The Applicator

A client asked me whether I had anything in the files that laid out “the value proposition of cloud computing.” I don’t, and I don’t know of another good treatment. (Please, commenters, refer me.) But I thought I’d provide an answer here. It’s provisional, but I’m hoping that the comments will help improve it.

Before I begin, a few notes. First, as I noted in “Silver and Tinsel” the term “cloud computing” is heavily contested.If you are confused by all the silly claims, Ray Wang does a good job disentangling the terms. In what follows, I am ONLY talking about rue multi-tenant cloud applications, not hosted or single-tenant applications.

Second, in what follows, I’m only talking applications (SaaS). The value proposition for infrastructure (IaaS) or platforms (PaaS) is somewhat different. Third and last, I am assuming that multi-tenant application vendors are exploiting the advantages I’ll describe. In making this assumption, I’m clearly oversimplifying; many vendors simply don’t exploit the technological oopportunities as effectively as they could.

That said, here are the advantages of cloud computing:

I. Cloud computing is much cheaper.

The cost per unit of application functionality delivered by a SaaS company to the user is, in principle, much less than the cost of the same functionality delivered from your own premises, because the SaaS company shares the cost of expensive resources among all its customers and because the costs of distribution and remote support drop to zero.

What resources are shared? Database. Application server(s). Disk memory. RAM. Backup. Load management. Bandwidth. Provisioning. Patching/Patch testing. Security. Utilities. Personnel. All of these provide major economies of scale. What costs disappear? The cost of testing on multiple machines/OS’s/DBs. The cost of preparing and sending out disks or downloads. The cost of getting access to and understanding the configuration of a remote site.

Now, within the world of cloud applications, the problem of sharing all these resources efficiently is not an easy one to solve. There are several different “standard” approaches, each involving tradeoffs. Nevertheless, it’s safe to say that the more resources shared, the cheaper the cloud computing application. So if you want to figure out whether the cloud computing application you’re thinking about buying is any good, ask them for details about how they share those resources.

Now, very few of us really have a good intuitive feel for how much saving is involved. Your knee-jerk reaction might be that your data center costs roughly the same amount as a SaaS company’s data center. And if you know that your own data center is a little expensive, maybe you think that some partial solution, like hosting the application somewhere else, is roughly as good.

So, when Oracle tells you that their cloud application is hosted in their datacenter, so that you share data center management costs with other customers, that sounds good to most of us. And if Lawson tells you that they’re running on Amazon, so you’re sharing data center and app server and disk costs with other Amazon customers, that sounds good, too.. And if some smaller vendor tells you that you’re running on a virtual machine in a rented data center like Rackspace, that sounds good. It turns out, though, that none of these common, single-tenant “cloud” solutions really get anywhere near close to achieving the cost savings that are available. The only way you can get those cost savings is if the application itself is “multi-tenant,” which means that the application has been written in a way that allows it to manage the resource sharing.

How much of a difference does multi-tenant make? It’s astonishing, but the answer appears to be that multi-tenant is ten times cheaper than a single-tenant solution in a shared data center. (See “Silver and Tinsel” for more on this.)

And what does that say about taking delivery of a solution. Obviously, it depends. But the experience so far says you should think of it this way. Choice 1. Multi-tenant solution taking advantage of shared data center resources, shared computing resources, lower distribution costs, and lower management costs. Choice 2. You take on all the costs of the data center, computing, distribution (to you), and management, sharing those costs among all the applications at your company. You know that companies that do hosted or single-tenant cost 10 times more than multi-tenant. Do you really think that Choice 2 is comparable in cost to Choice 1?

II. Cloud Applications Are Easy to Consume

Cloud applications are generally much easier to set up, try out, get access to, buy, and use than on-premise applications are, for a very simple reason. Cloud applications are designed to be delivered with as little intermediation as possible to the end user. On-premise applications are designed to be intermediated by IT. They are built and sold under the assumption that IT will approve the purchase, take delivery, find all the computing resources, install the software, set up the users, arrange for training, fix problems (if any), ask for improvements, etc., etc.

