June 18, 2014 | Written by: Arpit Tayal
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To cloud or not to cloud is the question that many software vendors are currently facing. Should they continue to offer their software as on-premises or move to a cloud-based model? A move to cloud computing is a win-win scenario for cloud vendor and customers alike. As a cloud vendor, you get to benefit from the economies of scale, while your customer gets to benefit from additional capabilities that cloud brings at a lower cost of shared infrastructure.
For customers, it’s like a gym membership rather than their personal gym. They pay for membership and can expect a host of additional facilities at lower cost that they are ready to share with others.
When you’ve made up your mind to migrate on-premises software business to cloud based model, below are some key focus areas and challenges that you should consider:
• When it comes to software as a service (SaaS), service is the key. You must ensure that you provide great service to your hosted customers on day-to-day basis. This will ensure the subscription renewals, position you as a trusted partner for your customers and show them real cost savings. At the same time, you have to be able to provide your customers with data security in compliance with the law, data back-up and disaster recovery—all while meeting the promised SLA (Service Level Agreement). As you do this, try to minimize the maintenance downtimes. Provide enough notice to customers for essential maintenance downtimes to minimize any disruption. Invest in building efficient support teams. Remember, it is easier to switch SaaS vendors, so exceptional support and service is the key customer retention.
• While migrating initially you can take a hybrid approach. Consider offering your product as hybrid SaaS, and then gradually migrate products as the offerings become more suitable to be sold as true SaaS modules.
• While making the move, some vendors create a new product line while some change the existing product. Analyze your product architecture to check if it can support multi-tenant hosting—otherwise you might end up creating a separate instance of your product framework for each of your tenants, increasing your hardware cost and software support cost, etc. Ensure your architecture provides good performance and that data volume of one tenant does not adversely impact another tenant. Your product architecture should be scalable to reap benefits of economies of scale (EoS).Continue to innovate to bring additional capabilities. Offer customizable solutions to clients to suit their needs. Your SaaS solution should be efficient, viable, stable, scalable, innovative and economical.
• It will be a move from perpetual licensing to the business model where subscription revenues contribute most to the turnover. Revenue may be impacted initially but it will recover as you sell more subscriptions. SaaS would mean recurring monthly payments. The revenue metrics will be different. As your new model and revenue stabilizes, so will the stocks. Focus on adding in additional customers.
• Ramp up your sales and marketing strategy. Selling and marketing subscription-based product offerings will require different skills. Invest in training your sales team. The compensation and bonus model for your sales team would also need restructuring. In an on-premises scenario, the targets are different, but in a cloud model the sales team should be compensated based on selling subscriptions, renewals, length of subscriptions and year-on-year recurring revenue generation with those deals.
• Make use of your on-premises customer base. Offer them great prices to transition them to SaaS. Make their move is as seamless as possible. Let them unleash the great benefits that cloud computing has to offer. Help them in going global, social and mobile. Once they make the move they are likely to stay for a long time as changing the vendor is still not a seamless process.
• Price your offering competitively. There is a general notion that cloud offering should be cheap. Well, the cloud may not be cheap, but it is cost effective when compared to on-premises. The cloud offering comes with additional capabilities and benefits. As a vendor, you will have to spend a significant amount on infrastructure, disaster recovery and support services. You must carefully calculate the total cost of ownership. The pricing model has to be carefully and cleverly designed. Take into consideration the extra value that you will deliver to customers. Most importantly, cloud offers peace of mind to customers while the vendors take the responsibility for maintenance of infrastructure. You can also launch value-added services to bundle with cloud, like premium support.
Have you come across such challenges? I would be interested to know what other issues you saw while migrating your on-premises software business to the cloud. Let me know your thoughts on this. You can connect with me on LinkedIn and Twitter.