reflect a company’s own methods of doing business. However, companies need to understand what they are getting into. It is easy to get caught in the hype of the magic land of SaaS.  As more and more SaaS companies are funded by venture capitalists, it is clear that they will not all survive. What happens to your customized processes and data if the company goes out of business?

It is becoming increasingly clear to me that we need a different approach to integration in the cloud than for on premise. It needs to leverage looser coupling, configurations rather than programmatic integration. We have the opportunity to rethink integration altogether – even for on premise applications.

There is no simple answer to the quandary.  Companies looking to deploy a SaaS application need to do their homework before barreling in.  Understand the risks and rewards. Can you separate out the business process from the basic SaaS application? Do you really want to lock yourself into a vendor you don’t know well? It may not be so easy to free your company, your processes, or your data.

Can Informatica earn a place at the head table?

Informatica might be thought of as the last independent data management company standing. In fact, that used to be Informatica’s main positioning in the market. That has begun to change over the last few years as Informatica can continued to make strategic acquisitions. Over the past two years Informatica has purchased five companies  — the most recent was Siperian, a significant player in Master Data Management solutions. These acquisitions have paid off. Today Informatica has past the $500 million revenue mark with about 4,000 customers. It has deepened its strategic partnerships with HP, Ascenture, Salesforce.com, and MicroStrategies,  In a nutshell, Informatica has made the transition from a focus on ETL (Extract, Transform, Load) tools to support data warehouses to a company focused broadly on managing information. Merv Adrian did a great job of providing context for Informatica’s strategy and acquisitions. To transition itself in the market, Informatica has set its sights on data service management — a culmination of data integration, master data management and data transformation, predictive analytics in a holistic manner across departments, divisions, and business partners.

In essence, Informatica is trying to position itself as a leading manager of data across its customers’ ecosystem. This requires a way to have consistent data definitions across silos (Master Data Management), ways to trust the integrity of that data (data cleansing), event processing, predictive analytics, integration tools to move and transform data, and the ability to prove that governance can be verified (data governance). Through its acquisitions, Informatica is working to put these pieces together. However, as a relatively small player living in a tough neighborhood (Oracle, IBM, SAS Institute,etc. it will be a difficult journey. This is one of the reasons that Informatica is putting so much emphasis on its new partner marketplace. A partner network can really help a smaller player appear and act bigger.

This Marketplace will include all of Informatica’s products. It will enable developers to develop within Informatica’s development cloud and deploy either in the cloud or on premise. Like its new partner marketplace, the cloud is offering another important opportunity for Informatica to compete. Informatica was an early partner with Salesforce.com. It has been offerings complementary information management products that can be used as options with Salesforce.com.  This has provided Informatica access to customers who might not have ever thought about Informatica in the past. In addition, it taught Informatica about the value of cloud computing as a platform for the future. Therefore, I expect that with Informatica’s strong cloud-based offerings will help the company maintain its industry position. In addition, I expect that the company’s newly strengthened partnership with HP will be very important in the company’s growth.

What is Informatica’s roadmap? It intends to continue to deliver new releases every six months including new data services and new data integration services. It will including develop these services with a self-service interfaces. In the end, its goal is to be a great data steward to its customers. This is an admirable goal. Informatica has made very good acquisitions that support its strategic goals. It is making the right bets on cloud and on a partner ecosystem. The question that remains is whether Informatica can truly scale to the size where it can sustain the competitive threats.  Companies like IBM, Oracle, Microsoft, SAP, and SAS Institute are not standing still.  Each of these companies have built and will continue to expand their information management strategies and portfolios of offerings. If Informatica can break the mold on ease of implementation on complex data service management it will have earned a place at the head table.

Is cloud security really different than data center security?

Almost every conversation I have had over the past year or so always comes back to security in the cloud.  Is it really secure? Or we are thinking about implementing the cloud but we are worried about security.  There are, of course, good reasons to plan a cloud security strategy. But in a sense, it is no different than planning a security strategy for your company. But it is the big scary cloud! Well, before I list the top then issues I would like to say one thing: if you think you need an entirely different security strategy for the cloud, you may not have a comprehensive security strategy to start with.  Yes, you have to make sure that you cloud provider has a sophisticated approach to security. However, what about your Internet service provider? What about the level of security within your own IT department? Can you throw stones if you live in a glass house (yes, that is a pun…sorry)?  So, before you start fretting about security in the cloud, get your own house in order.  Do you have an identity management plan? Do you ensure that one individual within the data center can’t control all of the data within a single environment to minimize risks? If you don’t have a well executed internal security plan, you aren’t ready for the cloud.  But let’s say that you have fixed that problem and you are ready to really plan your cloud security strategy. So, here five of the issues to consider. If you have others, let’s start a conversation.

