A cloud computing post every software CEO should read

March 4, 2010 by Brian Wolff

OK – time to take it home.  Hopefully you’ve already read my first and second post for SaaS CEOs, and now I’d like to finish up the final five tips for taking your applications to the cloud. 

I’d also like to ask you for feedback on what you think and whether you think I’m on the right track.  Please feel free to challenge and question me in the comments field below.

Tip #11:  Set financial penalties for downtime:  I agree, there should definitely be some financial incentive for the Cloud provider to perform for a couple reasons:  

First, if they’re willing to put it in writing they’re likely to have given performance, or the lack thereof, more than a passing thought and then put some engineering behind the promise they’re making. 

Second, it demonstrates that they understand there’s a direct relationship between what’s running in their cloud and the quality of the environment they’re supporting. 

And third, now let me let you in a dirty little secret of financial penalties – if you actually do that math (my SLA included, by the way), you’re going to see that the number that I’m on the hook for is relatively small.  In the words of one of my client CIO’s
 

it’s not about the size of the payment back, I don’t want your money, I want you to hurt when I hurt and I want to know that you’re taking my uptime as seriously as I am.” 
 
So in the end, it’s not about the size of the payment, it’s about the fact that it’s there at all.

Tip #12:  It takes time to see ROI on SaaS development:  Sage advice from Adam on this one – it’s going to take time and a concerted effort to make Software-as-a-Service (SaaS) pay off for you.  His comments make me think about focus.  Our experience is that many SaaS companies have little to no experience running a hosted infrastructure – so that skill must either be hired or acquired.  Hiring people is hard, so I might argue (because this is our business) that SaaS companies can get further, faster by focusing on writing the code and driving demand, while leaving the hosting to experts like BlueLock.  That’s exactly what SaaS company Right On Interactive did – they focused on writing better code and allowed us to help them get further, faster by managing their infrastructure.  Check out their cloud computing case study.

Tip #13:  Savings are not in the cloud, but in headcount:
  Oh man, I wish I could make this tip #1!!  Adam hit the nail on the head.  I’ve presented an infrastructure choices presentation to Rick Chapman’s Softletter SaaS University conferences several times and I tell the Software CEOs in the room that one of BlueLock’s key value propositions is about people.  I even take them through a little back of the napkin math around the difference in cost of 5-10 servers doing it on your own, doing it at Amazon or hosting it with BlueLock.  BlueLock wins and I tell the crowd that you could substitute BlueLock for another managed cloud provider because it’s not about my ability to pay my people less, it’s about my ability to “fractionalize” our labor cost, where they must have a full time equivalent (FTE) or 2 (if that person wants to take a vacation) or 3 (if you want 24×7 coverage and let someone take a vacation or get sick).  So the software company that has dedicated staff to “manage” their cloud environment at Amazon is, in the end more expensive, than allowing me to manage their environment for them at BlueLock.  If you’d like to see the analysis – send me a note at bwolff at bluelock.com and I’d be happy to share the slide and take you through my logic. 

*By the way, doing it yourself and buying your own equipment is so far off the chart expensive, it’s only worth mentioning it for this reason – if you’re a SaaS company buying your own servers and collocating them – you’re in serious danger of being crushed by your competitors because their infrastructure will be a fraction of the cost of yours – nobody does it that way today – REALLY.
 

Tip #14:  Follow the cloud into new markets:  Another great pearl from Adam.  Migrating into a SaaS environment brings many new avenues for companies to open other revenue streams that simply weren’t available to them previously.  A fellow SaaS University presenter Lincoln Murphy has built an entire presentation on this topic. Migrating to a SaaS offering provides companies with a whole new way to view their World, because now it’s about collaborating and linking to other value added services and not just about delivering a single piece of functionality.

Tip #15:  Let the cloud lead you to new innovations:  This last tip takes the previous tip and Lincoln’s presentation to the next level.  Companies that choose to deliver their software via SaaS (in the cloud) open up many new opportunities for revenue and value creation. The first step toward opening up new horizons for your software company is to migrate to SaaS and let the users take you to a better place.  The cloud will only continue to get better, and SaaS companies taking advantage of the benefits of cloud computing will be leaps and bounds ahead of their competition in terms of cost efficiency and flexibility.

Thanks for reading this post – if you’d like to learn more about how BlueLock is helping enable other SaaS companies just like yours, drop me a note at bwolff at bluelock.com or visit our website to find out more about our cloud hosting services

I would also love to hear what you think about my take and if you think I’m on track or “off in left field”.

–Brian