Some Reflections On The Deal For Competitors, Partners, and Customers
On December 3, SAP announced the acquisition of SuccessFactors, a leading vendor for human capital management (HCM) cloud solutions. SAP will pay $3.5 billion (a 52% premium over the Dec 2 closing price) out of its full battle chest and take a $1 billion loan. SuccessFactors brings about 1,500 employees, more than 3,500 customers, and about 15 million users to the table. In 2010, the company reported revenues of $206 million and a net loss of $12.5 million. A price of $3.5 billion is certainly a big premium, but the acquisition catapults SAP into the ranks of leading software-as-a-service (SaaS) solution providers — a business that will grow from $21.3 billion in 2011 to $78.4 billion by 2015 (for more information, check out our report “Sizing The Cloud”). The deal will certainly help SAP to achieve its 2015 target of $20 billion revenue and 1 billion users as it mainly targets the 500,000 employees that SAP’s already existing customers have. The deal is expected to close in Q1 next year. However, because most of the stocks are widely spread, stakeholders might hold back for now, waiting for possible counter bids from competition.
Forrester has done quite a number of reports in the last two years around platform-as-a-service (PaaS) from the long-term strategy perspective from me and from the application developer perspective from my friend John R. Rymer. During this time, we saw many different business cases around PaaS. We have predicted and quantified that the major buying power of PaaS will come out of three camps:
ISVs are buying PaaS technology. This is a model that we saw with many ISVs on major platforms that managed to create a viable marketplace such as salesforce.com's AppExchange and Google's marketplace.
Corporate application developers are using PaaS to deploy custom apps and add-ons around SaaS applications. They are doing this significantly faster and at a lower TCO than before.
After three days of cloudwashing, cloud-in-a-box and erector set private cloud musings at Oracle OpenWorld in San Francisco this week, CEO Larry Ellison chose day four to take the wraps off a legitimate move into cloud computing.
Oracle Public Cloud is the unification of the company's long-struggling software-as-a-service (SaaS) portfolio with its Fusion applications transformation, all atop Oracle VM and Sun hardware. While Ellison spent much of his keynote taking pot shots at his former sales executive and now SaaS nemesis, Salesforce CEO Mark Benioff, the actual solution being delivered is more of a direct competitor to Amazon Web Services than Force.com. The strongest evidence is in Oracle's stance on multitenancy. Ellison adamantly shunned a tenancy model built on shared data stores and application models, which are key to the profitability of Salesforce.com (and most true SaaS and PaaS solutions), stating that security comes only through application and database isolation and tenancy through the hypervisor. Oracle will no doubt use its own Xen-based hypervisor, OracleVM rather than the enterprise standard VMware vSphere, but converting images between these platforms is quickly proving trivial.
It was only about a year ago when Larry Ellison was confusing the OpenWorld audience with the “cloud in a box” approach, and only a very few CIOs managed to turn a large Oracle landscape into a real private cloud based on an opex model to their business units. But a lot has changed since last year.
Lack Of Infrastructure Portability Is A Showstopper For Me
Salesforce.com bills Force.com as "The leading cloud platform for business apps." It is definitely not for me, though. The showstopper: infrastructure portability. If I develop an application using the Apex programming language, I can only run in the Force.com "cloud" infrastructure.
Don't Lock Me In
Q: What is worse than being locked-in to a particular operating system?
A: Being locked-in to hardware!
In The Era Of Cloud Computing, Infrastructure Portability (IP) Is A Key Requirement For Application Developers
Unless there is a compelling reason to justify hardware lock-in, make sure you choose a cloud development platform that offers infrastructure portability; otherwise, your app will be like a one-cable-television-company town.
Bottom line: Your intellectual property (IP) should have infrastructure portability (IP).
An important prerequisite for a full cloud broker model is the technical capability of cloud bursting:
Cloud bursting is the dynamic relocation of workloads from private environments to cloud providers and vice versa. A workload can represent IT infrastructure or end-to-end business processes.
The initial meaning of cloud bursting was relatively simple. Consider this scenario: An enterprise with traditional, non-cloud infrastructure is running out of infrastructure and temporarily gets additional compute power from a cloud service provider. Many enterprises have now established private clouds, and cloud bursting fits even better here, with dynamic workload relocation between private clouds, public clouds, and the more private provider models in the middle; Forrester calls these virtual private clouds. The private cloud is literally bursting into the next cloud level at peak times.
