Market Hacking the XaaS Economy
Many 21st century ISVs position their startups as cloud companies. And why not? From a general technology point of view it's where everything is converging. In this case "converging" means software converging with devices converging with on-demand services converging with rich media converging with social networks converging with mobility converging with advertising converging with....you know...everything...as a service.
To compete at peak capacity in the age of cloud, it's important that new breed entrepreneurs stop dreaming about cloud as the latest flavor of 'green field' or 'blue ocean' technology. The alternative---Begin thinking about cloud as distinct sets of well-defined opportunity landscapes--Landscapes populated by dueling vendor ecosystems with their own unique characteristics and potential rewards.
Borrowing a metaphor from Sun Tzu's "The Art of War", I like to think in terms of 'Nine Grounds' of cloud, i.e. 9 major cloud landscape formations which wise entrepreneurs can leverage for success. As with Sun Tzu's original Nine Grounds (or nine situations as he also refers to them), some landscapes are more open, accessible and relevant to your business than others. But each major cloud vendor landscape can be successfully navigated with the appropriate strategic focus, i.e. an orientation toward symbiotic partnering and asymmetric marketing. I list these Nine Grounds of Cloud below.
1. Amazon AWS: For both established and startup ISVs embracing the SaaS model, Amazon's innovative 'pay-as-you-grow' Infrastructure-as-a-Service offering has become ground zero for cloud experimentation. As an attendee at their road show on June 21 in San Francisco, it was clear from the packed crowds, audience enthusiasm and new partner support initiatives that Amazon has accelerated enterprise cloud adoption in the face of stiff opposition from incumbent software superpowers that have consistently attacked their public cloud model. Based on what I heard at their event, I look to Amazon to launch more and more ISV-friendly initiatives over time, and begin embracing the partner program best practices of incumbent software industry market leaders (which Amazon is on a trajectory to become). This is a very positive development for cloud ISVs. There is very little downside and lots of potential upside for ISVs that focus on developing symbiotic relationships within the Amazon ecosystem as it expands and evolves its partner base over time.
2. vmWare Partner Program: vmWare has established itself as the new customer-sanctioned 'natural monopoly' of enterprise-grade cloud infrastructure, with more than 25,000 partners and 80+% of all virtualized applications running on vmWare. They are now driving toward cross-category cloud technology leadership as they leverage strong EMC ecosystem relationships as well as acquire various startups to broaden their portfolio of offerings. vmWare is clearly focused on the main opportunity in the 21st century enterprise software industry, i.e. disrupting the more than 70% of IT maintenance spend that continues to go to incumbent superpower vendors for infrastructure and apps. This focus on empowering enterprise IT to detox from the maintenance budgets of incumbent vendors, while opening the door to a new wave of enterprise software innovation from lean startups, is why every wise enterprise software startup has to have a vmWare partnering strategy tailored to their business. In other words, one of the most fertile 'grounds' for ISV success is the high growth vmWare ecosystem. Leverage it to your benefit if your business is the enterprise.
3. Apple i-Ecosystem: Apple has executed better than any other tech vendor in terms of the cloud D+S or device + service model, even receiving strong validation from competitor and outgoing Microsoft Chief Software Architect Ray Ozzie in his discussion of the "post-PC world". With a portfolio of killer cloud devices (iPhone, iPad), dominant carrier relationships, retail presence in many local markets, ISV distribution-as-a-service (the AppStore) and revenue incentives to developers for both paid and ad-sponsored apps, Apple has the richest platformula (technology platform + partner success formula) at the intersection of cloud and mobility. And with the rapid emergence of the iPad as a de-facto enterprise mobility standard, and the launch of iCloud, Apple is poised to attract a new generation of enterprise developers. The only downside for developers is that Apple's breakout success with the AppStore has made it very crowded, requiring startup ISVs to step up promotional programs.
4. Force.com PaaS Family: Salesforce.com continues to leverage the broad market success of its SaaS CRM installed base of developers and partners to evolve into a Platform-as-a-Service (PaaS) company. Their Force.com initiative has now diversified to include PaaS offerings in the Java segment (vmForce) and the Ruby segment (the Heroku acquisition) as well as a new 'database-as-a-service' initiative appropriately branded database.com. Their Chatter offering is also helping them play in the emerging social enterprise segment. Additionally, their AppExchange (which was the first mover in terms of cloud app marketplaces) continues to add cloud ISV partner titles and showcase integration partners focused on the migration to SaaS-based enterprise apps. For ISVs and cloud integrators with any CRM attach strategy, the Force.com ecosystem is the right starting point, and their diversification into PaaS shows they are committed to remaining in the forefront of cloud companies.
5. Facebook Platform Ecosystem: Facebook's decision to transform themselves from a social site to a social platform has created a new wave of developers focused on building social web and mobile experiences. Faced with the challenge of transforming themselves beyond a social destination, Facebook has taken the issue of developer support seriously and innovated around showcasing partners and building partner communities in which ISVs share best practices in developing Facebook apps. One partner initiative is called Facebook Garages, and encourages self-organizing groups of developers to host a 'garage' and foster app innovation. As Facebook finds more ways to leverage its dominant market power in social apps, i.e. monetizing the platform with Facebook Credits---its now exclusive payments processing tool, they will do so by fostering a community of loyal developers whose success is contingent on leveraging Facebook.