1. You need to start at the beginning with understanding the characteristics of your cloud provider. Is the company well funded? Is its data center designed with security at the center? Your level of scrutiny will also depend on how you are using the cloud. If you are using Infrastructure as a Service for a short term project there is less risk than if you are planning to use a cloud to store important customer data.

2. How is your cloud provider implementing security in a multi-tenant environment? How do they ensure that one customer’s data doesn’t impact another customer’s data?

3. Does your cloud provider give you the ability to monitor security of your data in the cloud? This will be important both for compliance and to keep track of your own security policies.

4. Does your cloud provider encrypt your critical data? If not, why not?

5. Does your cloud provider give you the ability to control who is allowed to access your information based on roles and authorization? Does the cloud provider support federated identity management? This is basic security best practices.

Now you are probably saying to yourself that this isn’t rocket science. These are fundamental security approaches that any data center should follow. I recommend that you take a look at a great document published by the Cloud Security Alliance that details many of the key issues surrounding security in the cloud. So, I guess my principle message is that cloud security is not different than security in any data center.  But the market does not seem to understand this because the perception is that a cloud is somehow not a data center that can be secured with regular old security. I think that we will see something interesting happen because of this perception: cloud vendors will begin to charge a premium for really good security.  In fact, this is already happening.  Vendors like Amazon and Salesforce are offering segregated implementations of their environments to customers who don’t trust their ordinary security approaches.  This will work in the short term primarily because during this early phase of the cloud there is not enough focus on security. Long term, as the market matures, cloud vendors will have to demonstrate their ability to provide a secure environment based on basic security best practices. In the meantime, cloud vendors will rake in the cash for premium secure cloud services.

What are the Unanticipated consequences of the cloud – part II

As I was pointing out yesterday, there are many unintended consequences from any emerging technology platform — the cloud will be no exception. So, here are my next three picks for unintended consequences from the evolution of cloud computing:

4. The cloud will disrupt traditional computing sales models. I think that Larry Ellison is right to rant about Cloud Computing. He is clearly aware that if cloud computing becomes the preferred way for customers to purchase software the traditional model of paying maintenance on applications will change dramatically.  Clearly,  vendors can simply roll in the maintenance stream into the per user per month pricing. However, as I pointed out in Part I, prices will inevitably go down as competition for customers expands. There there will come a time when the vast sums of money collected to maintain software versions will seem a bit old fashioned. In fact, that will be one of the most important unintended consequences and will have a very disruptive effect on the economic models of computing. It has the potential to change the power dynamics of the entire hardware and software industries.The winners will be the customers and smart vendors who figure out how to make money without direct maintenance revenue. Like every other unintended consequence there will be new models emerging that will emerge that will make some really cleaver vendors very successful. But don’t ask me what they are. It is just too early to know.

5. The market for managing cloud services will boom. While service management vendors do pretty well today managing data center based systems, the cloud environment will make these vendors king of the hill.  Think about it like this. You are a company that is moving to the cloud. You have seven different software as a service offerings from seven different vendors. You also have a small private cloud that you use to provision critical customer data. You also use a public cloud for some large scale testing. In addition, any new software development is done with a public cloud and then moved into the private cloud when it is completed. Existing workloads like ERP systems and legacy systems of record remain in the data center. All of these components put together are the enterprise computing environment. So, what is the service level of this composite environment? How do you ensure that you are compliant across these environment? Can you ensure security and performance standards? A new generation of products and maybe a new generation of vendors will rake in a lot of cash solving this one.

