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Why Some Firms Are Hesitant to Switch to Cloud for Key Parts of Their Businesses

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(Illustration by David Plunkert)


Steven Norton and Clint Boulton, writing for the WSJ
:

While many larger companies have turned to cloud software to manage systems like human-resources management, they are slower to adopt the cloud for applications that handle inventory management, billing and other processes they rely on to run their businesses on a daily basis.

For companies using this type of software to do things like manage the filling, sealing, shipping and billing for thousands of shampoo bottles every hour, there is still too much risk associated with potentially unreliable Internet connections and a dependence on third parties to manage computer servers. The chief information officer of a global consumer packaged-goods company said, “if our [enterprise resource planning system] goes down for five days, we’re out of business.”

This is a trend we hear each and every week: for critical business functions, on-premise software still reigns supreme. Why? Because businesses run on it. If these systems fail, the business stops. Organizations have triage processes and IT teams in place to keep these systems running, and abstracting them away to the cloud – for now – is simply too intimidating.

But as with most technology platforms, there is no black and white. The reality is that for many organizations, cloud and on-premise applications happily co-exist to keep businesses running.

“A lot of our effort has been helping customers pick up new product offerings and modules in the cloud while enabling them to coexist with what a company already has,” said Thomas Kurian, executive vice president of product development at Oracle.

Cloud adoption from large enterprises often comes at the divisional level and through add-on modules. While Oracle offers services to help facilitate the switch to cloud, many core enterprise ERP platforms remain on-premise.

Horses for courses.

Oracle’s Practical HCM Cloud Appeals to PeopleSoft Customer Base

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Here’s Stuart Lauchlan, writing for businessCLOUD9:

In the increasingly febrile battleground of Cloud HCM (Human Capital Management), Oracle’s racked up a couple of nice deals for its Fusion HCM from existing PeopleSoft users – the kind of wins it needs to stave off competition from Workday and SAP.

First up, banking and financial services group UBS has selected Oracle’s Fusion HCM for its 65,000 strong workforce across 50 countries. “UBS needs an HCM solution that works globally and can help transform the way our HR organisation delivers services,” said John Bradley, global head of HR at UBS. “We believe that Oracle Fusion HCM will significantly increase our HR core platform capability.”

This is exactly the kind of customer that Oracle needs to keep on board as it’s a long standing PeopleSoft user.

It seems that everything is going to the cloud — and just maybe it should. When financial institutions move to the cloud, we know it is safe to be there, namely because of their strict security requirements. The truth is that your data is usually safer in the cloud than it is inside your own facilities, under your bed, or buried in your backyard. Because cloud datacenters have to protect so many different types of highly sensitive data, their facilities are overdesigned to be bulletproof to protect their clients. General cloud facilities may require a security standard to meet Advanced Encryption Standard, AES, 256 (bits), while many facilities actually build to a 1024 (bits) standard, 4X what may be required.

Chances are, you don’t have that sort of over-engineering when it comes to your own on-premise data.

The general cloud sales pitch goes something like this: the solution allows you to maintain your security and data protection, whilst reducing total cost of ownership. Part of that protection and ROI also does away with the need for a separate Disaster Recovery (DR) strategy. If your system is in the cloud, you are pretty much covered for DR and no longer need worry about either having a DR strategy, the investment of a separate DR site, or the need to test it to prove that it works. Most companies’ strategies are either not tested, unless an audit is coming, and most have holes in them and would not actually work.

Another feature of modern cloud recovery is that the recoveries are either automatic or kick-off with just a few keystrokes of a system administrator. That can include a recovery of an entire system or just a few corrupted or accidentally deleted files. The nice thing about an all electronic recovery, versus manual, is that it can be in near real time or only the time it takes to make a system copy across high bandwidth pipe from one cloud facility to another. Once you go to the cloud, you can forget about such natural disasters such as local hurricanes, lightning, fires and floods, as well as the man-made disasters.

One of these days we will find that most ERP systems, like many others, will be cloud-based, for all of the right reasons.

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Finally, Some Focus Comes to Oracle Fusion

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Bill Kutik talks about Oracle’s perception problem with Fusion after their five years of secrecy, what the early adopters so far look like, and how customers are slowly looking at Fusion in earnest. But an interesting subplot is the Oracle v. Workday cage match that’s going on, one that will be ultimately considered a function of time if Kutik is correct:

What nobody talks about publicly is Oracle’s effort to derail Workday’s late-stage sales efforts to Oracle clients. Again, business as usual: It’s called capitalism. Apparently, it may have contributed to Workday’s not signing Charles Schwab, but Oracle’s efforts failed at Thomson Reuters, which was recently announced as a Workday customer.

That’s the cage match to watch going forward — with Workday currently having the advantage of older battle-tested software, being able to pursue larger customers and 230 of them already signed. But given Oracle’s much larger size, resources and installed base, those Workday advantages will shrink over time.

Fusion became generally available on June 1, Leone says, and now anyone can buy it, though still with careful qualification.

Leone confirms that Oracle is looking to HCM as its best source for larger company Fusion sales.

