Daryl Plummer

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Daryl C. Plummer
Managing VP & Gartner Fellow
18 years at Gartner
35 years IT industry

Daryl Plummer is vice president, chief of Research and chief Gartner Fellow. Mr. Plummer manages the Gartner Fellows Program, which is designed to allow senior analysts the opportunity to explore new research ideas and to elevate… Read Full Bio

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Delivering Cloud Services: ISVs – Change or Die or both!

by Daryl Plummer  |  November 6, 2008  |  15 Comments

Planning to move to cloud computing will be a decision that takes time to sink in.

For some companies, it will require a bit of a transition that could range from the addition of a simple partnering agreement to a complete reformation of the business the company represents. What do I mean, you might ask? Well, let’s take the pending case of the traditional Independent Software Vendor (ISV).

Now, we are all familiar with ISVs. Wikipedia defines them thusly (assuming the link hasn’t morphed into a description of “Indiana Sushi Vendors” since I last looked.  But, no matter. I have no doubt that most people in technology areas will accept that ISVs produce, package, sell, deliver, and update – software. Now note that last word – “software”. Note also, that I did not say – “services”. There is a reason for that and in that reason lies the gist of this post – to wit – Independent software Vendors are not positioned well to become the next generation of Cloud Service Providers (CSP) or even Software As A Service (SaaS) providers.

Derrick Harris recently had a very nice post on the subject of ISVs moving to the cloud. He points out that an ISV can take advantage of great opportunity if it embraces a true move to the cloud. I agree. However, I have to part ways with Derrick’s thinking in one key regard. While some can take advantage, the vast majority of ISVs will have a very difficult time with this switch.

What that means to you, oh wondrous reader of blogging detritus, is that you gotta’ be careful who you place your trust in when they say they provide cloud services. Not all service providers are created equal.

A cloud service provider is a company that delivers cloud services as part of its business model. The public “Cloud” will be an abstract place through which service providers will deliver things like storage as a service, software as a service, or maybe even sushi as a service in Indiana one day.  But the common link between all those things is, and ever shall be, the delivery of “service”. Yes, the word is overloaded and means different things to different people. Yes, many software vendors will say they provide services. And yes, I did believe my 10th grade girlfriend when she said “it’s not you, it’s me”.

But not everything is always as it seems.

The delivery of service is not something that a company just wakes up to on Monday morning and rolls out on Tuesday. It is hard work and requires skills and management that most ISVs I have met, simply do not have. So, ask yourself this question. When was the last time you met a software vendor, who was also a great (or even good) service provider? If your answer is “yesterday”, or “frequently”, then take the day off and go to the beach, because you would be one of a rare breed who deserves to be pampered. But you will be lonely.

Think about some of the things service providers have to do that software vendors often avoid:

  • Selling subscriptions instead of licenses: This nut is being hammered on every day but it is still a risky proposition to switch from selling software seats or licenses based on number of users to selling subscriptions based on usage. In fact, creating an equivalent measure of usage that will allow an ISV to generate the same revenue can be tricky. Do it wrong, and you will leave money on the table, or scare customers over to the competition. We’re helping clients every day figure out how to do this in their environments.
  • Managing service delivery: you gotta’ know who your customers are, understand and help set their expectations, manage dependencies on related services, manage multiple service versions, etcetera, etcetera, etcetera (Imagine Yul Brenner reading that out loud).
  • Meeting Service Level agreements: software vendors? Meet service level agreements? Even have service level agreements? Yeah, riiiight. “It’s not you, honey. It’s me!”

Ok, I think you get the meager point. But, don’t let that sway you from the larger issue that hides inside. There is a significant risk that the movement to cloud computing will send many mid-sized and smaller ISVs into the dustbin. I’ll say it another way. Some software vendors will either change their business entirely, or go out of business if cloud computing becomes the mainstream norm for delivery of systems.

