May 24, 2016

The Cloud Prophecy: What Cloud ISVs Don't Want You to Know

The days of cloud independent software vendors and cloud service providers operating somewhat freely are numbered.

The past 10+ years has introduced significant business, projects, technology and process advancements driven by “the cloud.” Salesforce alone created a $6B annual software-as-a-service (SaaS) sales powerhouse in roughly 15 years. Add in its ecosystem and Salesforce is on track to deliver almost $300B in global annual GDP within a few years, according to IDC’s report last fall. Those are some pretty impressive business numbers, but here’s the truth: Cloud independent software vendors (ISVs) and cloud service providers' days of operating somewhat freely are numbered.

Service-oriented architecture (SOA) and cloud computing technologies today are outdated or, more importantly, have been unable to achieve many of their initial promises and are essentially flawed in their ability to enable innovation. Just ask a developer (outside of a couple grand-scale businesses like Amazon); they would have told you this in 2014.

The next chapter has finally arrived: outcome-defined microservices, truly limitless, independently scalable applications that help to avoid contention with respect to specific business needs. Next-gen microservices have introduced a new standard in access mechanism and the ability to finally deliver actual business enhancements.

The Dawn of a New Era

Just like their Goliath proprietary hardware and license predecessors of the past, Salesforce, AWS and cloud ISVs will be subject to a radical new approach to how software is designed, delivered and operated. In fact, some companies are already incorporating the new approach into their plans. Software-run networks and virtual network functions are establishing a new playing field. You might say "NFV is just a buzzword," "microservices are flawed," "SDN has been around for a while but has produced nothing outside of hardware optimization," or even boldly ask, "what will really come from the use of these technologies?" While I agree that some of these may be valid, it underscores a bigger idea: We need to change the conversation.

In a world where global infrastructure no longer depends on physical roads and highways (e.g. connected cars will eventually hover), the networks that connect everything will drive the need for optimal computing and operational efficiency. The days of inventing a product or service and building an empire around it are over.

Delivering remote traditional functionality on a lease basis has become primitive. New waves of competition and business models have matured and will turn SaaS on its head. I continue to ask cloud ISVs, “What actual innovative value are you providing if you simply take traditional functionality and move it off premises into 'the cloud?'” Operational enhancements? Yes. But innovative advancements? No.

Look at commerce. Conventional brick and mortars (B&Ms) were forced to change by the emergence of e-commerce companies, but this wasn't just because consumers could get their products while sitting at home. For example, how did a company like Webvan fail, while Amazon excelled? Amazon’s success stemmed from offering a new approach to access, spurring innovative new offerings that no B&M could come close to offering and operating in completely different mindset (no inventory). Still, there are many B&M stores that are doing very well due to the harmonies between their in-store activities and their e-commerce strategies; as user experiences and buying processes changed, they acclimated. Similarly, cloud software providers will be forced to adapt due to the innovations that are being led by virtualized network function software vendors.

An Evolution Born of Necessity

Once network/digital service providers have properly evolved their networks and operations to enable innovation through expanded partner ecosystems rather than their legacy self-grown products, virtual network function (VNF) vendors will begin to realize that they can easily offer products and services at any point along the connected highway, demand true access to anything and everything, avoid being tied to cloud providers and actually operate quite easily. This will create an entirely new world of product and services that are drastically cheaper. I'll save specifics for how cool they will be for CNET, but one could make a similar comparison to how Salesforce operates with their App Exchange—build an open cloud platform, get enough users to utilize its functionality and fuel application vendors to build on top of it. Service providers are creating a similar approach (on steroids) in which their platform is a network and the innovation will not be limited to a specific functional domain but can be based on anything that is connected. With home networks, for example, this approach will mitigate the fear that a cloud ISV could pull the plug on its product with little to no notice.

Things begin to get real tricky for cloud ISVs when network/digital service providers launch innovative, agile SDN/NFV operations which allow them to promote third-party services. Here’s a simple example: Why would an enterprise pay an ISV a monthly fee for CRM, billing and other functionality, but pay another vendor for the network? Enterprises have noted they prefer to pay just one service provider a single, typically much less expensive “as-a-service” fee for supporting their businesses through connectivity and other support services, such as a microservices-based CRM system that allows for greater customization within unique partner ecosystems. Even if network players decide not to play in certain domains or functional spaces, VNF vendors will be able to develop, launch and operate at a scale in a way that is 10 times more effective than what current cloud operators are achieving.

Another threat that cloud ISVs have to deal with are cloud frameworks. Although frameworks are good for bringing in collaboration, generating some innovation and advancing implementation, they can become outdated very quickly, especially if they are designed by antiquated principles. Salesforce has done a great job of having an open platform for their app partners. If you don’t use Salesforce, however, then it’s useless.

Changing the Conversation

In the realm of BSS/OSS, the reason that the mass adoption of the cloud has not succeeded is that most cloud ISVs are still attempting to play catch up by taking old technology and business processes and moving them into managed clouds. The problem is that cloud ISVs have not demonstrated any new innovation other than operational enhancements even though the technology they use has already surpassed their designs. Now, new microservices and microservices-based VNFs which sit directly on the connected network allow network/digital service providers to easily manage their support functions without worrying about incorporating legacy on-premises principles in the cloud. And more importantly, these capabilities prevent the risk of being handcuffed by closed cloud frameworks, which can mean being limited to only recreating more efficient legacy capabilities in the cloud while still having to pay hefty monthly SaaS bills. While these can be good out-of-the-box solutions for meeting a general set of requirements, they tend to fall short in meeting unique business needs and generating innovation.

The big impact won't happen overnight—nor at a scale that will impact SF's and others’ revenues anytime soon—but watch for the vendors that are building microservices-based BSS/OSS and VNFs alongside a platform that delivers and manages an innovative ecosystem. These are the ones that are truly working on an innovative future. This type of enablement and realization just hasn't been shown by the cloud ISVs to date...and why they don't want you to know just how overvalued their current cloud-based services are going to be in the virtualized world.

[Editor’s note: An earlier version of this story appears in a LinkedIn Pulse column by Bob Barrows.] 


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