It will be interesting to see how Fusion gets a foothold in the market and builds momentum. It’s been a long five years, and people are interested for real developments and releases. We hear it firsthand every day.

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Amazon Storing More Than 49B Objects in S3

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Derrick Harris, writing for GigaOm:

At Structure 2011 last month, Amazon CTO Werner Vogels told the crowd that S3 was storing 339 billion objects. At this same time last year, the service was only storing 262 billion objects. One might also draw a parallel to the ever-growing cloud revenues at Rackspace, the incredible amount of computing capacity AWS adds every day or the mass proliferation of new Software-as-a-Service offerings.

That’s 100% growth year-over-year. And be sure to click the Rackspace link, because they’re not doing too shabby either.  Right now AWS leads the way, with Rackspace running in second.

My feeling is that we’re still in the beginning stages. Cloud usage growth is going to go non-linear sometime down the line.

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‘The Future Ain’t What It Used to Be’

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“The future ain’t what it used to be.” (Yogi Berra)

Yogi was half right.

The future looks bright and innovative when you consider the latest wave in technology, which is cloud computing. But the more I learn, the more it seems like the future is what it used to be.  Nothing new under the sun, right?

In a recent seminar I listened, politely, to a couple of young, up-and-coming SaaS project management stars speak about the great methodology to implement their products.  What they showed were reams of Word documents that stepped through their processes.  Again: a series of Word document pages laboriously detailing how and why to conduct a kick off meeting, followed by more, even less titillating documents that drill down on how to conduct a workshop on a singular feature of the product.

They ensured the audience that they can excitedly await more and more detailed text documents that can show everyone knows how to deploy each and every facet of their products.   And here’s what I thought: this tome of Word documents is a giant parallel to yesterday’s great mainframe Word Perfect documents in the library of Software Methodology Documents Left Unread.  It just baffles me that companies with so much innovative spirit in their technology are not innovative in their approach to creating a new way to convey how to implement their solution. I profess I don’t have the answer, but there must be a better way that matches the creative solution of your technology offering.

Right?

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More SaaS posts you should read.

Top 10 Cloud Computing Flashpoints of 2009

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Jeff Kaplan (@thinkstrategies on Twitter), writing for E-Commerce Times,jeff-kaplan has an excellent list of major SaaS/cloud evolution milestones we saw in 2009.  I have included the list in its entirety below.  Jeff’s full article is here.

Wheeling and Dealing

    1. Salesforce.com (NYSE: CRM) surpasses US$1 billion in revenue. Hitting this financial milestone clearly shows that SaaS has become mainstream and is a scalable business model.

    2. Xactly Acquires Centive. Despite SaaS industry growth, an inevitable market consolidation has begun with this merger of two key players in the on-demand sales Download Free eBook - The Edge of Success: 9 Building Blocks to Double Your Sales compensation market. Also, Salary.com buys the assets of Makana Solutions and NetSuite acquires head-to-head professional services automation (PSA) competitors OpenAir and QuickArrow.

    3. LucidEra fails. The demise of one of the pioneers of the SaaS business intelligence and analytics market shows the willingness of VCs to walk away from even the most prominent SaaS players.

    4. Intacct establishes alliance with the American Institute of Certified Public Accountants (AICPA) and its CPA2Biz subsidiary. This partnership agreement illustrates the growing acceptance of SaaS, as the association broadcasts its endorsement of Intacct’s on-demand financial management Take the worry out of managing your enterprise applications.  Click to learn how. solution as the preferred alternative to traditional financial applications to its 45,000 member CPA firms and their 350,000 SMB clients.

    5. Oracle (Nasdaq: ORCL) offers to buy Sun. Despite Larry Ellison’s rants that SaaS will never be a profitable business model, Oracle uses its proposed acquisition of Sun Microsystems (Nasdaq: JAVA) as a catalyst to promote its growing cloud computing capabilities.

Experiments and Validation

    6. Amazon (Nasdaq: AMZN) and Google (Nasdaq: GOOG) fortify SLAs. Faced with a steady stream of service outages, both Amazon and Google have introduced new service level agreements with more "teeth" to appease the continuing concerns of IT and business decision-makers, and to fend off the challenges of a growing number of cloud computing competitors.

    7. Dell (Nasdaq: DELL) becomes a SaaS reseller. After being a showcase user of Salesforce.com solutions, Dell becomes a Salesforce.com channel partner, offering customers access to AppExchange SaaS vendors.

    8. Marc Benioff Speaks at Oracle OpenWorld. Benioff’s presentation promotes the business benefits of on-demand and on-premise software integration in hybrid operating environments, recasting SaaS as a natural progression of the market rather than a revolutionary overthrow of legacy applications. (This speech may also be the preamble to an Oracle takeover of Salesforce.com.)

    9. Salesforce.com unveils its social computing strategy, Chatter. Rather than simply tightening its integration with Facebook and Twitter, Salesforce.com decides to build its own enterprise-class alternative, which is met with mixed reviews at Dreamforce.

    10. Gartner (NYSE: IT) identifies cloud computing the top strategic technology for 2010. There is no better lagging indicator of key industry trends than Gartner prognostications, which give them further validation and greater visibility.

