This has obviously been a hot topic since last fall. Many have written about it, from Forbes and The Industry Standard on down. While most seem to be casting their vote for Cloud Computing success through this recession, there are others who are non-believers. Those who believe in the cloud computing model believe that this mechanism for delivering IT solutions will prosper in a down economy because it is typically booked as an operating expense (vs. a capital expense), you have the ability to reduce your usage and therefore expense, and maintenance and infrastructure/support costs are significantly reduced.
The non-believers are typically the ones that think that either a) IT spending is going to be cut deeply enough so that there are no shining stars or b) Cloud Computing reduces the reliance on IT staffing resources, giving companies a way to reduce employee costs. While I personally believe that “b” is an absolutely dour way of looking at a solution that could potentially reduce cost and free up resources to focus on higher value add task, that’s a topic for another day.
No matter which camp you are in, clearly there is not yet consensus on whether or not Cloud Computing is going to be one those shining stars amidst our financial turmoil. SaaS companies are just now reporting on the first quarter of results after the Q408 stock market meltdown. Successfactors (SFSF) results seemed to be mixed, beating Q4 estimates and guiding in line despite softness in large accounts. For Citrix Systems, net income was down slightly but the company stated they were pleased with the results in light of the economy. Amazon.com recently released results that were very well received with the inference from many observers that Amazon Web Services, the company’s cloud computing infrastructure, did exceptionally well.
So what really is the argument for SaaS companies to buck the trend of the economic downturn? My hypothesis is the following:
Despite the frequent rhetoric about the lower total cost of ownership for Cloud Computing applications vs. more traditional, on-premise solutions, there’s little concrete evidence that this hypothesis is true. That is – there are few stories about companies that took a hard look at their situation and clearly determined that Cloud Computing was a cheaper way to go for their specific situation. And that’s really the key to this question about lower total cost of ownership for SaaS – every company has a different mix of applications, IT infrastructure, staffing, and expertise. No two are alike. Therefore there is really not an all-encompassing formula to calculate TCO.
So far it appears that Cloud Computing providers are fairing relatively well in light of other industry sectors. What I believe may be true is this:
As of the Fall of 2008, more and more companies are now truly forced to conduct the detailed analysis of total cost of ownership for their various solution options and truly make a technology decision based upon those results. Of course there are always other factors that influence a technology buying decision, but I believe TCO is now the one that clearly dominates the outcome.
I’m sure this has been true of some or many companies in the past, but I believe it is now true of every well-run business. Salesforce.com reports their fiscal year earnings later this month, so maybe that will shed some more light on this as well.
Differing opinions? I’m sure there are. Let me know. Any proof points from companies that have done just this and are willing to share? We’d definitely love to hear about it.
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[...] David Dahlberg: Is SaaS and Cloud Computing Still on the Rise in this Economy? By topalovich Categories: Cloud Computing, Platform as a Service and Software as a Service Tags: Cloud Computing, PaaS, Platform as a Service, SaaS, Software as a Service David Dahlberg: Is SaaS and Cloud Computing Still on the Rise in this Economy? [...]