OVERVIEW
The 1990s saw the widespread adoption among large enterprises of packaged business management software applications that automated a variety of departmental functions, such as accounting, finance, order and inventory management, human resources, professional services, sales and customer support. These sophisticated applications required significant cash outlays for the initial purchase and for ongoing maintenance and support.
In addition, these applications were internally managed and maintained, requiring large staffs to support complex information technology infrastructures. Most importantly, the applications generally were provided by multiple vendors, with each application providing only a departmental view of the enterprise.
To gain an enterprise-wide view, organizations attempted to tie together their various incompatible packaged applications through long, complex and costly integration efforts. Many of these attempts failed, in whole or in part, often after significant delay and expense. As a consequence, many large enterprises have transitioned from multiple point products to comprehensive, integrated business management suites, such as those offered by Oracle Corporation (“Oracle”) and SAP AG (“SAP”), as their core business management platforms.
Medium-sized businesses (up to 1,000 employees) and divisions of large enterprises have application software requirements that are similar, in many respects, to large enterprises because their core business processes are substantially similar to those of large enterprises. These requirements include the integration of back-office activities, such as managing payroll and tracking inventory; front-office activities, including order management and customer support; and, increasingly, sophisticated Ecommerce capabilities.
Medium-sized businesses are generally less capable than large enterprises of performing the costly, complex and time-consuming integration of multiple point products from one or more vendors. As a result, medium-sized businesses can frequently derive greater benefits from a comprehensive business suite. Suites designed for, and broadly adopted by, large enterprises to provide a comprehensive, integrated platform for managing these core business processes, however, generally are not well suited to medium-sized businesses due to the complexity and cost of such applications.
Many customers feel they have been forced to buy more software than they need and use only a fraction of the capabilities, which contributes to a value disconnect. In addition, software priced according to licensing metrics linked to hardware resources may become cost prohibitive if customers use the product in a grid or virtual environment, causing further misalignment with value.
Customers also are being exposed to new value calculation scenarios; for example, new hardware and software pricing based on usage rather than capacity. Vendor licensing policies that are inconsistent and overly complex — even within the same vendor — also contribute to the value disconnect from the customer perspective.
Market pressures are forcing software vendors to reassess value. Margins are shrinking while the negotiating clout of the customer is increasing. Disruptive business models are emerging, placing pressure on software companies with entrenched traditional business models. As a result, licensing has become a competitive differentiator. In addition, vendors (and their investors) are concerned that traditional licensing models do not yield predictable, recurring revenue.
The traditional software value framework is based on the idea that value is equal to the product as defined by the vendor. Therefore, the traditional strategy is to add features to increase the value of the product. The challenge is that perpetual licensing models are based on the perception that the customer must own the software in order to use it to gain access to positive experiences. As an alternative to the perpetual license, subscription licensing has evolved over the past decade or so.
Initially, subscriptions provided a “value offering” that included scaled-down functionality to attract customers that could not afford traditional business software prices. Next was a hybrid offering, where the customer chose either a subscription or a traditional license model for the same software, in which the software was also offered via cloud or as a service. Finally, “premium offering” subscriptions provided the optimal experience and the high worth-and-cost expectations associated with it. This might include the ability to access all of the products in a company’s broad portfolio and the highest levels of support for the duration of the subscription.
Offering a subscription approach is one of many strategies that vendors are using to improve customer satisfaction, increase penetration in markets where high up-front licensing costs prohibit adoption, and grow deferred revenue.
Subscription should necessarily be the default software model, but in many situations, subscription will make more sense for customers and vendors.
Medium Sized Businesses have begun to benefit from the development of the on-demand software-as-a-service, or SaaS, model. SaaS uses the Internet to deliver software applications from a centrally hosted computing facility to end users through a web browser.