(Via Dave Cohune)

The Top 10 Trends for 2010 in Analytics, Business Intelligence and Performance Management

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Nenshad Bardoliwalla with an excellent list, but #5 jumped out at me:

SaaS / Cloud BI Tools will steal significant revenue from on-premise vendors but also fight for limited oxygen amongst themselves. From many accounts, this was the year that SaaS-based offerings hit the mainstream due to their numerous advantages over on-premise offerings, and this certainly was in evidence with the significant uptick in investment and market visibility of SaaS BI vendors.  Although much was made of the folding of LucidEra, one of the original pioneers in the space, and while other vendors like BlinkLogic folded as well, vendors like Birst, PivotLink, Good Data, Indicee and others continue to announce wins at a fair clip along with innovations at a fraction of the cost of their on-premise brethren.  From a functionality perspective, these tools offer great usability, some collaboration features, strong visualization capabilities, and an ease-of-use not seen with their on-premise equivalents whereby users are able to manage the system in a self-sufficient fashion devoid of the need for significant IT involvement.  I have long argued that basic reporting and analysis is now a commodity, so there is little reason for any customer to invest in on-premise capabilities at the price/performance ratio that the SaaS vendors are offering (see BI SaaS Vendors Are Not Created Equal ) .  We should thus expect to see continued dimunition of the on-premise vendors BI revenue streams as the SaaS BI value proposition goes mainstream, although it wouldn’t be surprising to see acquisitions by the large vendors to stem the tide.  However, with so many small players in the market offering largely similar capabilities, the SaaS BI tools vendors may wind up starving themselves for oxygen as they put price pressure on each other to gain new customers.  Only vendors whose offerings were designed from the beginning for cloud-scale architecture and thus whose marginal cost per additional user approaches zero will succeed in such a commodity pricing environment, although alternatively these vendors can pursue going upstream and try to compete in the enterprise, where the risks and rewards of competition are much higher.   On the other hand, packaged SaaS BI Applications such as those offered by Host Analytics, Adaptive Planning, and new entrant Anaplan, while showing promising growth, have yet to mature to mainstream adoption, but are poised to do so in the coming years.  As with all SaaS applications, addressing key integration and security concerns will remain crucial to driving adoption.

Also #10 nailed a truism in the BI market (Excel will continue to provide the dominant paradigm for end-user BI consumption.), and idea we’ve written about in a slightly different context here.

Be sure to read Bardoliwalla’s whole list.  Great insight.

Larry Ellison on Oracle’s Unique Vision of On-demand Enterprise Apps

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Interesting snippet from the recent Oracle earnings call:

Question (Kash Rangan – Merrill Lynch) So if I read it correctly, it is going to be ERP supply chain [cerium] for everything, HR, everything on demand, delivered as a multi [inaudible] service from your data sectors to add to the subscription model, right.

Answer (Larry Ellison) Absolutely but it’s not necessarily. The interesting thing is its not necessarily from our data center. We have three models. One is, we have on premise where you run it. We have on demand in our data center. I should say on premise in your data center where you run it. We have on demand in our data center where we run it. But then there is an on demand in your data center where we run it. So the computer is actually on your floor, behind your firewall, attached to your very fast local area network but we provide all the services.

And we think that’s where the real value is and we think that’s the interesting model. It’s a model that Salesforce.com does not offer. It’s a single tenancy on demand model, with a computer on your data center, highly secure, highly performance, but we provide all of the upgrade services and we administer the applications.

That’s proven to be a significant differentiator between us and Salesforce and what is allowing us to win virtually every large-scale deal.

Ellison is onto something, because the two top objections to on-demand are (1) confidential data being moved offsite into another entity’s care, and (2) end user performance.  The third model Ellison talks about – where the Oracle on-demand application infrastructure is in your datacenter, in your care, on your network – overcomes both of these.  It’s a compelling hybrid, and I suspect you’ll see other firms scramble to copy it.

(Via Dave C.)

Traditional software companies: adapt or perish

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Vinnie Mirchandani:Black_Hole_Milkyway

Read this Google paper Data Center as Computer to understand why the average software company which cannot talk about PUEs and CRACs is going to be hopelessly outflanked by the amazon’s and salesforce’s.

Read this note by Dennis Howlett on why “not our problem” will be less and less acceptable as an excuse for a software vendor. Operations Management will become as important a competency as architecture, interface design and testing.

Either software vendors will pick up those competencies really quick, or they will leverage the infrastructure and operations experience of one of the pioneers – as Coda is doing with salesforce.

The disruption is here.  To sloppily paraphrase Bob Dylan, software companies have to get busy being born or get busy dying.  It’s not even about living anymore: if software vendors can’t be reborn into the new market, then they simply won’t survive.  Taking the “same as it ever was” approach is tantamount to getting busy dying.

Dramatic?  Probably.  But there’s lots of drama and noise and gnashing of teeth when something – anything – is facing disruption.  If you’re smart, you see the change coming and adapt to it, even if it means cost, re-org and effort.  If you’re myopic or a serial denier, you’ll get pulled into the event horizon and, well, don’t say you weren’t warned.

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