6. What will processes look like in the cloud. Like data, processes will have to be decoupled from the applications that they are an integral part of the applications of record. Now I don’t expect that we will rip processes out of every system of record. In fact, static systems such as ERP, HR, etc. will have tightly integrated processes. However, the dynamic processes that need to change as the business changes will have to be designed without these constraints. They will become trusted processes — sort of like business services that are codified but can be reconfigured when the business model changes.  This will probably happen anyway with the emergence of Service Oriented Architectures. However, with the flexibility of cloud environment, this trend will accelerate. The need to have independent process and process models may have the potential of creating a brand new market.

I am happy to add more unintended consequences to my top six. Send me your comments and we can start a part III reflecting your ideas.

Ten things I learned while writing Cloud Computing for Dummies

I haven’t written a blog post in quite a while. Yes, I feel bad about that but I think I have a good excuse. I have been hard at work (along with my colleagues Marcia Kaufman, Robin Bloor, and Fern Halper) on Cloud Computing for Dummies. I will admit that we underestimated the effort. We thought that since we had already written Service Oriented Architectures for Dummies — twice; and Service Management for Dummies that Cloud Computing would be relatively easy. It wasn’t. Over the past six months we have learned a lot about the cloud and where it is headed. I thought that rather than try to rewrite the entire book right here I would give you a sense of some of the important things that I have learned. I will hold myself to 10 so that I don’t go overboard!

1. The cloud is both old and new at the same time. It is build on the knowledge and experience of timesharing, Internet services, Application Service Providers, hosting, and managed services. So, it is an evolution, not a revolution.

2. There are lots of shades of gray with cloud segmentation. Yes, there are three buckets that we put clouds into: infrastructure as a service, platform as a service, and software as a service. Now, that’s nice and simple. However, it isn’t because all of these areas are starting to blurr into each other. And, it is even more complicated because there is also business process as a service. This is not a distinct market unto itself – rather it is an important component in the cloud in general.

3. Market leadership is in flux. Six months ago the market place for cloud was fairly easy to figure out. There were companies like Amazon and Google and an assortment of other pure play companies. That landscape is shifting as we speak. The big guns like IBM, HP, EMC, VMware, Microsoft, and others are running in. They would like to control the cloud. It is indeed a market where big players will have a strategic advantage.

4. The cloud is an economic and business model. Business management wants the data center to be easily scalable and predictable and affordable. As it becomes clear that IT is the business, the industrialization of the data center follows. The economics of the cloud are complicated because so many factors are important: the cost of power; the cost of space; the existing resources — hardware, software, and personnel (and the status of utilization). Determining the most economical approach is harder than it might appear.

5. The private cloud is real.  For a while there was a raging debate: is there such a thing as a private cloud? It has become clear to me that there is indeed a private cloud. A private cloud is the transformation of the data center into a modular, service oriented environment that makes the process of enabling users to safely procure infrastructure, platform and software services in a self-service manner.  This may not be a replacement for an entire data center – a private cloud might be a portion of the data center dedicated to certain business units or certain tasks.

6. The hybrid cloud is the future. The future of the cloud is a combination of private, traditional data centers, hosting, and public clouds. Of course, there will be companies that will only use public cloud services for everything but the majority of companies will have a combination of cloud services.

7. Managing the cloud is complicated. This is not just a problem for the vendors providing cloud services. Any company using cloud services needs to be able to monitor service levels across the services they use. This will only get more complicated over time.

8. Security is king in the cloud. Many of the customers we talked to are scared about the security implications of putting their valuable data into a public cloud. Is it safe? Will my data cross country boarders? How strong is the vendor? What if it goes out of business? This issue is causing many customers to either only consider a private cloud or to hold back. The vendors who succeed in the cloud will have to have a strong brand that customers will trust. Security will always be a concern but it will be addressed by smart vendors.

9. Interoperability between clouds is the next frontier. In these early days customers tend to buy one service at a time for a single purpose — Salesforce.com for CRM, some compute services from Amazon, etc. However, over time, customers will want to have more interoperability across these platforms. They will want to be able to move their data and their code from one enviornment to another. There is some forward movement in this area but it is early. There are few standards for the cloud and little agreement.

10. The cloud in a box. There is a lot of packaging going on out there and it comes in two forms. Companies are creating appliance based environments for managing virtual images. Other vendors (especially the big ones like HP and IBM) are packaging their cloud offerings with their hardware for companies that want Private clouds.

