SaaS Channel Compensation

Channel Compensation models

Channel Compensation modelsSaaS Channel compensation is one of the hardest things that software vendors are facing today. If you have a nice traditional software business model with good software maintenance revenue and mature channel, you are reluctant to change or touch it. Let’s dive into some of the difficulties that software vendors are experiencing.

I am currently running educational sessions in SaaS channel development where my audience is given the task to present the business case of a channel partner for a given software vendor. We are using Business Model Canvas to model the business. The task that I am giving to my students is to represent the software vendor leadership team that is trying to recruit a channel partner to become a reseller. The way this is done is to present a Business Model Canvas to the channel partner management team.  If the software vendor management team can’t convince the channel partner of the benefits, then the business model is broken.  I have done this exercise with many software vendors and it is one of the most powerful ways to get the software vendor to think about the partner, not about themselves.

I have bad news for you. There are no exact rules what kind of compensation models a software vendor should have for its channel, but what is known is how to calculate whether a business can be profitable for the channel partner using different compensation models. Why is this? The biggest issue that software vendors have is that many of the processes and tasks that the channel partner has taken care of in the past, have now moved back to the software vendor. One of them is the monitoring the cloud infrastructure, provisioning the solution, upgrading the software etc. In the end of the day, it is all about roles and responsibilities that the software vendor and the channel partner have to agree on. The more the software vendor moves responsibilities towards the channel partner, the more margin the channel partner expects to get and this is very typical in the traditional software channel model. The software vendor delivered the CD or download to the channel partner, but in the new SaaS world, the instance is provisioned by the software vendor and the channel partner becomes the “middle man” between the end user customer and the software vendor. Let’s review some of the industry “standard” commission models and some implications around them:

SaaS Channel Margins

If you look at the percentages, the one that is missing is the typical 10% which is really more of an opportunistic percentage that anybody will give out regardless of business model. If you call a software vendor and tell them that you have a lead, they will pay you at least 5%, but 10% is not uncommon.

When you add an additional 10% (now the total is 20%) it adds more interest to the channel partner. The software vendor can not expect any active sales with this percentage and can’t really ask the channel partner to do any serious account management. This is mainly lead generation activity and typically there are other products that the channel partner is reselling as well.

If we add an additional 10 % (now the total is 30%), this is still too small to be able to build an organization and requires the channel partner to have many different products that they are reselling. Larger reseller with deep pockets to build and maintain an organization, 30% is doable.

When the percentage is 40% or more, the software vendor can expect investments from the channel partner and reporting responsibilities on pipeline to the software vendor channel account manager. This type of percentage is also doable for smaller channel partners that want to build a business around the solution and build a dedicated team.

The biggest surprise that most software vendors are facing when we discuss about the roles and responsibilities is the amount of additional work that the software vendor has to take on. In a pure SaaS channel scenario, the border of responsibilities are blurred and the end user customer ends up in many cases in direct relationship with the software vendor. This has been a big no-no in the past for channel partners as they have wanted to “own the client”. However, the reality is that the cloud is changing the roles and channel partners have to make changes in their models as well. This is a behavioral change that is taking place and can be compared with the changes that are taking place how software sales people are compensated. Nobody wants to change the way things were in the past, but the market and competition is forcing the change and the ones that keep doing the same thing as before, will eventually be on the loosing side. We have already seen this in many organizations.

Before talking about channel margins, the software vendor has to decide what kind of role they expect the channel partner to play and then define how much they can afford to give a way of the margin. Some software vendors have even decided that a channel is not an option in their new business model and this is of course an option if the company has the resources to build its business with its own direct sales and internet marketing methods.

 

 

photo by: woody1778a

Is the cloud killing your business?

Is the cloud kiling your business?

Is the cloud kiling your business?Cloud adoption is accelerating and it is also in the process killing many businesses. I read today an interesting blog entry “Are Cloud Vendors Cutting Out the Channel” and this article explains in great detail what is happening on the marketplace in respect to channel partners including value-added resellers (VARs) and MSPs. I remember vividly when Steve Ballmer suggested strongly a few years ago that Microsoft partners should really start adopting the cloud and a couple of years later, he stated that it might in fact soon be too late as the competition is already doing it. Pure channel partners with a business model to resell without adding any value will disappear from the markets.