To some extent, this is an artifact of the first value. The SaaS company is taking over the job of delivery to the user from your IT department, and they’re getting a lot of leverage because they’re delivering it to lots of users, not just the users at your company. Not unnaturally, they can do automatically what your IT department has to do manually. With that automation come a lot of savings in cost for them and a lot of improvement in the user experience for you.

III. Cloud Applications Are Up-To-Date

According to the many really knowledgeable people who have tried the real edge that the cloud application vendors have lies in the speed and effectiveness of their development.

A cloud application vendor can develop more efficiently than a vendor that delivers on-premise, because they’re only developing for one installation. They can develop faster, because they don’t have to build up a massive “release.” They can deliver much, much, much faster. They can fix problems much more easily, because they’re basically fixing once and they can do analysis on the same system that they’re delivering. They can respond to customer requests more easily, partly because of the aforementioned, but also because they can actually look at how customers are using the application.

Cloud application vendors often tell customers, “No more upgrades,” and wonder that this statement fails to thrill. (It is thrilling, but only to the poor gents in IT who have lost too much of their lives in 72-hour stints over some Labor Day or Christmas.) They should be saying, “Look, we’re keeping up.” New devices? We’re on it. New interface techniques? Done. New requirements? Months, not years.

In my view, even the most modern of modern on-premise applications is roughly 5 years behind what a modern consumer experiences every day, and most applications used today are 10-15 years behind. With a cloud application, you have a chance of staying within reach of the latest innovations. With an on-premise application, you simply don’t.

IV. Cloud Applications Can’t Be Customized

Wait a minute? Wasn’t that supposed to be a disadvantage of cloud applications. Sorry, it’s an advantage. A big one.

The problem with customization is simple. It costs too much. Unfortunately, the way modern corporations and IT organizations are structured, most of the costs are hidden. IT organizations are service organizations, and they’re rewarded for providing service, so they simply defer the astronomical costs of managing, maintaining, and upgrading around the customizations because they look bad. They’re in the position of a butler at a billionaire’s house who is asked for fresh raspberries in February and, rather than disappoint, simply charters a jet from Chile and accepts the complaints when the billionaire finds they’re not fresh enough.

So when a SaaS company says, “No,” to its customers, they’re providing the same kind of benefit that I am when I tell my daughter, “No sugar.” They’re helping the customers to do something that they shouldn’t do anyway.

This doesn’t mean and shouldn’t mean that the SaaS company doesn’t allow any changes whatsoever to the way the product is used or doesn’t allow customers to do things with the data that they hadn’t envisioned. But typically, anything that the customer should want can be provided either by changing configuration settings or by moving the work (far more cheaply) to some external system.

If you find a SaaS system where you MUST have a customization (or an integration, the same logic applies) or it will be literally impossible for you to use the system, don’t buy it. Period. The fit is wrong for you, and it will never be right. This, too, is a huge value, both for the SaaS company and the customer. They have fewer customers who should never have bought in the first place, customers that are excessively expensive to support and often likely to sue.

Choice and Control

What is the cost of all this value that’s suddenly being delivered? To SaaS naysayers, the cost is choice and control. “We let the customer choose between on-premise and on-demand.” “We let the customer run on his own machine, which he controls.” “We let the customer run the application the way he wants.” (I use the word “he” advisedly.) Those silly SaaS companies force you to do things their way.

Well, if you ever, ever hear the CEO of an on-demand company say, “What we offer is choice,” run, do not walk, in the other direction. Because what he is not telling you is the cost of that choice. Modern enterprise applications are highly tuned, finely designed, very complex machines–think Ferrari, if you want–and for such machines, the kind of choice offered to customers is pretty much akin to offering Ferrari customers a choice of rear axles or of steering systems. Giving you that choice costs you a lot, costs them a lot, and is completely pointless.

The same thing applies to when an IT person says, “We need to have the control” or “We really can’t afford the security problems.” Unless you ask what the cost of that control is or the cost of that [non-]security, and get very accurate answers, you have no idea what a bill of goods you’re being sold.

About three years ago, I was a judge in a software contest, and all the entrants were SaaS vendors. They had figured out already what my client was asking me last week: the value proposition of a SaaS (multi-tenant) is so overwhelming that there’s simply no point in building an application for on-premise delivery.