Medium Sized Businesses and divisions of large enterprises have begun to benefit from the development of the cloud computing delivery model. Cloud computing uses the Internet to deliver software applications from a centrally hosted computing facility to end users through a web browser. Cloud computing eliminates the costs associated with installing and maintaining applications within the customer’s information technology infrastructure. Cloud applications are generally licensed for a monthly, quarterly or annual subscription fee, as opposed to on-premise enterprise applications that typically require the payment of a much larger, upfront license fee. As a result, cloud applications require substantially less initial and ongoing investment in software, hardware and implementation services and lower ongoing support and maintenance, making them substantially more cost effective to run for Medium Sized Businesses. The Cloud however has numerous interfaces – public and private clouds:
PUBLIC CLOUD
Operated by large providers such as Google, Microsoft and BT, these are currently funded in two main ways – by indirect funding i.e. advertising and marketing revenues, data sales etc. (e.g. Google) or by subscription (e.g. Microsoft 365).
Indirect funding is achieved by an individual or company allowing some of its details to be accessed by the provider to be used for sales or advertising offers or for sharing with their partners for revenue. This service often has a low SLA (service level agreement) deliverable and a remote support service which is generally not often responsive or has little empathy with the end user. Your data and their service desk may not be held in the same country or continent as your business. Your local intellectual property laws and legal jurisdiction may not apply in the country that your data and their operatives are based in.
Subscription generally has a better support service as you are paying for it, however there can still be T&C’s which mean that you have a fairly low SLA, and can even include sharing your data for advertising. These have large user bases so don’t necessarily provide a high level of response from informed service desks. They have set scripts and generally do not have a business focus. Similarly, your data and their service desk may not be held in the same country or continent as your business. Your local intellectual property laws and legal jurisdiction may not apply in the country that your data and their operatives are based in.
Public Clouds generally only provide Email, Microsoft Office type applications and some data storage services. They do not provide hosting of businesses specific “expert” systems. The business therefore has to maintain a separate infrastructure to host all their other applications.
PRIVATE CLOUD
Individual corporates running their own clouds internally for their own use through highly specialised teams – on cost and sophistication grounds, this is not the domain for SME’s.
Private Hosted Clouds
IT service companies (such as ZTL) hosting a private cloud for a customer on a shared or dedicated secure infrastructure.
Private hosted clouds tend to have much higher Service Level Agreements with same country same region data centres and service desks and a much more focussed service.
Client data is kept private and secure and is subject to local laws with regard to intellectual property and data protection (DPA). In most instances the client can visit the data centre, and see and touch the hardware their systems and data are hosted on as well as meet the people that support their systems.
Generally all the client systems can be hosted, including but not limited to MS Office applications, email and critically, the client’s “expert” systems. A managed, private hosted cloud solution can fully replace internal systems and any IT support staff.
Some providers (including ZTL) can also replace the client’s desktop PC’s with new low energy, small footprint visual PC’s, reducing any need for on-site support and substantially reducing energy costs. This also enables automatic updates of all Office type applications to the latest releases.
So our solution provides clients with a cheaper, more secure and robust service than they could realistically afford to maintain in house.
As privately hosted local clouds become more prevalent and continue to cut costs it makes little sense for SME’s to continue to maintain their own IT infrastructure. Why would businesses pay more for a less robust and secure in-house system which also uses more energy and contributes to a higher carbon footprint? It is also the case that SME’s have traditionally invested in a PC support technician to formulate an IT strategy for business growth. It is the only remaining essential business service that continues to be provided in house with a huge associated risk as to whether the right choices are made at the right time. Additionally, if an SME has so much of its critical system knowledge and performance vested in one employee, the risk exposure to such a person leaving the company can be catastrophic. IT is now the mainstay of a business.
It’s where the businesses financial and intellectual property is maintained as well as personal and commercial details and databases. It is the main risk to a business in terms of loss and ability to operate in a disastrous event. IT can be an enabler and conduit, or a barrier for business growth, depending on which solution the business has adopted.