I have recently talked to quite a few channel partners and the common message that I heard was that the markets are getting tougher and having a business without having a specialty or vertical experience might in fact kill the business sooner than later. I am seeing this also among software vendors that are refusing to adopt the cloud model. There are thousands of new pure SaaS entrants that want to be new market leaders in their domain and many end user organizations are refusing to go with the old-fashioned model where IT departments are the only part of organization that will be buying software and services. Based on the blog entry today, Tiffany Bova from Gartner concludes that many IT consumers are now “front-office buyers” from departments such as sales, marketing, finance, and human services. These departments are bypassing the centralized IT and this type of “uncontrolled” buying pattern will continue going forward in my opinion.

Microsoft management has been vocal to its partner network that every partner should by now be looking at cloud transformation and Kevin Turner (Microsoft COO) expressed his concern during Microsoft Worldwide Conference in Houston (July 2013) that only 3 percent of the company’s channel network was actively selling cloud services and this included products such as Windows Azure and Office 365. These numbers will change with time and I am convinced that there will be many partners that will experience the pressure the hard way. If the channel partner starts too late with the transformation, it might become irrelevant and have the wrong type of personnel with skills that do not match what the market wants. I am sure that somebody reading this blog will not agree with me, but I have seen already now quite a few channel partners that do not know what to do going forward. There is a real need to reboot the business model and rethink how the company will be surviving in the future.

I forecasted a couple of years ago that Sony will not survive the competition of e-books and devices due to many factors, Amazon Kindle being one of them.  A few days ago, I read that Sony will be exiting the business. Sony had its own e-book format and I was one of the ones that spent hundreds of dollars in books, which now will be converted to Kobo Android devices. I have no intention to buy any new devices. The reason I am sharing this is that even large organizations are forced to change the business model every now and then and consumers make wrong bets on the horse that they should be riding.

When I look at the global markets and what is happening around us, the change has accelerated in software domain and it has taken many by surprise. I would not be surprised that we hear bad news from many large industry dominant players in the software space that the transformation into new generation solutions has failed and consumers and businesses have adopted technologies that are more nimble and easy to use. It is very dangerous to ignore the trends and even more dangerous to think that market leadership means anything without hard work to maintain it.

Software Vendor – are you moving your SharePoint Solutions to the App World?

sharepoint content typesSharePoint and its market penetration in enterprises can’t be denied. It is used by a massive amount of organizations and there are hundreds of thousands of developers building solutions using SharePoint as foundation for developing solutions. According to AIIM, one in two corporations are using SharePoint.

SharePoint is a popular platform for system integrators (SI) as well as independent software vendors (ISV). The former category typically sells custom application development services based on time and material or fixed cost projects. These solutions are typically “one-offs” even if the SI accumulates software assets in their internal code repositories. Effective SIs try to reuse these assets as much as they can, but that is unfortunately not a common practice among many organizations.

ISVs want to create productized solutions where the software assets can be reused in many organizations. However, creating real packaged solutions that can be deployed “as is” requires different skills than implementing customized solutions for different companies. I have seen quite a few system integrators struggling with productizing their offerings even if there is a real pressure for SIs to sell solutions due to price pressure on projects based on time and material. Creating solutions with real intellectual property (IP) provides a springboard to better profitability as well as higher hourly prices if the business model is built in the right way.

I have been part of organizations using SharePoint 2007 and 2010 in solution development but the architectural model and delivery methods have not been very flexible specifically for ISVs. For an SI that wants to sell time and material, the platform is perfect as some things are labor intensive and just need time to get done. Both of these releases of SharePoint (2007 and 2010) are built on “full trust” model while the new SharePoint 2013 is based on a new “app model” that Microsoft introduced in this new SharePoint 2013 release. What makes this model exciting is that it opens up the world for ISVs to reuse existing codebase as the foundation of the architecture is not to build intelligence in the SharePoint Server, but outside SharePoint. Besides this, Windows Azure is a perfect companion that can be used to house some of the solution. I am convinced that there will be quite a few solutions that combine technology from both SharePoint as well as Windows Azure.

