Software as a Service Inflection Point

iUniverse, Inc.

Contents

Introduction......................................................................................................................................................xxviiOne: Inflection Point.............................................................................................................................................1Two: The Significance of Business Agility.........................................................................................................................5Three: Cloud Computing and SaaS...................................................................................................................................11The Benefits of Cloud Computing...................................................................................................................................19Emerging Trends in Cloud Computing and Next Steps.................................................................................................................22Four: Public Cloud Offerings......................................................................................................................................25Azure Services Platform...........................................................................................................................................25Google App Engine.................................................................................................................................................28Amazon Web Services (AWS).........................................................................................................................................29Feature Comparison................................................................................................................................................30Analysis of the Cloud Offerings...................................................................................................................................33Five: Cloud Computing Privacy and Confidentiality.................................................................................................................37Privacy and Confidentiality Findings..............................................................................................................................39Six: Software as a Service, the Business Model....................................................................................................................43Potential Risks...................................................................................................................................................46Seven: SaaS and Business Performance..............................................................................................................................49Challenges to Business Performance................................................................................................................................50Three Major SaaS Business Considerations..........................................................................................................................51Eight: SaaS Cost Benefit Analysis.................................................................................................................................57Making the IT Budget Go Further...................................................................................................................................57Better Estimation of People Services..............................................................................................................................61SaaS Allows Better Growth Management..............................................................................................................................63Accountability of the SaaS Vendor.................................................................................................................................65Nine: SaaS Technical Considerations and Architectural Options.....................................................................................................73Technical Challenges..............................................................................................................................................73Architectural Options.............................................................................................................................................80Ten: Impact of Virtualization.....................................................................................................................................91Eleven: Value within Select Vertical Markets......................................................................................................................97Federal Government................................................................................................................................................97Energy............................................................................................................................................................101Aviation..........................................................................................................................................................105Healthcare........................................................................................................................................................107Twelve: What should my business enterprise do now?................................................................................................................111Experiment with free-form environments............................................................................................................................113Help users innovate...............................................................................................................................................113Stop trying to provide everything.................................................................................................................................114Segment users according to their role and the value they produce..................................................................................................116Pay attention to privacy and confidentiality issues...............................................................................................................116Conclusion: SaaS and the Agile Business Enterprise................................................................................................................119Acknowledgements..................................................................................................................................................123List of Acronyms..................................................................................................................................................125Reading Group Guide: Questions and Topics for Discussion..........................................................................................................127How will Cloud computing be defined, and how will it evolve?......................................................................................................128How will Cloud computing affect the strategy and direction of IT and business?....................................................................................128Can Business Agility be enhanced by SaaS and Cloud Computing?.....................................................................................................129What vendors, markets and industries will be transformed by the Cloud computing phenomenon?.......................................................................130When, where, how and why should companies exploit off-premises, Cloud computing services?.........................................................................130Which new applications and solutions are now feasible due to the availability of global-scale, Cloud computing services?..........................................131Which models, architectures, technologies and best practices should enterprises adopt from Cloud computing to their internal IT environments?.....................131When Can a Business or Individual Share Private Information with a Cloud Provider?................................................................................132The Marriage of BPM and SOA.......................................................................................................................................135A Conversation with Melvin Greer..................................................................................................................................137Bibliography......................................................................................................................................................149

Chapter One

An event that changes the way we think and act. -Andy Grove, Founder of Intel

Inflection Point: The time when an organization makes a strategic decision to change its strategy to pursue a different direction and avoid the risk of decline. The term was coined by Andy Grove of Intel to describe the period of change that affects an organization's competitive position. It also describes the need for organizations to recognize and adapt to change.

An inflection point in business occurs when the old strategic picture dissolves and gives way to a new one. "Inflection point" is a term used in multiple disciplines including mathematics, engineering and business strategy to describe a point on a curve where the curvature changes from convex to concave. In business strategy, an inflection point is frequently used to describe a scenario where the dynamics of today's business situation significantly shift. In this case, the term inflection point indicates the point at which the business requirements needed to compete significantly shift. It may not mean that the fundamentals of today's model no longer work, but rather that there is a transition occurring, when a new set of rules is being defined to set the stage for a new and different competitive landscape. Managing this transition is the ultimate challenge for industry leaders.

The experience of a wide array of industries, from airlines to entertainment to retail, indicates that new leaders emerge when companies recognize the opportunity created by an inflection point - that is, performance differentiation in the future. In making the transition, organizations must continue to operate in the world of today, while preparing for the world of tomorrow. That challenge presents a host of dilemmas including:

How aggressively should they pursue the future model?

Should they should lead or follow?

How can they overcome reluctance to change?

Should the capabilities be enhanced or built?

To understand how we have reached this Software as a Service inflection point and how organizations might achieve the business agility that SaaS and Cloud computing promise, we should begin by looking at some of the drivers behind the SaaS phenomenon and what the trends tell us about their future capability.

There are three primary concerns with the current software model that is driving us toward the SaaS inflection point:

Upfront financial commitment: Software and ancillary services, such as implementation, integration, customization, testing, maintenance, training and overtime upgrading, can add a multiple of five to seven times license fees during the lifetime of an application. This concern is exacerbated by the common lack of control over ongoing costs after the deployment.

