By guest author Shaloo Shalini
With 35% of ISVs adopting SaaS in terms of delivery and pricing models, large enterprises can save a significant amount of money by moving to the cloud. José compares the savings to outsourcing and quotes Merill Lynch, which estimates two to ten times cost savings with cloud-based pricing schemes. But not all enterprise workloads can move into the cloud, so this is only part of the IT budget for a large enterprise.
SM: From your interactions with your current vendors, those who have been in your company and IT organization for a long time and you have licensed software deals with, what are your experiences in terms of changes owing to cloud computing? Are traditional vendors trying to move to the cloud? Are you negotiating switching business models with them; is that really happening?
JA: All vendors nowadays are trying to come with a cloud play in their space. I don’t know of any yet that have tried to switch from a traditional model to a cloud-based model from a licensing perspective. All of them are wrapping up a cloud message in their products, but there is no conversation yet about changing to cloud licensing models.
Actually, let me take that back.
There is one I recollect now, that came to us with such an approach. It is the company I mentioned before, Callidus, which is a software vendor. Earlier, this company was very focused on its on-premise traditional ISV model, and it is now switching to a SaaS model. They came and talked to us, but they gave us complete flexibility if we wanted to make that transition.
Now, I can tell you that from Novell’s perspective as a software vendor, we have heard from some customers who use Novell’s identity and security solutions that they would like to consider migrating those licenses to identity and security as a service. Our approach to such discussions is this: We will engage in those conversations and we are working on the licensing. So, it is coming. I think some vendors will be very reluctant to make that switch simply because it is going to cannibalize some of their existing revenue streams. Again, it is a matter of time.
[Note to readers: As of December 2009, approximately 35% of ISVs have begun the transition to SaaS. You may want to read more on how software vendors are migrating to SaaS, pricing and other notes from a SaaS migration conference here.]
SM: Yes, they are all trying to figure that out. I have talked to many vendor CEOs, and they are all trying to move to cloud computing. So, this tension between your side of the story and the vendor side of the story – some of this tension is bound to be there.
JA: Yes, it is interesting. You will hear a lot of CEOs of software companies talking about where they are going with their company and aligning their strategy with cloud computing and everything. I guarantee, in many cases when they are selling their offerings, they come to visit CIOs like me, at that point the conversation will be different. This is because a lot of things come into play such as compensation, quarter retirement, and so forth. Those drive a lot of different behaviors at companies.
SM: In a couple of years as things start to mature, companies will align their strategies with cloud computing. What are your insights about cost savings? What kind of savings could there be for companies that adopt cloud computing?
JA: I don’t have a formal analysis, but I can tell you some high-level ideas about cost savings with cloud computing. As a rule of thumb, if you are talking about infrastructure as a service (IaaS) or platform as a service (PaaS), that will be comparable to today’s outsourcing savings.
If you are a company like Novell, where we outsource our data center and use a vendor’s computing and application services, you would expect at least 20%–40% savings by going to an outsourcing mode. Obviously, outsourcing is not the same as cloud computing, but if you use that as a reference, I expect that over time at least 1.5 to two times the savings that you can get from outsourcing. If you can get 20%–40% cost savings from outsourcing, you can expect maybe 40%, 50%, or 60% from services such as IaaS and PaaS.
Over the next two to three years, one of them might become mature once you have enough competition out there. If you talk about SaaS, I actually don’t have to do any analysis myself because I have information from Merrill Lynch and other companies that do costs and analysis in this area. The savings are between two and ten times what you would pay if you are in a traditional software model.
If instead of using Oracle SQL you use a self-service database, you can expect two to ten times savings. I would say that CIOs will expect significant savings over two to three years from cloud computing. You have to remember, if you are a large company like Novell, it is not that you will be able to migrate all you IT infrastructure to the cloud environment. You have a lot of legacy application environments that will be very difficult to migrate, so you can expect all these savings to come from a fraction of your IT spending.
SM: Right. For a while, the portion the percentage of your infrastructure that is in the cloud is still going to be relatively low, but over time that is going to go up. What is your perspective on IaaS? Is it a kind of complementary to existing infrastructure, or are you moving en masse into the cloud?
JA: In Novell’s case I see IaaS as a complement for many reasons. There will be workloads that I cannot consume as SaaS because they are custom applications. There are specific applications that we have for which instead of rewriting them in our data center we would like to run them in the cloud. We will require an infrastructure to do that. It doesn’t work for all the applications. But I see that as complementary infrastructure.
If you are in the software business like us and you have a lot of engineers developing software, then you also need to have infrastructure the way we have a lot of labs, hardware labs that we allocate to an engineer to develop his or her software, and obviously you have to buy the OS and maintain all of that. I would say, why not migrate all of that capacity to an IaaS?
In the business of software, I see a lot of reasons for us to leverage that as a complement to what we have today. I don’t understand why a small or medium-sized business would need any infrastructure at all if they can really consume all their IT services in the form of a service from the market. I just go buy all the SaaS that is critical to my business, and I don’t have to care about any infrastructure.
SM: What is the percentage of your data center budget that you are diverting to IaaS today? I think I heard you say you would like to divert all of it in the long run.
JA: If you are a small company yes, you can move it all, but if you are like Novell then there are some applications, some IT that I cannot move to the cloud because it has proprietary application running on the on-premise IT infrastructure.
Would I like to move it eventually? Yes, and probably the path to do that is by switching the application to one that is available in the cloud. I don’t think, Sramana, that in the next five years companies the size of Novell will move a significant number of their data center to IaaS. They will start with 1o%–25%. There are many constraints for big companies to get there.