The reasons are simple:

  1. It is not enough to just cloud-enable your software. You still have to deliver it as a service and that is simply not the business of most ISVs. So, you might have to change.
  2. You can either become a service provider yourself (not easy, and not cheap as it requires you to retool, reskill, and reorganize. Think about it, do you have product managers, or service managers. You get three points if you have both). Or, you can partner with a service provider to deliver your software as a service or to build services on top of your software and then deliver those. In either case, you now have to begin sending customers to those partners which competes with your traditional licensed offerings. Not only that, but you have to price your products in such a way that those service providers can make money and not scare their customers off to the competition. The pricing will be “what the market will bear”, not just what you need to generate a profit.  Here is a hint, though. Sell your products to the service provider and then take a cut of what they bring in from their customers too. A real risk here for all ISVs is that if they choose to partner with someone else who will deliver their products as part of a service offering, they are sending their customers to an option (i.e. the other service provider) that competes with their own traditional sales model. The more successful their partner becomes, potentially, there will be a corresponding reduction in software sales. That must be offset with payments coming from the service provider. And worst still (really, this cloud thing is a good idea, really!), if the CSP that partners with the ISV decides to do so, he could move his business to a different ISV’s products and take the customers with him. Sounds like a recipe for disaster in an ISV context, but, you may have no choice some day. So, watch out! Or better yet, call me and I will tell you how you can work around this.
  3. If you don’t change quickly enough, or you don’t pick the right partners, you will have to rely on customers who just decide that the cloud is not for them and stick with your traditional licensing model in sufficient numbers. That might be a winning strategy – but you never know. And if I were a shareholder or an investor – I want to know. I want to know because the alternative is – dustbin again.  

So, there is risk in everything, but common sense says we have to start digging under the covers to find those companies who might not make it. Or, seek out the ones that could stand strong when you are preparing your next RFP. It’s just practical.

Ok, but what about the big guys? Well, Microsoft, or SAP, or Oracle and others like them have the where-withall and the position perhaps to do both – deliver software and deliver service. Note Microsoft’s announcements at the PDC where they introduced Azure - a platform for Cloud Computing. They threw down the gauntlet and said they would not only provide a cloud-enabled infrastructure and development capability, but they would also help deliver service. They can do this because they have a large revenue base, can develop partnerships quickly, and can even shape whole markets. But the smaller ISVs cannot.

They cannot because they don’t have the investment. They cannot because they don’t have the skills. They cannot because they don’t have the inclination in most cases. They will seek out partnerships with service providers. Hint number two – if you are an investor, start looking for companies that can deliver cloud services for ISVs or who should be leaning in that direction.

Does the IT department get a pass on this industry shift? I think not! You guys are gonna’ have to look over your IT operations and ask yourself the tough questions – like, can they deliver services internally in a cloud-like manner? Are you ready for the private cloud? 

This cloud computing thing is going to be interesting for a while.

15 Comments »

Category: Cloud Emergin Trends Emerging Phenomena     Tags:

15 responses so far ↓

  • 1 Daryl Plummer   November 6, 2008 at 10:27 am

    But here is the problem. Te market may push them to make the switch and if they ignore it, when they are forced to do something, it may be too late.

  • 2 Column 2 : Bookmarks for November 6th   November 6, 2008 at 12:00 pm

    [...] Delivering Cloud Services: ISVs – Change or Die or both! – Daryl Plummer of Gartner on why a lot of software vendors are not well-equipped to make the transition to offering cloud-based services. [...]

  • 3 Nick Gall   November 6, 2008 at 7:00 pm

    Wikipedia tip #435:

    Daryl, If you want to refer to a specific version of a Wikipedia page so it won’t ‘morph[] into a description of “Indiana Sushi Vendors”’, simple copy the link named “Permanent link” in the “toolbox” area of the righthand sidebar of the Wikipedia page. Here is the permalink for the ISV entry as of 1 minute ago: http://en.wikipedia.org/w/index.php?title=Independent_software_vendor&oldid=249676499 . No matter what edits happen to the page, this link will refer to the page as I saw it 1 minute ago.

  • 4 Cloud Feed » Blog Archive » Daily Cloud Feed - Nov 6, 2008   November 6, 2008 at 8:20 pm

    [...] Delivering Cloud Services: ISVs – Change or Die or both! [...]

  • 5 Ed Byrne   November 7, 2008 at 6:06 am

    I think a hybrid model is an approach ISV’s have an opportunity to deliver – it doesn’t have to be about Cloud on Old-School – they can offer an on-premise solution that replicates for DR and bursts for scale to an off-site (even off-site private) Cloud.

