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 vs. SaaS

I just read Stan Swete’s Workday Innovation blog piece on what SaaS actually means (you can find it here). In the piece Swete ends up cribbing from SystematicHR’s simple and short definition: SaaS means a hosted service on a single code base.

Because we host and because we incorporate literally every single client customization into core engineering and take it all forward in our general releases, by Swete’s definition NetDimensions has always been a SaaS provider. In fact, we may well have been the first ever SaaS talent vendor.

But we’re special. We seem to be able to work technology magic other companies struggle with (it must be the Hong Kong air). We not only host, but we also provide licensed software for third-party hosting and for our clients’ on-premise implementations (some clients will never be able to buy externally hosted services).

I’m pretty sure this kind of flexibility on a single code base is unique. I don’t know of any other SaaS talent vendor who does this.

So for us there’s no ideological rift. There are no SaaS vs. License discussions at NetDimensions. We do both. We do both in the same way, at the same time and we do it for all of our clients.

The Internet for the rest of us

20-things-coverThe folks at Google have written a book — well, I’m sure they’ve written a few (and indexed a few more) but this particular batch of Googlies have written a children’s book for grownups that explains how the web works to those of us who are, shall we say, technology challenged, which means most of us if we’re being honest.

You can find the e-book here.

And when I say “technology challenged” I don’t mean to be disparaging. I think even those among us who use the Internet every day may lack a deep understanding of how it actually works. For example, how many people do you know who can actually describe how a car engine works? I mean, how it really works?

The book is charming. Clear, concise, aimed at intelligent adults and beautifully illustrated, it’s a must read for all your learning and development staff who do not muck around with code but who might benefit from understanding more about web architecture issues. There is a bit of Googlie self-promotion in certain chapters but hey, it’s free.

Thank you Google.


You say customize, I say configure

How do you know if the LMS you’re about to buy is going to cost you an arm and a leg in professional service (mostly implementation and customization) fees?

Here’s one proxy measure. It’s not perfect but it will give you a sense of likely costs. Ask to see the vendor’s audited financial statements with a segmental analysis by revenue stream (companies that do IFRS (international GAAP) reporting will already have these numbers on hand — companies that use country-specific GAAP reporting standards may have to do the math for you).

If the vendor you’re considering gets more than half of its revenue from professional services, you’re likely to end up spending a lot of money on the implementation.

If the vendor gets, for example, 60 percent of its revenue from professional services and only 30 percent from licenses, whatever the vendor tells you the license will cost, double that figure and add it back to the license fee to get the real cost of doing business with that vendor. So if the license costs $100,000 you’re likely to end up spending $300,000 all in with that vendor.

This is not a perfect indicator, but it’s a good start for having the hard conversation before you sign because armed with the vendor’s real revenue breakdowns, you’re in position to force that vendor to justify his service fees to you.

Note: This test works equally well with SaaS vendors. If the hosting contract is X and professional service charges for the vendor generally equal 2X, then assume 3X in your year-one costs.