6. Google Cloud Portfolio: Google's ubiquity came first in search, video and ad-based business models, and has now accelerated in cloud devices with the breakout success of the Android OS. Additionally, Google continues to grind out yardage in their in-your-face ground game with Microsoft for office productivity apps. And Google is taking input from its cloud ISV partners seriously as this Google Apps Marketplace survey announcement indicates. What's clear in terms of Google's cloud ecosystem is that it will continue to grow in multiple directions---In other words, Google has now emerged as a true cross-category software superpower--the first Superpower 2.0. This means that opportunities for ISVs will increasingly arise within the gaps and across the overlaps of Google's multi-category juggernaut. Some of these opportunities Google will pursue itself; Some of these opportunities will lead to acquisitions of innovators; And some of these opportunities will give rise to new asymmetric competitors practicing symbiosis with multiple operating groups inside Google.
7. Microsoft Azure PaaS: Bill Gates exit from Microsoft appears to have had consequences. After losing the search war to Google, and the smartphone war to Apple (and Google and RIM), and being challenged aggressively by Google in its core profit center, i.e. MS Office, Microsoft has experienced the loss of key executives, including Ray Ozzie (Bill Gates replacement) and Bob Muglia who ran their largest enterprise business, i.e. Windows server. Despite these challenges, the company continues to move forward in its migration to cloud-based computing models, including the launch of Office 365. The core question for ISVs and cloud partners of Microsoft is this---In the age of cloud, is Microsoft still a fertile source of opportunity for its partner network? To answer this question will take time, especially when one sees only 47 listings under 'cloud computing' on the Windows Azure Marketplace. For startup ISVs thinking of getting started in the Azure cloud, do your homework first and talk to current developers. At this point in journey to being "All In", 47 developers in the cloud computing category of the Windows Azure Marketplace says that execution needs to improve inside Microsoft's cloud ISV outreach.
8. Carriers & Independent Hosters: Spurred on by the success of Amazon AWS, many enterprise web hosting providers (including leading carriers) are aggressively recruiting ISV partners and repositioning themselves as cloud IaaS companies. This 8th Ground of Cloud embraces providers ranging from Rackspace to Terremark (now part of Verizon) to AT&T and others. Each of these hosters is lining up partners that pay off their specific focus. For example, Rackspace is focused on a sweet spot---the migration of enterprise stacks to the cloud---and is mining that transition to grow its partner network via the OpenStack initiative. AT&T, not surprisingly, is focused on the intersection of cloud and mobility, and the differentiation that gives their cloud infrastructure offering. For agile ISVs in cloud infrastructure software, the hosters represent real opportunity as they attempt to operate more like SaaS companies and less like IT outsourcers.
9. Enterprise Software Superpower Cloud Initiatives: As I indicated above, one of the core drivers of cloud computing adoption is the desire to reduce the total IT spend devoted to maintenance payments to incumbent vendors. This means that for IBM, Oracle, SAP and other enterprise software superpowers with large installed customer bases, cloud is potentially disruptive thereby making partnering with these companies challenging. This is exactly what analyst firms like Forrester are seeing, i.e. a transformation of the software industry landscape that is driven by SaaS and cloud models. For this reason, the legacy software superpowers have chosen to oppose public cloud computing models (slotting them into development and test), or even ridiculing them at industry events. This use of marketing FUD is designed to slow adoption of public cloud in order to enable the Superpower 1.0 vendors to navigate the cloud transition more profitably and with less disruption to their installed base franchises. This means ISV partners of the legacy superpowers are compelled to 'run the cloud gauntlet' between private and public cloud rhetoric, and carefully focus on discrete revenue opportunities within IBM and Oracle ecosystems. As the transformation wave in enterprise IT accelerates, cloud and mobile ISVs will become the M&A targets of the Superpower 1.0 vendors. For example, SAPs acquisition of enterprise mobility leader Sybase has positioned them well for new smartphone and tablet-driven markets.
Conclusion: 3 Questions for Cloud Startups
Cloud startups clearly have a wide range of opportunity across the Nine Grounds of Cloud. Three simple questions can help you drill down on how to leverage these vendor-based ecosystems. They are:
Question One: Which of the Nine Grounds of Cloud Are Relevant to My Business?
While this seems like a no-brainer, the answers are non-trivial for the cloud winners. For example, PaaS innovator Heroku first attached to the Amazon AWS ecosystem, then the Facebook ecosystem, and finally got acquired for $200Million by Salesforce.com as the latest jewel in their PaaS portfolio. By thinking in terms of multiple ecosystem partners, you can supercharge your go-to-market model.
Question Two: When Cloud Superpowers Go To War, Are You Looking for Opportunity?
Many startups profit by gaming the competition among warring superpower ecosystems. For example, when Apple leveraged its ISV AppStore as a core differentiator for iPhone, Google, Microsoft, Blackberry and others were forced to follow suit, providing distribution opportunities for many startup mobile ISVs, and enabling those ISVs to engage new sets of customers and partners.
Question Three: Which Market Conversations Grow the Sales Pipeline for My Business?
Market war among contending ecosystems turns up the volume on market conversations and can assist ISVs in getting above the noise. For example, when Amazon AWS recently suffered an outage (caused by a person not their platform) that impacted their PaaS and enterprise customers, many competitors and cloud infrastructure ISVs tried to take advantage of the event to drive awareness and sales prospects. So listening to major ecosystem market conversations can provide you with high value promotional opportunities.
Stay tuned. This blog will be drilling down on the Nine Grounds of Cloud a regular basis.