    I also think there’s a real opportunity for a few innovative ISV’s to change their pricing model to a contract+utility (again on the hyrid track here) where a minimum monthly service contract is agreed, but the periods where additional resources are required are charged on a utility basis. Saving the client capital and high operating contracts costs, but gaining a contracted revenue for the ISV.

    I tried to outline some of that in the VAR/ISV part of a post I wrote here – I’d enjoy any feedback! http://edbyrnehq.com/techtrends-2009-utility-computing/

  • 6 Gartner Blog Network - Daryl Plummer: Delivering Cloud Services   November 10, 2008 at 12:05 pm

    [...] Read more… [...]

  • 7 Derrick Harris   November 11, 2008 at 1:53 pm

    If I gave the impression it would be easy to make the SaaS switch, that was by accident. Callidus told me the move was “fun,” but not easy. It took years, they had to drastically alter the development process, and they partnered with Sun to provide the multi-tenant platform. In fact, CTO Michael Graves instructed that if building scalable, shared infrastructure is not part of your core IP, it’s time to leverage infrastructure providers.

  • 8 Daryl Plummer   December 9, 2008 at 1:51 pm

    Point well-made. If it were easy, everyone would do it. :-)

  • 9 Daryl Plummer   December 9, 2008 at 1:52 pm

    Nick. I was making a point. :-) Thanks for the info though. There are many who might miss that.

  • 10 Data Value Talk » Blog Archive » Not every Cloud has a silver lining   December 10, 2008 at 4:50 pm

    [...] 2009 is dealing about Cloud Computing. And a  more detailed blog with the challenging title “Delivering Cloud Services: ISVs – Change or Die or both!” on that topic can be found on the blog of Daryl [...]

  • 11 Telecom Companies: The Cloud Clock is Ticking!   March 3, 2009 at 9:00 am

    [...] So, the nice thing is that all these companies have some thing to offer from network to carrier relationships to governance to deep customer knowledge. And guess what – they all know how to be service providers (See my post on ISVs failing this test). [...]

  • 12 Thomas Lukasik   March 13, 2009 at 10:34 pm

    >> “Meeting Service Level agreements: software vendors?”
    >> “Even have service level agreements?”

    SLAs? No.

    Instead, ISVs have clauses in their EULAs that clearly state that their software product is provided “as is” and not guaranteed to be “fit for any specific purpose”. I’m sure that you’ve seen those exact or similar words and worse in almost every software license agreement.

    IMHO this is the most significant cultural difference in the ‘ISV’ as a Service vs a Software vendor.

    TL

  • 13 Alok Misra   May 21, 2009 at 11:18 am

    “It is not enough to just cloud-enable your software. You still have to deliver it as a service and that is simply not the business of most ISVs. So, you might have to change.” Excellent point Daryl, and very well made.

    We’ve been helping several ISVs, with an existing On-Premise business, build their products on salesforce.com’s Force.com platform-as-a-service. We also built our own (Navatar Group is the leading provider of Cloud products, built on Force.com, for the Financial sector).

    We find that, not surprisingly, most ISVs are convinced that migrating the product would do the trick. Since they do not understand the change required to shift from a product-based to a service-based model, their Cost/Benefit analysis for the effort is often flawed. As a result, they are able to SaaS-enable their product, but they struggle to make money on it.

    For more on this subject, download a whitepaper that we recently wrote, at http://navatargroup.com/WhitePaper.html. You will hear about the experiences of ISVs such as Thomson-Reuters and CODA as well as opinions from Deloitte Consulting experts. The whitepaper is free.

    Alok Misra
    Principal
    Navatar Group

  • 14 ISV in a Cloud - Change/Die/both! | NavatarForce.com   May 21, 2009 at 4:51 pm

    [...] recently came across a good posting from Daryl Plummer at Gartner titled Delivering Cloud Services: ISVs – Change or Die or both!.  This article highlights the opportunity as well as issues related to an ISV (Independent [...]

  • 15 Is Navatar’s Financial Services Cloud For Force.com Popular Because It’s Low Cost? | Navatar Force   October 4, 2009 at 12:04 pm

    [...] those things is, and ever shall be, the delivery of “service”.  That quote is from an article Delivering Cloud Services: ISVs – Change or Die or both! written by Daryl Plummer at [...]