Unused software: A great deal of software remains unused. One of the reasons software becomes "shelf ware" is the overselling by software vendor sales forces, who often use discounts as an incentive to encourage large upfront purchases for future potential need.

Complexity of the software: The complexity of much of the software and its lack of user friendliness often leads to poor utilization and value realization.

For these and other reasons, vendors are using new technologies - the Internet, service oriented architecture and Web 2.0 - to develop newer, more cost-effective delivery models and advanced software solutions. The movement toward SaaS has been germinating for many years and, after some missteps, has finally reached an inflection that will make a meaningful impact on the IT industry. Gartner Research forecasts that by 2011, 25% of new business software will be delivered as SaaS.

Managing an inflection point necessitates operating concurrently in two worlds-the world of today and the world of tomorrow. There is no single approach to developing a strategy to accomplish this. Since much depends on a company's product portfolio, its organizational readiness and its tolerance for risk, transition timeframes can vary from organization to organization. Any inflection point, however, provides the opportunity to erect the building blocks of high performance and achieve differentiation.

A company in an industry at an inflection point can set a trajectory toward industry leadership.

To achieve success, there are three general strategies that organizations should consider when developing a plan that manages an inflection point:

Ready today's model by improving critical aspects of the current business model in an attempt to slow declining performance.

Institute new capabilities to drive competitive advantage and boost performance.

Change the game by defining new business practices that will create a new performance trajectory.

Variations in inflection point strategies do and should exist. It is the role of executives in each company to recognize the mix of strategies/imperatives that makes sense, given the unique set of challenges and resources it faces. Executives who lead today will win tomorrow by defining their own inflection point strategy. The strategy should be based on a viewpoint of the future industry landscape. It should evaluate current capabilities and portfolios, define risk tolerance and thus the degree of aggressiveness with which to pursue the strategy and create a change agenda and corresponding set of imperatives. Successful companies will align the leadership team around this change agenda, fast-track their chosen imperatives, evaluate and reconfigure their talent base, and create a program structure robust enough to manage the ongoing transformation journey to high performance.

Chapter Two

Business Agility is an organization's ability to respond to change. If the organization cannot respond well to change, it can lose competitive advantage or even cease to exist. In a world where change is more rapid and becoming less predictable, increased agility is undoubtedly critical to corporate survival. Rapid and impactful change also often presents important new opportunities. If an enterprise is less agile than its competitors, it is the competitor who will capitalize on new opportunities and grow.

There are a number of drivers forcing business agility. First, there is an increase in interconnectedness: email, Web, digital supply chains and mobile devices are linking us to each other in real time. Second, there are "macro" changes. These include changing market conditions, new regulations and political situations in various parts of the world that impact business. Third, there is the growing role of information and data to improve corporate productivity. When a new medication, a new nanotechnology manufacturing technique or an innovative marketing strategy is developed, information technology is being used to increase productivity. Finally, there is profitability. Organizations are under more pressure than ever to be profitable - while, at the same time, they are faced with new challenges in achieving increased profitability.

To achieve business agility, organizations are focusing on four main areas-the components of agility: people, processes, strategy and technology. These components are inextricably linked: if the ball is dropped on one aspect of agility, the others will suffer. For example, an organization's employees may understand how to respond to change and are motivated to do so, but if technology does not give them the information they need to observe change, they will not be able to make good decisions. If agility is built into all four components, a "virtual cycle" is created that will feed onto itself and ensure an ongoing, dynamic response to change as it occurs.

Quantifying agility involves the use of frameworks; these can be used by organizations to measure their level of agility and business value. An example of an agility framework is the Agility Quotient (AQ) tool developed by Microsoft and Gartner. The Agility Quotient tool can help organizations understand their ability to sense and respond to change as well as benchmarks their performance against industry peers. It analyzes their level of awareness, flexibility and productivity during change and outlines tangible steps to improve. If an organization takes steps to improve agility (for example, by upgrading its IT infrastructure), it can then use investment tools such as the Microsoft Rapid Economic Justification (REJ) framework to understand the value derived from its IT investments. Many organizations have used the AQ tool to identify their level of organizational agility and to determine how to use technology to achieve an optimal state.

To survive, enterprises need a rock-solid, streamlined IT environment; but to win, they must transform their IT investment into a corporate advantage-one that drives revenue and growth and opens new markets and opportunities. Today's business climate requires a constantly evolving IT strategy that responds to new opportunities and threats on the fl y. While the fundamentals of IT-reliability, availability, security and manageability-are still crucial, rapid results are mandatory for business success. There is little room for a trade-off between reliability and agility-organizations need both.

Experts agree on the central role that agility plays. According to Gartner, "Progressive companies have adopted workplace agility as a competitive imperative." Giga calls agility a "critical element to deal with continuing innovation." Agility must characterize the business itself as well as the IT infrastructure and applications on which it depends. Research from META Group indicates that "during the operational life of complex, highly integrated systems, the largest and fastest-growing total cost-of-ownership (TCO) factor is change (i.e., adaptability). Users must continue to emphasize adaptability as their primary design goal to deliver lower TCO."

