Wednesday, March 31, 2010

For IT Technology Vendor Go to Market plans, the 4th C=Cloud!

This ones bursting out like a rainstorm (pun intended) exciting stuff...

Eucalyptus, according to GigaMon, appears to be on the verge of raising a round with a post valuation of $100M on best I can tell revenues in the $0M range! (Granted, a big name CEO joined, but still, 100M valuation??) When I saw this, it really got me thinking of 1) are we entering a cloud bubble and 2) why, even if we are, how the cloud is changing the business that I and my clients are in. I'll leave topic 1 for another day, but let's take a look at #2.

4Ps and 3Cs - A Cloudy View
Let's pull out the trusty old standard and QUICKLY examine how these change or might change because of the cloud....

Product - The cloud opens up new delivery options for just about any hardware or software offering or capability. IT vendors MUST rethink their product plans and at a minimum better have good reasons NOT to be in the cloud.

Pricing and Cost- In IT mind, cloud = subscription, but does cloud = cheap? That's one of many open questions. The move from perpetual to subscription business is a very tricky one the bigger you get, but the cloud is accelerating an already present trend. Services = subscription. IT products = services...get it...How do you price cloud offerings relative to your traditional on premise/package ones...

And on the cost side, the good news, it's really cheap to get into business, no more hardware, no more datacenters, no more test labs, no more power bills. Ahhh, that works great for new start-ups. But aren't you ISVs used to zero marginal costs on sales. Sorry!, get ready for COGS, more users = more COGS. A great example of a business model issue that helps new entrants move faster than existing ones.

Worried about margin cannabilization, well, guess what, the yCombinator start up down the street built hosting COGs into the model from day 1. They don't expect 95% margins, but you do, oh, no wonder their offering is cheaper. Oh, and by they way, they've been built for low cost scaling too, while it's going to take you a year to get there. Price for scale now and take a margin hit??? Oh so many great marketing problems to solve!

Place - How do you spell "disinter-mediation?" C-L-O-U-D. As product become services, product providers become service providers. Distribution is "free" and
market friction goes away. New geos open without friction. At least that's the theory, but the reality is much more complex and the channel will not go away without a fight and transforming itself...

Promotion - Try and buy, freemium, SEO, Social Media, Viral spread. The Cloud accelerates ALL of these trends. Time to learn some new tricks???

Customer - Who's your customer, where are they, what do they expect. What are they thinking, what are their habits, who cares about you? How do they find you (see P=Promotion) and how do they expect to be found. As more customers can easily try your product is it right for them, are you missing new growth segments that you just aren't looking for???

Company - Is the company ready for change? Is the executive team engaged or scared. How high is the sponsorship of cloud inititatives? Is it genuine of lip service. Do you understand the business model barriers to transformation? Sales quota and incentives, rev rec, HR policies? This type of change can hit every corner of the business, you've got to be ready.

Competition - New competitors, more cloud ready, new substitute products, new pricing models to compete with and on and on. What Hosting provider or Telco would have ever predicted Amazon as a competitor???

OK, have I convinced you or is the cloud all hype? I'm ready to add the 4th C to the old model, CLOUD! Are You????

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