SharePoint in some scenarios becomes the user interface (UI) to information and the logic resides outside SharePoint. An example would be a calculation engine that resides outside SharePoint and provides an API (Application Programming Interface) for other applications to consume. Microsoft guidance for SharePoint developers is to develop an App for SharePoint rather than classic solution whenever that is possible. There are of course many scenarios where this is not possible.

Most of the current SharePoint 2010 solutions have been implemented by using the “full trust solution” approach and these solutions can’t run for example in current Office 365 environment (with SharePoint 2013 Online). Microsoft enabled a new model in SharePoint 2010 (Sandbox) where some of the code would live in a “Sandbox” environment. However, the current recommendation is not to use the “Sandbox” approach due to different restrictions.

When I read about this new SharePoint 2013 app model first time, I thought about ISVs that have existing code assets that can be reused in different scenarios. I also got excited about this model as it provides a better experience for end users and IT to provide upgrades of the app in the same way as you would upgrade any tablet app. The application logic and the heavy-duty lifting can in many cases live in Windows Azure or even existing private hosting environments where the ISV just services new types of user experience to end users in a form of an app.

There is going to be lots of users in on premise SharePoint environments for quite a while, but starting to learn and review the possibilities in SharePoint 2013 environment should be a top priority for any ISV and SI that want to stay on top of the game.

 

What is all this talk about enterprise app stores about?

Iced tea at Georgia's, version 2We are moving into app economy and that is happening very fast. There are many predictions on the marketplace on this trend with Gartner forecasting that 25% of enterprises will have their own enterprise apps stores for managing corporate-sanctioned apps on PCs and mobile devices – all this within 4 years. Others are saying that this is already happening and it won’t take four years. Whatever the case is, ISVs needs to pay attention to this as CIOs in large organizations need to take control of the situation with deployed apps both in tablets as well as smart phones.

I think there is a big misconception in the word “app” when thinking about business models. Many relate an “app” to small apps used by smartphones with either free or almost free business model. These are mostly consumer-focused apps, but the trend is that consumers will be using their smartphones to conduct business using apps, but these apps will be connected to backend cloud solutions that bring the scalability and logic to the game. Look at an app as just the UI to full-blown solutions where end users can run their business with small devices or tablets and use the cloud infrastructure as foundation.

The forecast for App Economy is huge and according to APPNATION, App Economy is going to reach $151B by 2017. What it really means for ISVs and any software developers organization is that they need to really get a better understanding how app economy is going to impact them going forward. CIOs will be asking questions how an ISV will support enterprise app stores and how the ISVs will support these app stores with their solutions. I am a bit amazed how little there is discussion off apps in our workshops but I think this is going to change going forward. Based on the study by APPNATION, the majority of mobile device owners under 45 years are using video apps and this supports my previous blog entry of eLearning.

There will be a need for both consumer-oriented and enterprise-oriented apps stores and it will be a space that will bring new opportunities for many players. The competition in this space will be based on innovation of solutions that people want to use and the use is measured on how much content the apps consume from the cloud. It is not rocket science, but it is a new world that people need to get used to.

In the end of the day, apps will have to be monetized in one way or the other and that is where the subscription economy comes to play and organizations need to understand how to price their solutions and all this based on value pricing.

Pricing alone does not make your business model

Most software vendors (ISVs) struggle how to price their solution, specifically when moving the cloud. Many vendors are trying to “retrofit” the current model to the new cloud model, but this just does not work. You just can’t make your pricing to reflect your current business model where everything is based on higher cost structure such as Cost of Customer Acquisition (CAC), cost of having a different operational model in your organization such as support, marketing etc.

