Cloud Computing or 'Cloud Washing'?

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Unlike past tech trends, the rapid growth of the Software-as-a-Service (SaaS) and broader Cloud Computing market is being driven by real customer demand rather than overhyped vendor promises.

However, rising adoption of these ‘on-demand’ service alternatives to traditional, on-premise software and systems is attracting a widening array of established ‘legacy’ vendors who too often are simply rebranding or repackaging their existing products and not fulfilling the real potential of today’s best SaaS and Cloud Computing solutions.

Some have called this ploy by established players a ‘cloud-washing’ exercise in which the vendors are attempting to convince IT and business decision-makers that they are keeping pace with the latest innovations in the marketplace but are actually falling short.

An example is the way a growing number of established, independent software vendors (ISVs) are porting their existing packaged applications on Amazon Web Services (AWS) or other hosting services and call the new offerings SaaS. I mentioned this trend in a previous column in this space.

While these new arrangements shift the burden of the software deployment and management away from the customer onto the ISVs and enable customers to leverage the software functionality without the costs and hassles of on-premise software, they still fail to deliver all the advantages of a true SaaS solution.

First, these hosted arrangements still require customers to acquire a perpetual license upfront rather than capitalize on the ‘pay-as-you-go’ subscription pricing associated with SaaS. Even if the ISV offers a leasing arrangement, it is not as financially flexible as a SaaS pricing model.

Second, the ISV is still inclined to update its software infrequently because each customer is utilizing a unique instance of the application and implementing enhancements are costly for the ISV. On the other hand, leading SaaS vendors enhance their solutions regularly based on customer feedback and the latest industry innovations.

Third, the ISV cannot easily build a customer community which permits the application users to share tools or best practices because they are each supported by separate instances of the software rather than a shared resource.

Fourth, the ISV is unable to capture common utilization data which not only enables it to identify and prioritize product enhancements, but also provides valuable benchmark information and insight for customers to optimize their operations.

The truth is that many ISVs leveraging AWS and other third-party hosting services are still hedging their bets about fully implementing a SaaS strategy. They are testing customer receptivity and their own ability to respond to customer demand before making the necessary investment of migrating their applications to a SaaS architecture and restructuring their operations to successfully sell, deliver and support these solutions.

Teaming with AWS or another hosting service makes plenty of sense for the ISV in this situation. However, it may not make sense for potential customers who may find themselves depending on ambivalent software suppliers who are in the midst of deciphering their responsibilities as service providers rather than product vendors.

Therefore, it is essential for IT and business decision-makers to carefully assess whether an ISV employing this go-to-market strategy is fully committed to SaaS long-term and willing to make the necessary investments to deliver all the benefits of SaaS. Or, if the customer could be at risk of relying on a vendor who may change course mid-stream.

Jeff Kaplan is Managing Director of THINKstrategies (www.thinkstrategies.com), an independent consulting firm focused on the business implications of the on-demand services movement. He is also the founder of the SaaS Showplace (www.saas-showplace.com). He can be reached at jkaplan@thinkstrategies.com.