I have only scratched the surface of this emerging market. What makes it so interesting and so important is that it actually is the coalescing of computing. It incorporates everything from hardware, management software, service orientation, security, software development, information management,  the Internet, service managment, interoperability, and probably a dozen other components that I haven’t mentioned. It is truly the way we will achieve the industrialization of software.

The end of maintenance?

I admit that I didn’t read the whole article but then I really didn’t have to. I knew what Marc Benioff, CEO of Salesforce.com was trying to start. I remember many years ago seeing Marc at an industry conference where he proudly announced the end of software.  A nice marketing approach that definitely got everyone’s attention. Of course, at that time Marc was working on a little software as a service enviornment that became Salesforce.com. The rest is history, as we like to say.  Now, Marc is on a new mission to attack maintenance fees. While it is clear that Marc is trying to tweak the traditional software market I think that he is bringing up an interesting subject.

Software maintenance is not a simple topic to cover and I am sure that I could spend hundreds of pages discussing the topic because there are so many angles. Maintenance fees began as a way of ensuring that software companies had the revenue to fund development of new functionality in their software products. It is, of course, possible to buy software, pay once, and never pay the vendor anything else. Those situations exist of course. Ironically, the better designed the software, the less likely it is that customers will need upgrades. But, clearly that circumstance is rare.

There are major changes taking place in the economics of software. Customers are increasingly unhappy with paying huge yearly maintenance fees to software providers. Some of these fees are clearly justified. Software is complex and vendors are often required to continue to upgrade, add new features, and the like. There are other situations where customers are perfectly happy with software as is and only want to fix critical problems and don’t want to pay what they see as exorbitant maintenance fees.

Now, getting back to Marc Benioff’s comments about the end of maintenance. Here is a link from Vinnie Mirchandani’s recent blog on the topic.Marc is making a very important observation. As the world slowly moves to cloud computing for economic reasons there will be a major impact on how companies pay for software. Salesforce.com has indeed proven that companies are willing to trust their sales and customer data to a Software as a Service vendor. These customers are also willing to pay per user or per company yearly fees to rent software. Does this mean that they are no longer paying maintance fees? My answer would be no. It is all about accounting and economics. Clearly, Salesforce.com spends a lot of money adding functionality to its application and someone pays for that. So, what part of that monthly or yearly per user fee is allocated to maintaining the application? Who knows? And I am sure that it is not one of those statistics that Salesforce.com or any other Software as a Service or any Platform as a Service vendor is going to publish. Why? Because these companies don’t think of themselves as traditional software companies. They don’t expect that anyone will ever own a copy of their code.

The bottom line is that software will never be good enough to never need maintenance. Software vendors — whether they sell perpetual licenses or Software as a Service– will continue to charge for maintance. The reality is that the concrete idea of the maintenance fee will evolve over time. Customers will pay it but they probably won’t see it on their bills.  Nevertheless, the impact on traditional software companies will be dramatic over time and a lot of these companies will have to rethink their strategies. Many software companies have become increasingly dependent on maintenance revenue to keep revenue growing.  I think that Marc Benioff has started a conversation that will spark a debate that could have wide ranging implications for the future of not only maintenance but of what we think of as software.

Does IT see the writing on the cloud wall?

For the last six months or so I have been researching cloud computing. More recently, our team has started writing our next Dummies Book on Cloud Computing. Typically when we start a book we talk to everyone in the ecosystem — vendors big and small and lots of customers.  For example, when we started working on SOA for Dummies almost three years ago we found a lot of customers who could talk about their early experience. Not all of these companies had done things right. They had made lots of mistakes and started over. Many of them didn’t necessarily want their mistakes put into a book but they were willing to talk and share.  As I have mentioned in earlier writings, when we wrote the second edition of SOA for Dummies we had a huge number of customers that we could talk to. A lot of them have made tremendous progress in transforming not just their IT organization but the business as well.

We had a similar experience with Service Management for Dummies which comes out in June. Customers were eager to explain what they had learned about managing their increasingly complex computing and business infrastructures.  But something interesting in happening with the Cloud book. The experience feels very different and I think this is significant.