When I look back at all of the workshops that I have done in the cloud transformation field, each and every ISV has had to recognize that something has to change in the model and we use the Business Model Canvas to do a simple “sanity check” what kind of things the organization has to change to be able to make this transition. I am not talking about organizations that are “born in the cloud” but  organizations that typically have a successful traditional software business with good but declining maintenance and support revenue. Many of these organizations are now forced to rethink their current business model as smaller and nimbler organizations are “eating their lunch”.

This does not impact only ISVs, but also Systems Integrators (SI) that are used to the “big ticket” development projects and many end user organizations are tired to the ongoing and inflexible “platform” that has been created. This comes back to my previous blogs where I recommend organizations to go to the roots and identify what is “good enough” as a solution for people to be able to manage their business without having to deal with monster projects.

In the end of the day, pricing is just one small piece of the overall puzzle and therefore it is easy to say that without value, people are not willing to pay and if you do not bring value, your overall business model will never work. The Business Model Canvas has 9 building blocks and if one of these building blocks equal zero or is dysfunctional (some are not needed like channel), then the entire business will fail sooner or later. Check out the Business Model Canvas Structure that has been defined by Dr. Osterwalder:

Business Model Canvas

I am a believer in value-based pricing with the recognition that there are competition out there that will eventually force you to evaluate the pricing levels. Just look what is happening with Amazon and Microsoft on the cloud infrastructure front. It is a bloody battle but this is of course great for the consumers and businesses as the cloud becomes even more affordable and non-brainer as development platform.

 

The App Economy – How should we view app monetization?

The blogosphere is all about apps and how different ecosystems compete for the eyeballs of these and the money of course. You might still remember the the news when a far app pulled as much as $10,000/day in revenue but since then there is tens of similar applications on the marketplace. This started a trend where people left their well-paid jobs to chase their dream of creating apps and living a life without pressures. The growth of app economy is one of the most promising trends, but people/organizations that want to make real money of it, need to include some risk management into it as well. The app industry has become similar to film industry where relatively few people make money and the ones that make, are hugely successful like Angry Birds phenomenon from Finland.

One might of course ask oneself is whether this is a shift in our society and how work is performed. according to Erik Brynjolfsson (director of the M.I.T. Center of digital business), “technology is always destroying jobs and always creating jobs, but in recent years the destruction has been happening faster than the creation”. There is no question that technology is creating new jobs and apps can be part of this opportunity as can be seen in many of the reports that have studied this trend towards “app economy”.

What I have not seen many discussions around is how the app economy is linked with the enterprise software business. I have researched around this and identified the “dimensions” that are typically linked to the app business, but not that much is said how established software vendors should view this space and how these vendors can make a entry to the app space in a way that makes sense and where there is also a sustainable economical model.

So, the question that we should ask ourselves is how much of the app business is truly geared towards the consumer business and how much of this will gradually move into enterprise business? Should software vendors keep the app business in their plans when building enterprise solutions specifically using the cloud? If they should keep this in mind, what kind of pricing should the ISV use? Maybe free as the real money comes from the enterprise solution and not the app that accesses it? As you can see, it is not that clear and my own experience when working with both small and large enterprises, the app business hardly ever comes up in discussions. I am convinced that this will change and it will change very quickly. One of the drivers will be Windows 8 and Windows Phone 8 developers that will create solutions that will be based on app technology and not on traditional desktop app architectural model even if these will be able to run in Windows 8 Pro environment.

Another valid question that we need to ask ourselves is whether app economy should be see purely from mobile app development perspective or should we view it from a perspective where the device is just the means to get to what you want and the backend (typically the cloud) is the one that provides the services and brokers the interaction between different services. Shouldn’t we in fact be talking about services economy instead where organizations build apps to consume and combine information from different sources using different SOA interfaces that organizations/developers have exposed to the world. Isn’t this what we have always dreamt about?

NokiaExpressI downloaded today a Windows Phone 8 app (Nokia Xpress) to my shiny Nokia Lumia 920 and this app really demonstrates where things are going. After having installed the app, it asked me whether it can use location information (which most apps want to use), but what really made me to think about the future of apps is that developers really have to think “outside the box” on when developing apps. The thing with this Nokia Xpress app is that it enables users to store and read articles on your phone (locally) so when you travel, you do not have to use expensive data roaming. I know.. there are many of these apps from before, but what this app has specifically thought of is to really monitory and minimize data usage and provide a combination of technology such as Microsoft SkyDrive technology to store videos and images without having to use the data plan. Why is this relevant to me? Just this week, my son’s data plan was going over the limit and I found out that it was all about video streaming and 2 gig data plan does not cope well with this.