The essence of business agility is defined by John Oleson in "Pathways to Agility," as the ability to respond with ease to the unexpected. It means that the unexpected has been anticipated and the capability has been built so that the response can occur with ease."

An agile business can:

Understand market dynamics and anticipate customer needs.

Make faster decisions through better access to information.

Gain access to critical business information wherever and whenever required.

Design, introduce or modify business services and processes.

Automatically deploy or re-deploy resources based on dynamically evolving business requirements.

Maintain and improve customer service levels.

Unfortunately, most organizations are more familiar with these symptoms:

Struggling to deploy new features because of the risk of business disruption.

Supporting end-of-life or outdated proprietary systems and custom applications.

Reaching performance ceilings, yet being unable to take advantage of next-generation technologies.

Paying for underutilized assets that cannot be re-used for other purposes.

Today's business environment is one of rapid and continuous change; one that is marked by an increasing dependence on advanced software capability that will enable the performance of a growing number of business tasks. In this environment, the time and cost to transform information systems to respond to environmental change and the strategies developed to address that change could be a competitive advantage or disadvantage. In effect, information systems agility is becoming a larger component of enterprise agility at a time when enterprise agility is becoming more critical to enterprise success. However, many CEOs and corporate board members view existing information systems and corporate culture as primary inhibitors to strategic change. Enterprise architecture can improve information systems by creating agile advanced software methodologies, by improving development and testing environments, and by enhancing SaaS and Cloud computing skills. However, the greatest potential gains in information systems agility will come from using enterprise architecture to develop and transmit agility-centric requirements, principles and models for information architecture to every systems development and acquisition decision. A well formed SaaS and Cloud computing inflection point strategy will be based on a strategic business vision that is derived from the enterprise's strategy and external drivers, enablers and inhibitors of change. The strategic business vision will be based not only on known and forecast process and information requirements defined by business units, but also on enterprise-level "engineering requirements". In today's world of rapid and continuous change, agility is, more often than not, paramount among these engineering requirements. In an environment in which CEOs and executive teams must plan business strategy on a multi scenario basis, it is difficult for business-unit project sponsors and IT professionals to forecast process and information requirements with the accuracy necessary to define information systems process and data structures beyond the immediate future. Therefore, because forecasting requirements will not result in stable future-state information architectures, designing for agility is necessary to maintain alignment with a rapidly and continuously changing business environment. The focus on business agility is a primary driver for the rapid response and flexibility associated with the software delivery models associated with Cloud computing and SaaS, and the main reason we have reached an inflection point with regards to their adoption.

Chapter Three

Any significant discussion on SaaS will include the concept of Cloud computing. Cloud computing is a style of computing, where massively scalable IT-enabled capabilities are delivered "as a service" to external customers using Internet technologies. This is different from traditional computing internal models and has distinguishing attributes-such as multi-tenant and massive scale characteristics-when compared to other traditional hosting models. Elastically scalable Cloud computing resources are distributed dynamically and are redistributed on demand in metered quantity and quality. Delivery "as a service" implies that the base of the resources is off-premises relative to the consumer of the service-that is, the term "as a service" implies that it is off-premises.

Computing off-premises is a long-standing enterprise practice. Since the 1970s service providers have been hosting business applications on behalf of enterprises that chose not to own a mainframe computer. During the past four decades, as the prevailing computing models evolved and new platform technologies have emerged, off-premises computing have evolved as well. Today, an observer can find many models of off-premises computing in operation at the same time, often employed by the same IT organization. In most cases, the distinctions among the models are subtle: partly technical and partly business-related. In fact, multiple models that are named differently for historic reasons may overlap in many characteristics.

To clear away the resulting confusion, the figure below details a symbolic diagram and a set of common-sense definitions. Each model is discussed in greater detail and with greater precision. These models should not be treated as strict definitions, rather as "common sense" or "center of gravity" indications of the essentials of each category.

Off-Premises

The service, including the application and the data, resides on hardware that the user organization does not own. This is a relative position: what are off-premises offerings for some are on-premises for someone else. Not owning the resource implies that there is no upfront one-time acquisition cost, but rather that the provider is paid for the service on a recurring (subscription) basis. These characteristics apply to all models discussed here.

In the off-premises IT scenario, there are always two parties involved: the one that provides the resources (the provider) and the one that "rents" them (the user organization).

Hosting

Off-premises computing resources are allocated exclusively by the provider to a particular user organization. If a provider has such an arrangement with multiple user organizations, then each will have its own exclusive computing resources from hardware up. There is minimal or no sharing of capabilities or costs among user organizations.

Cloud

Off-premises computing resources are allocated to applications and/or user organizations with elasticity: just-in-time with on-demand and metered quantity and quality (advanced capability). To fulfill this requirement, the provider must have resources that substantially exceed the average use patterns. Therefore, mature cloud environments are characterized by massive scalability.

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Excerpted from Software as a Service Inflection Pointby Melvin B. Greer, Jr Copyright © 2009 by Melvin B. Greer, Jr.. Excerpted by permission.
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