Cloud Computing Insights from ITA Fall 2009

This week I had the pleasure to attend the Information Technology Alliance (ITA) Fall collaborative in Palm Springs with give or take 300 very senior business leaders and IT executives from the leading mid-market focused VARs, consultants and CPA firms. A very rare day of rain in the middle of the event had us waking up to unbelievable snow-covered mountains in the desert - it was fantastic.

The ITA is a great group - extremely collaborative and all about sharing best practices and what's working / not working. Some of the best sessions were execs standing up in front of the room sharing their "WOW" ideas with their peers - what's been working well for their businesses over the last few quarters.

For the last several ITA events, there has been a huge amount of interest, excitement and even curiosity and skepticism about cloud computing - remember many of the people that go to this event have been implementing and reselling on-premises software applications for 10 or 20 years - so to them the cloud is both an opportunity and a threat.

Several dynamics that were new this time that I think are worth highlighting:

• More than a few Sage / MSFT / Intuit VARs approached me with first hand stories of losing deals to Intacct partners - my feeling was that they genuinely trying to get their arms around cloud financials now that it's starting to have a personal impact on their business. Many of these wanted to follow up after the conference to evaluate adding Intacct to the product lines they carry.
• I was involved in multiple conversions between CIOs within very large CPA firms - they clearly see cloud computing as a huge opportunity to improve productivity, reduce risk and increase security within their firms. I raised an eyebrow at some of the horror stories they shared with each other - such as a regional office with 100's of rogue connections using Microsoft Remote Desktop so CPAs could connect directly to their client's PCs to create reports out of Quickbooks / Dynamics and place them directly on the desktop of their client.
• I was truly amazed at the hoops some of the VARs are jumping through to get into the cloud computing game by working around Microsoft, Intuit and Sage. The VARs were sharing tips with each other on how to build server racks to host and operate these products - I heard counsel like "make sure to buy servers with two power supplies in case one fails" and lots of discussion on dedicated servers vs. virtualization. There was a great example of one VAR who has totally transformed his business by doing this in a flood-prone area of the Northwest - over the last year he's moved most of his Great Plains clients off of their own hardware and onto his servers. While this is good for the clients, I can't imagine why a VAR would want to burden themselves with the low margin, high cost and high risk of running their own data center and operations.
  

As with the last several ITA meetings, there were multiple panels showcasing firms that are having success with cloud computing. This year two Intacct partners Sererra and BI101 were featured and did a great job talking about how their firms are thriving despite the downturn - both of these firms work with a combination of Intacct, Salesforce.com Google apps and other leading cloud computing applications and having tremendous growth and success.

On the downside, it was clear to me that particularly within the VAR community there still quite a few pieces of misinformation about cloud computing floating around - I expect promoted by their current on-premises software partners. Some of the misconceptions I heard repeated several times:

It takes 36 months or more to break even selling cloud computing vs. on-premises applications.

• Breakeven is within 12-18 months for Intacct partners and after this term it's all very high margin upside. I think this misconception comes from the Microsoft world, as Microsoft offers very low royalty rates on Dynamics CRM on-line thus pushing their partners to the on-premises model.
  

There is no services revenue for the VAR in cloud computing applications.

• Services revenue and the tasks performed for implementation, customization and business process consulting is exactly the same, cloud or on-premises. The main difference is that with cloud applications there is no need to install or maintain infrastructure like databases and operating systems. Further, in the cloud model the cost of support is much much lower for the VAR (for instance no need to go onsite to reinstall FRX when it breaks) - leading to far higher ongoing margins.
  

Cloud-based applications can't be integrated or customized

• This tells me that whomever makes this comment has never actually seen a demo or been hands on with cloud applications - the reality being modern cloud applications they are far more customizable and integratable than their counterparts from MSFT, Sage and Intuit. I think this comes straight from the on-premises publishers since it's the exact opposite of reality.
  

Cloud-based applications are simplistic and immature

• Again I expect someone who says this hasn't actually evaluated cloud-based options - for the industries served there is every bit as much depth of function - and in many areas there is even more depth. As an example, Intacct has built in financial consolidation, multi-entity, multi-currency and revenue management capabilities that are far deeper than anything from Microsoft, Sage or Intuit. That said, there is certainly a larger ecosystem of add-on apps available in the on-premises world, though the list is growing all the time in the cloud world.
  

When I heard these types of comments my advice was simple - try it out - At this point every VAR should have something cloud computing in their toolbox - there are plenty of compelling cloud-based add-ons for VARs to experiment with - beyond getting used to how implementation works for cloud-based systems, VARs also need to understand the impact of subscription-based pricing and ongoing cloud business models on their sales and support processes. Products like Avalara for sales and use tax, Adaptive Planning for budgeting and forecasting and BNA Fixed Assets Web for Fixed Assets come to mind as easy add-ons for a VAR's current business.

Existing on-premises VARs should add products like Intacct to their business as an additional product line - We're finding over and over again that VARs have a huge business opportunity to use exciting new products like Intacct to upgrade old outdated software for their clients who are off maintenance and on very old versions of Sage MAS, Great Plains and QuickBooks - making the clients happier while developing very high margin ongoing subscription revenue streams for the VAR.

I don't think anyone is advising a VAR with 20 years of on-premises experience to switch entirely to the cloud overnight - but I also think it's a huge mistake for VARS to try to get into the data center business to work around their vendors being slow to adopt the cloud computing model. This is a ton of risk and expense for a VAR to take on vs. working with a cloud computing partner who has the expertise and scale to make it a cost-effective and high quality proposition.

At the end of the day I very much enjoyed the ITA conference - very smart people, lots of collaboration and tremendous interest and momentum for cloud computing. I'm already looking forward to the next one.