The topic of “app economy” is very interesting to me as researcher, but also as practitioner. A recent paper written by Dr. Michael Mandel and Judith Scherer (commission by CTIA (The Wireless Association) and Application Developers Alliance provides an interesting view on the app economy. According to Mandel, the entire “App Economy” was coming to use in early 2009 and was popularized by a cover story run by BusinessWeek in November 2009.

The way that Dr. Michael Mandel describes App Economy in his February 2012 report resonates well with what I have educated my customers in respect to ecosystems:

“ App Economy is a collection of interlocking innovative ecosystems”. Each ecosystem consists of a core company, which creates and maintains a platform and an app marketplace, plus a small and large companies that produce apps and/or mobile devices  for that platform. Businesses can belong to multiple ecosystems and usually do”.

There is no question in my mind that this topic is relevant to anybody that works in the software industry and it is fascinating to see how this evolves with time and what kind of new companies will rise to take advantage of this.

If you work in the Microsoft ecosystem, I highly encourage you to read the article “Microsoft’s cloud vision: Why Azure is the linchpin of the firm’s new devices and services strategy”. Another great article from Information-Management.com that predicts Enterprise Apps to go mobile big time and that money apps will move to the cloud. The article lists quite a few things that are very interesting and I encourage you to read that article as well.

Stay tuned for more, there will be more to come on my research on different topics and this app economy being one of them!

Is Big Data going to replace Enterprise Data Warehousing?

In my blog entry yesterday I concluded that Big Data as an acronym is on the rise and ISVs need to pay attention to this. The next question that one needs to pose is how is Big Data different from the traditional enterprise data warehousing? I still remember vividly the arguments 15 years ago whether Bill Inmon (considered the father of data warehousing) Top Down approach should be replaced by Ralph Kimball’s approach (Bottom Up) where the Enterprise Data Warehouse is built as collection of data marts that then together conform the enterprise data warehouse. There are also concepts such as operational data store, master data etc. Following link shows a couple of pictures that explains the difference in these approaches and a blog entry that explains pretty well the differences in these two approaches.

During my career, I have personally been involved with all and above and the latest implementation was based on SQL Server 2008 R2 with not only ETL logic to the ERP applications, but also a staging area, relational data warehouse and then the multi-dimensional OLAP cubes with SharePoint 2010. Needless to say, you need to have an understanding of multi-layer architecture and how all of this work together.

The question is how Big Data relates to all of this? One view of this is that different market segments sees it in a different way. Start-ups will see this more of a web-based approach with cloud solutions supporting Big Data. The SMB market has invested in Business Intelligence solutions and to get scale, they are going to look at cloud solutions that can take their analytics to the next stage. An then the larger enterprises that have invested huge amounts in enterprise data warehousing, data marts, ETL processes etc. will probably keep these solutions but might amend to cloud-based solutions when it is appropriate.

The competition in the Big Data space will increase during 2013 and we have already seen this by new solutions being introduced to the market like Amazon Redshift and Windows Azure Big Data. The distinction in the Big Data solutions is that many of them are typically based on NoSQL technology and data is dumped into computer memory (In-memory) and these solutions are specifically good for non-structured data. It is important to understand that there isn’t one “turn-key” solution as these types of Big Data implementations are both complex and require very distinctive skills to maneuver like “programming, statistics and how to visualize and communicate data”.

What we also need to remember is that the need to integrate data from different sources still exist, the data will be typically very different to what we are used to (like digital sensor and cameras) and when you add social media to all of this, you will have a mixture of data that never existed.

And finally, if you have been involved in Business Intelligence or Data Warehousing projects, the data/information still has to be presented in a format that makes sense for your audience, whether it be your management or other information junkies. What I do know is that analyzing the data won’t be easier than before given the fact that there is so much statistical swing into it, but the results of that data could take you and your company to the next level if information is used in proper manner.