Our team has been talking to a lot of the vendors — big and small about their products and strategies around the cloud. Some of these vendors focused on some really important problems. Others are simply tacking the word cloud in front of their offerings hoping to get swept up in the excitment. But there is something missing. I think there are two things: there is a lack of clarity about what a cloud really is and what the component parts are. Is it simply Software as a Service? Is it an outsourced infrastructure? Is it storage capacity to supplement existing data centers? Is it a management platform that supports Software as a service? Does cloud require a massive ecosystem of partners? Is it a data center with APIs? Now, I am not going to answer these questions now (I’ll leave some of these to future writings).

What I wanted to talk about was what I see happening with customers.  I see customers being both confused and very wary. In fact, the other day I tried to set up a call with a senior executive from a large financial services company that I have spoken to about other emerging areas. This company always likes to be on the forefront of important technology trends. To my surprise, the executive was not willing to talk about clouds at all.  Other customers are putting their toes in the cloud (pun intended) by using some extra compute cycles from Amazon or by using Software as a Service offerings like SalesForce.com. Some customers are looking to implement a cloud-like capability within their own data center. Could it be there they are afraid that if they don’t offer something like Amazon’s EC2 cloud that they will be put out of business? Just as likely they are worried about the security of their intellectual property and their data.

I predict that the data center is about to go through a radical transformation that will forever change the landscape of corporate computing. Companies have recognized for a long time that data centers are very inefficient. They have tried clustering servers and virtualizing their servers with some level of success.  But the reality is that in time there will be a systematic approach to scalable computing based on the cloud.  It will not be a simple outsourced data center because of the transition to a new generation of software that is component based and service oriented. There is a new generation of service management technologies that makes the management of highly distributed environments much more seamless. The combination of service oriententation, service managment, and cloud will be the future of computing.

The bottom line is that while the vendor community sees dollar signs in this emerging cloud based world, the customers are afraid. The data center management team does not understand what this will mean for their future. If everything is tucked away in a cloud what is my job? Will we still have a data center? I suspect that it will not be that simple. At some point down the line we will actually move to utility computing where computing assets will all be based on a consistent set of standards so that customers will be able to mix and match the services they need in real time. We clearly are not there yet. Today there will be many data center activities that either cannot or will not be put into a cloud. Internal politics will keep this trend towards clouds moving slowly.

Why did CODA move to Salesforce.com?

After meeting Steve Pugh, CEO of CODA Financials, Inc., I wanted to understand why this mid-market financial applications vendor decided to build its next generation infrastructure on Salesforce.com’s infrastructure. I found the decision making to be quite interesting. First, for some background, CODA decided that it was time to move. The company has a habit of migrating to the next big platform of the day. The company started out writing its applications for the HP 3000 in the late 1970s and then moving to Digital Equipment’s VAX platform in the 1980s. After that CODA moved its code to the AS/400. The next platform was client/server in the 1990s – which was basically a browser-based environment. Now fast forward to the current decade. CODA decided to build the platform on top of salesforce.com. CODA was familiar with Salesforce.com because the company is a Salesforce customer.

The objective of the movement to a new platform was based on the ambitious plan to do for financial products what Salesforce has done for CRM. Needless to say, it is quite an ambitious goal. CODA management began to appreciate the potential for Software as a Service as a way to build customers faster than the sales process of on premise software. Before making the decision to use sforce (salesforce’s development platform), the company performed an ROI analysis. The challenge for the company was the cost of writing the code from scratch internally. Basically, development management realized that they would have to write for a multi-tenant environment that would have required several years of work to get the right infrastructure services in place. They simply couldn’t justify the expenditure or the time lag required for development. Without having to worry about any specific software infrastructure, CODA’s developers focused on customer facing features.

Unlike some of the companies that have built on top of sForce, CODA is a large company that serves mid-market companies. Salesforce needs CODA as much as CODA needs them. Salesforce needed to prove to the market that its platform could support a major application. CODA’s application is starting into the beta stage. So far, the company is happy. It has saved time and money. Now the proof will be to see if customers adopt its new SaaS platform.
CODA wrote its application with Salesforce’s Java like language called Apex. Therefore, the company is locked into the Salesforce platform. While there are always choices to be made and perhaps CODA is making the right one. It is clearly right from an ecosystem perspective since Salesforce will help CODA sell into its customer base. Long term CODA will have to read the tealeaves, just like it did when it committed to platforms such as the AS/400 and the VAX.