When the Open Cloud Manifesto was unveiled last week by IBM et al I wrote "The (Cloud) Bastards say, Welcome"
And I invited several cloud pioneers who have been at it - delivering cloud based products and services or helping evaluate and nurture them for 5, 7, 10 years - to discuss the manifesto and what they have learned in Cloud Computing over the last few years.
This time it is Timothy Chou, a visionary whose new book, Cloud comes out April 15.
“For me it all started in late 1999 arguing with Larry Ellison about why he wanted to fund a business (called Business Online) to deliver Oracle applications as a service. It seemed silly for a software company to own a data center but after six months on the job I realized this was really a fundamental shift in the economics of software.
If you ask a hardware company, what the cost of their latest laptop they can tell you down to the keycap. But just ask what’s the cost of software and you’ll get a blank stare from most people. The cost of software is the cost to manage the performance, security, and upgrades of the software and is at least 4 times the purchase price of that software per year. Using round numbers that means over $1000 a user a month, which is why most company’s IT budgets are now fully allocated to managing the software they bought over the past twenty years.
Now if you take that same software and standardize the delivery you can get the cost to under $100 a user a month. And furthermore if like salesforce.com, Concur, Taleo, Successfactors, or Netsuite you engineer applications for even higher degrees of standardization then the cost (not price) go to $10 per user per month. But that’s not the end of the story – back of the envelope; Google’s cost to deliver is less than $1 per user per month. We all should remember, anytime you create order magnitude cost differences in technology you change the playing field – go ask all of the old hardware vendors.
While technology can change quickly, people are a little slower. In 2000 most of Oracle’s customers wanted to come to the data center and shake the cage. We affectionately called them “server huggers”. It took until 2004 for a large Fortune 500 customer (thank you Fred Magner, CIO at Unocal) to sign. While the business grew to nearly $200M in four years the biggest impediment to growth was educating Oracle people. Never underestimate the power of the white corpuscles.
In the same time period others developed totally new businesses from scratch. Today almost ten years later there are eleven software companies, all public companies since 2000, all delivering business software as a service with a combined market cap of nearly $10B.
Will all business software move to being delivered as a service? The only debate is about the rate of change.”