To answer to the question I posed in my heading. No, I do not think one thing replaces another, but I would say is that you can expect to see multiple different variations on implementations and you can call them what you like and cloud will definitely be part of that implementation.

Business Analytics Gurus that you might want to follow on Twitter

If you want to learn about your domain, the best way to do this is to follow  your fellow researchers and researchers and practitioners that are known in your domain. I have learned throughout the years to focus and learn from masters and by taking this information as foundation, trying to build the next steps in my own understanding in the domain. This applies to anything that one does in life. Do not take everything as given, but take the information, analyze it, maybe criticize it and/or improve it and then build the next level of intelligence that you can then educate the community with.

I submitted a blog post yesterday about the importance of Big Data for software vendors and when reading things around the topic, I run into an interesting list that Information-Management.com suggested to be the top 7 list of Analytics Gurus.

  • Mike Gualteiri from Forrester and his Twitter tag is @mgualtieri and his forte based on the web is focused on Big Data, predictive analytics and emerging technology.
  • Vincent Granville from AnalyticsBridge Newsletter and his Twitter tag is @analyticbridge. He publishes a newsletter and focuses in data science, predictive modeling, text mining and business analytics.
  • Doug Laney from Gartner Research with Twitter tag @doug_laney and he focuses on Analytics, Info Innovation & Big Data and the discipline of Infonomics.
  • Leslie Ament from Hypatia Research Group and is listed as “Industry Analyst & Customer Intelligence Researcher with Twitter tag @Hypatia_LeslieA and she focuses on Customer Intelligence and business value of #CRM #BI # Analytics #VOC, #Social Media and #Info Mgmt.
  • Hyon Park  from Nucleus Research with Twitter tag @cambervillechow focuses on #analytics, #bigdata, #collaboration and #socialmedia & #sabermetrics.
  • Gregory Piatetsky from KDNuggests.com with Twitter gat @kdnuggets and he focuses on #analytics, #Big Data #, and #Data Mining
  • Anil Batra with Twitter tag @AnilBatra says he moves beyond web analytics and is working on multi-channel analytics with granular customer level data.

I think you should follow these guys for at least a little while to see what kind of information they share to the community.

Business Analytics is on the rise again with Big Data leading the way

It is fun to see how some things will just continue being relevant. Business Analytics, Data Warehousing and lately Big Analytics are topping the charts. Based on my own feelings, Big Data really took off the second half of 2012 and we also included that in our business modeling workshops as one optional extension that software vendors (ISVs) should look at. Harvard Business Review brought Big Data to the forefront in its October 1, 2012 magazine with Andrew McAfee and Erik Brynjolfsson (guru whom I followed when I worked on my PhD) with an article “Big Data: The Management Revolution”. According to the authors, Big Data is far more powerful than analytics of the past, specifically in making predictions.

One of the key reasons for the sudden explosion if Big Data has to do with the urge to achieve competitiveness by getting a better understanding of your customer, its behavior and the only way to do this is to enable massive analysis of data and in the past, this has not been possible with on-premise environments due to scalability issues. With new cloud technology such as Azure Big Data, ISVs and end user organizations can scale up the analytics/calculations based on the need (in bursts) and scale down when the calculation is done. There are quite a few new interesting startups in the Big-data-as-a-service domain (Zoomdata, Bidgely, Ginger.io, AgilOne, Continuuity). I expect this trend to continue specifically as cloud platforms enable startups to innovate without having to invest huge amount of capital in hardware and use the elasticity of the cloud instead.

What I expect to happen during 2013 is that you will hear more about real cases of Big Data use and conferences such as BigData TECHCON appear on your radar screen. Big Data is no longer about if there is technology to do it, it is more about finding the people that understand it and how to utilize it. According to McKinsey & Company, there will be a shortage of 140,000 to 190,000 people with deep analytical skills as well as 1.5 million managers and analysts with the know-how to use the data to make effective decisions”. The McKinsey article breaks down the importance of Big Data very nicely, including things such as dealing with policies around privacy, security, intellectual property and even liability. There is a full report that can be downloaded from McKinsey web-site.

