Forecasting the costs

One of my colleagues just sent me a PDF on likely costs to the U.S. cloud services industry from European nervousness about doing business with companies primarily subject to U.S. law. The loss estimates are big — from $22 to $35 billion over the next three years. All because of a handful of poor policy decisions.

The white paper is by the Information Technology & Innovation Foundation (Republican Utah Senator Orrin Hatch is an honorary board member). You can find the study here.

Obviously, this paper begs the question — Will at least some European companies start looking to cancel deals with American talent management, HR, CRM and ERP cloud providers? If so, the losses might be substantially higher.

Might there be a bit of a move back toward on-premise license or company-specific private cloud sales? See here for a much higher loss estimate that factors in some of the likely American company buying behavior changes.

Might some U.S. provider companies split themselves into two or more stand-alone entities in order to avoid the jurisdiction issues currently coming to the fore?

We’ve written on this topic before (here and here) and we don’t claim to have a crystal ball. However, it does seem that the issues aren’t likely to go away, at least not quietly.

SaaS – A “Disruptive Technology” and more (part 1 of 2)

SaaS is, according to Clayton Christensen, Harvard professor and author of “The Innovator’s Dilemma”, a “disruptive technology or “disruptive innovation.” In a very basic way, it is disruptive to the way software has been traditionally marketed, sold, delivered, and maintained.
As a “disruptive innovation,” there are some fundamental truths that we can’t shy away from:

  1. Like every new “disruptive technology,” SaaS is probably not as good a solution all-around as an on-premise deployment. In a lot of cases, SaaS is still challenged in terms of interactivity, flexibility to customize, ease of integration, and security. However, what matters is not whether SaaS is as good a solution as on-premise deployments (or whether it will ever be), but whether SaaS is good enough to meet the needs of most companies – and this is really the tipping point.
  2. SaaS was built on the premise of delivery of software over the internet. Five years ago, this was challenging in terms of available web application technologies, enterprise integration points, and network bandwidth. Today, this is not the case as internet bandwidth and web services have rapidly progressed. Another tipping point.
  3. SaaS offers a cost advantage over on-premise, license-based software delivery models. This cost advantage is based on virtualization and resource sharing on the vendors’ side, but it also translates into more flexible, usage-based or pay-as-you-grow models for buyers.  And this advantage is not relevant to just small companies anymore, but to enterprise and global organizations as well. Yet again, another tipping point.
  4. As with every “disruptive technology,” the leading vendors of the prior generation of the technology, which is software here (see Oracle, SAP) are not likely to lead in the new generation, and new leaders are likely to emerge (see Salesforce.com, Workday). This is because leading companies tend to focus on immediate customer needs and short-term license revenue targets. Also, fear of cannibalizing their profitable product lines prevents them from making the necessary investments on disruptive, but necessary innovations.
  5. The best way for an existing leading company to become a serious player in the new generation following the “disruptive innovation” is to set up a separate entity with a different P&L center that will invest in this “disruptive technology” without any interference from existing lines of business.  Cannibalization down the line is inevitable, but at some point, if that new entity does indeed build a business off the new “disruptive technology,” it can become a catalyst for change for the entire company and into the new generation.  It’s probably too early to say, but SAP seems to be trying to follow this approach based on their actions after the acquisition of SuccessFactors.

In part 2 of this post, we will review the definition of SaaS and how it matters for vendors and buyers at the end of day.

Can you be sued for where your HR data lives?

Patrick Baillie, CloudSigma CEO, recently wrote a primer in Forbes magazine on EU vs. US data privacy and disclosure requirements. You can read his article, Can European Firms Legally Use U.S. Clouds To Store Data, here.

His main point is that the two systems’ divergent claims on SaaS providers cannot be mediated — in short, Baillie says that if you work with a US provider or even a US data center physically located in the EU, you may have put yourself and your company at considerable risk under EU regulations.

He may or may not be right, at least about the data center part. I would think (I would hope) that EU physical presence means that local jurisdiction trumps foreign government claims via US-based group companies.

The jury’s still out on this issue. Right or wrong however, the article is worth reading.