An essential step before leveraging cloud bursting is properly classifying workloads. This involves describing the most public cloud level possible, based on technical restrictions and data privacy needs (including compliance concerns). A conservative enterprise could structure their workloads into three classes of cloud:
Productive workloads of back-office data and processes, such as financial applications or customer-related transactions:These need to remain on-premises. An example is the trading system of an investment bank.
The Nebula appliance announced today jumps right into this space and provides a standardized hardware configuration for OpenStack implementations. It offers scaled-out compute power based on commoditized x86 CPUs and standardizes a configuration of switches and other components to glue a large number of these CPUs together. The new VC-backed startup will thus compete head to head with EMC’s Vblock and Microsoft’s Azure appliance; neither of these are based on open source, and the latter isn’t really on the market yet.
But Nebula is more than just a hardware deliverable. Its mission is to transparently standardize the cloud hardware stack. Basically, it’s nothing more than the complex specification Microsoft worked out with its hardware partners (Dell, Fujitsu, and HP) to deliver the Azure appliance to local cloud providers and large-scale private clouds. However, Nebula’s openness is the differentiator; it reminds me a bit of IBM’s approach around the original personal computer back in the 1970s. Sure, it enabled hardware competitors to produce compatible PCs — but it also brought mass adoption of the PC, outperforming Apple over four decades.
If Nebula delivers a compelling price point, it has an appealing approach that could gain significant share in the growing cloud hardware market. If the new company aims to spur a revolution similar to that of the PC, its founders need to tweak their strategy soon:
Cloud computing continues to be hyped. By now, almost every ICT hardware, software, and services company has some form of cloud strategy — even if it’s just a cloud label on a traditional hosting offering — to ride this wave. This misleading vendor “cloud washing” and the complex diversity of the cloud market in general make cloud one of the most popular and yet most misunderstood topics today (for a comprehensive taxonomy of the cloud computing market, see this Forrester blog post).
Software-as-a-service (SaaS) is the largest and most strongly growing cloud computing market; its total market size in 2011 is $21.2 billion, and this will explode to $78.4 billion by the end of 2015, according to our recently published sizing of the cloud market. But SaaS consists of many different submarkets: Historically, customer relationship management (CRM), human capital management (HCM) — in the form of “lightweight” modules like talent management rather than payroll — eProcurement, and collaboration software have the highest SaaS adoption rates, but highly integrated software applications that process the most sensitive business data, such as enterprise resource planning (ERP), are the lantern-bearers of SaaS adoption today.
Is your cloud strategy centered on saving money or fueling revenue growth? Where you land on this question could determine a lot about your experience level with cloud services and what guidance you should be giving to your application developers and infrastructure & operations teams. According to our research the majority of CIOs would vote for the savings, seeing cloud computing as an evolution of outsourcing and hosting that can drive down capital and operations expenses. In some cases this is correct but in many the opposite will result. Using the cloud wrong may raise your costs.
But this isn’t a debate worth having because it’s the exploration of the use cases where it does save you money that bears the real fruit. And it’s through this experience that you can start shifting your thinking from cost savings to revenue opportunities. Forrester surveys show that the top reasons developers tap into cloud services (and the empowered non-developers in your business units) is to rapidly deploy new services and capabilities. And the drivers behind these efforts – new services, better customer experience and improved productivity. Translation: Revenues and profits.
If the cloud is bringing new money in the door, does it really matter if it’s the cheaper solution? Not at first. But over time using cloud as a revenue engine doesn’t necessarily mean high margins on that revenue. That’s where your experience with the cost advantaged uses of cloud come in.
Forrester’s Forrsights Software Survey, Q4 2010 has quantified for the first time how enterprise demand is shifting from traditional licensing models to subscriptions and other licensing models, such as financing and license leasing. However, the shift to subscriptions for business-applications-as-a-service is the major driver of this change. Traditional enterprise licenses are slowly decreasing, and Forrester predicts that subscriptions for SaaS applications will drive alternative license spending up to 29% — as early as 2011. This demand-side change goes beyond front-office applications like CRM. In 2011 and 2012, enterprises will opt for “as-a-service” subscriptions for more back-office applications, such as ERP, instead of licensed and on-premise installations. Detailed data cuts by company size and region are available to clients from our Forrsights service.
Base: 622 (2007), 1,026 (2008), 537 (2009), and 930 (2010) software decision-makers predicting license spending for the coming year Source: Enterprise And SMB Software Survey, North America And Europe, Q3 2007; Enterprise And SMB Software Survey, North America And Europe, Q4 2008; Enterprise And SMB Software Survey, North America And Europe, Q4 2009; Forrsights Software Survey, Q4 2010
What does this means for existing independent software vendors (ISVs) and infrastructure vendors?