How does all this rely back to software vendors that I work with on a daily basis? If you are an ISV that deal with lots of data, you have to have a game plan for Big Data. Even if you do not care about it, your customers will be asking for it going forward. It is the same what has happened with the Cloud. Three years ago, the question about cloud was almost non-existent in many domains and today an ISV can’t really survive without the cloud. How about that as being a guiding factor for Big Data.

Personally I feel this is very exciting to me as Analytics, Data Warehousing, Business Intelligence has been my core domain for more than 20 years. Even my doctoral dissertation Evaluation of a Product Platform Strategy fro Analytical Application Software from 2004 is still relevant and explains the drivers that a software vendors should be looking at from a software product platform and software product line perspective. The link will download the dissertation (in English) and it is in PDF format.

Expect to hear more about Big Data from me during 2013 as it will be even more relevant than during 2012.

Why software is still relevant and even more so going forward

When I reflect my past more than 20 years, I have been fortunate enough to be part of the software industry on a global level. First 10 years I spent in Europe working for software companies and the past 15 years I have lived and worked in the US as entrepreneur helping out software companies both domestically and internationally to expand their business.

I happened to run into a blog entry from TechCrunch by Jon Evans where he reflects on Journalism and how everything has become tech. The reference he makes is to a blog entry with the topic Software is eating the world  and is written by  Marc Andreessen whom most of us know already from the Netscape time. Marc Andreesseen is co-founder and general partner in a very well known venture capital company Andreeseen Horowitz with investments in many well known companies such as Facebook, Groupon, Twitter and many more

When you read the article from Andreessen, there are a few things that confirms some of the things that I have pondering on and also telling my software vendor clients in discussions. Software has not only become a necessity, it has become a must even for traditional hardware companies that one would not think that they need to ponder about software. This trend has been going on for a few years and we see this happening in the for example auto industry and what makes things even more exciting is that cloud technology is now part of this formula of success. Some mature industries are using new cloud technologies to achieve competitive edge towards the rest of the industry.

There are software companies such as MetaCase that will benefit of this trend. This software development tools company is the leading domain-specific modeling software company in the world that has very impressive clients working on embedded software solutions in different industries, including mobility and auto industry. The development environment MetaEdit+ enables organizations to create software product lines more effectively and also with higher quality.

Andreessen claims that we are in the midst of a huge and dramatic technological and economic shift where software companies are poised to take over a large part of the economy. It is easy to see this happening for real. Just think about how insurance companies and financial industry are able to use the cloud to execute heavy-duty risk calculations by submitting the request to the cloud and the only question that the cloud will ask is how much time it can take. Following picture shows pretty nicely how a company with pre-existing infrastructure investment (Datacenter) should view when considering a PaaS environment (Platform-as-a-Service) and in the figure we are referring to Windows Azure.

Azure vs. datacenter

The more capacity is allocated for the calculation, the more it will cost but this cost could easily be justified by opportunities to make more money due to time savings. In the picture above, it is easy to see that there will be a point in time when your own datacenter just does not scale where it needs to scale and that is why solutions/platforms such as Windows Azure will come to the play. This is also why we have to understand that new technologies such as cloud will bring new innovations to the market and this will definitely reflect on the valuations of these companies.

Andreessen gives lots of software related examples from different industries and I have had the luxury to work with many new an innovative (small and large) software companies that are now making this change in a very rapid pace. There will be lots of losers in this game as well. These will be the ones that feel that they already “own” the market and suddenly realize that smaller and more nimble players suddenly take the market and run with it.

The message that I want to send with this blog entry is to really emphasize that ignoring the change that is happening due to multiple factors such as mobility and cloud is probably one of the biggest mistakes that one can make as software leader. I encourage each one of you to do some due diligence in your own operations and answer to this simple question: “ will I still be relevant in 5 years”. If the answer is no, then you might have bigger issues on your hands than just the cloud transformation.