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Thought Leaders In Cloud Computing: Nati Shalom, CTO Of GigaSpaces (Part 2)

Posted on Thursday, Aug 12th 2010

By guest author Shaloo Shalini

SM: All right, let me shift the conversation to where you are coming from. You cater mostly to customers who themselves are developers of applications, right?

NS: Exactly. We are dealing with folks who develop and build applications. They often have this question – where do I deploy my application? Do I deploy it on my local data center,  a hosted data center, or the cloud? We are deliberating that as a service, and these are the customers and the platform that I am referring to.

SM: From your point of view, is the segmentation in-house data center vs., say, hosted data center vs. the public cloud?

NS: I am talking about the Amazon types of clouds, not necessarily the managed hosting environment. I am referring to Amazon, Rackspace, and GoGrid – those kinds of things as the cloud.

SM: From that perspective, do you think cloud computing is leveling the playing field between the large ISVs and the small SaaS vendors?

NS: The answer to that is yes. What I see happening is the larger ISVs, those that earlier targeted mostly very high-end customers are now looking at the cloud as a way to expand their market. By delivering their applications on the cloud, they now have access to SMBs as customers. I can see that the larger ISVs are not just targeting large enterprises; they are also targeting small enterprises now. This works the same way in the opposite direction. Those who have been targeting small enterprise customers can now offer their services to big enterprises – so it is right to say that the cloud is leveling the field in both directions.

SM: The sales model of software has changed as a result of SaaS and cloud computing. Earlier, software was sold primarily by large direct sales forces knocking on people’s doors. That is no longer necessary. Do you think this is a game changer?

NS: Yes, it is. You raise a very good point. The reason for this is that earlier, the barrier to entry was the ability of large ISVs to deliver data center services with features such as security and all the other things that enterprises require from a software vendor in terms of availability. Those kinds of requirements were a huge barrier to entry for small ISVs and small SaaS providers. They needed to make huge investments just to build those basics in order to be able to offer their applications and services and cater to larger markets. Now with SaaS, they can offer their solutions in the form of software as a service.

With SaaS, all infrastructure-related requirements kind of get outsourced to specialized providers such as cloud providers. This way, even a small start-up can compete with a big enterprise simply because now they can offer a high-end service without necessarily having to make the kind of investment that they needed without the cloud paradigm.

A good example here is the analytics providers – one of them happens to be our customer. Before the cloud, they delivered their solution for risk management through a regular service model. In their case, a lot of banks had local data centers, and they were running these analytics in their local IT environments. Small banks usually don’t have their data service geared for such analytics,  so with the cloud-based offering, this vendor got an opportunity to enable such small banks and approach that market segment. They basically provide a solution that will deliver risk analysis as a service rather than being hosted in the customer’s environment.

By making this change with cloud computing technology, they could penetrate a lot of banks which they could not really penetrate before and deliver their service. This was because they don’t build data centers on their own, as they have no expertise or money to build one. The second reason was their customers also could not build and set up specialized data centers or resources required for analytics. That entire market did not exist for them before the cloud.

[Note to readers: You can find some interesting thoughts on SaaS and risk management here and how SaaS is boosting business analytics here.]

SM: This is interesting because risk management has been used very little in that segment – below the very high end and very early adopter kind of large enterprises in financial world. What this means is functionality that was earlier completely reserved for the ivory towers, is now getting deployed into a much larger base of customers.

NS: Exactly. Not in the very high-end banks. There are a relatively large number of banks which are small, not high end, and all of those put together make a huge market which these analytics and risk management providers could access. Those small banks could not buy such functions earlier due to costs involved. This is a good example of not just how clouds reduce the cost of existing operations but how they also open up new markets for some of these software vendors.

SM: How do you view the issue of business model? Are those also changing? Does that play a role in enabling this kind of broad adoption of cloud technology?

NS: That is a very good question. I was dealing with a customer for whom cloud is a big barrier and a challenge because of the changes it makes to the business model. What we did for them is very interesting.

Working together, we separated everything that is cloud from delivery mechanism. So, for example, if you look at their operations, say they need to build a model or some proof of concept for a new product or service. They go through the demonstration and training steps, and for each of these steps they have to install the software and run it. There are lots of costs associated with these steps. We actually transformed their application into a service that can run in a cloud for those stages of the sales cycle. When they go through their approval process and other stages, they run it on-premise. This customer wanted to cloud-enable their applications, but they did not necessarily want to change their business model. With this new method, the question of whether to switch to the new cloud business model became a business question rather than a technical question or an investment question. I would say it is better to break down that question into first answering whether you can get value from moving to the cloud if you switch business model.

You may or may not benefit from changing your business model if you made that decision only because of competition or similar reasons. So my recommendation is to make such processes related to sales more efficient and leave the question of business model and address it at a later stage. Yes, you need to focus on that question, but only when you really need to.

This segment is part 2 in the series : Thought Leaders In Cloud Computing: Nati Shalom, CTO Of GigaSpaces
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