Cloud computing and SaaS – plain speaking

It’s human nature to give everything a label.  We like to segment things into categories in order to distinguish one thing from another.  Usually this is a good thing – think of film genres for instance: comedy, thriller, science fiction, musical and so on.  Most people find this useful when choosing a movie to watch.  The same goes for types of restaurant, car or shop.  The concept of categorisation and labelling helps us manage our everyday lives.

Unfortunately the information technology sector is renowned (some might say loathed!) for its ability to spew labels in the form of buzz words and acronyms that put us at an immediate disadvantage because they’re often unintelligible unless you’re an insider.  Even terms in common usage such as CD, DVD and Blu-ray can be confusing.  I’m willing to bet that most people know that CD stands for Compact Disc, but not many can say what DVD stands for without looking it up in Google – oh, go on then!   And even if you do know the full names of these acronyms, you probably don’t know much about the differences between them.  In fact you probably don’t care because you’re only interested in the difference it makes to the price and quality of the end product, which is the consumption of multi-media content such as music and video.  You’re happy to pay more if the output is high quality because it increases your enjoyment.  But you don’t care how it was made possible.  So please Mr. Salesman, don’t bother trying to explain it, we’re really not interested thank you!

As an online accounting software provider, we’re caught by the same problem.  Most people are used to switching on their computer and using it to surf the worldwide web, create documents or send/receive e-mails, but they don’t know (and the majority are not at all interested in finding out) about the technology within their computer, the telephone network and various data centres which enables them to perform these everyday tasks.  They don’t need to know.  The service we provide to our 40,000+ users is differentiated from traditional computer software by the technology we use.  But how best to explain it to our target market?

It comes as no surprise, given its track record, that the technology industry has created buzz words to label the provision of online software applications.  There’s lots of noise about cloud computing, Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS).  I’m calling it noise because, to most people, these terms are not clear and well understood in the same way as “comedy” and “science fiction” are for films.  They’re buzz words which are a turn off, relegating them to meaningless chatter or noise.

It even causes confusion and disagreement amongst people inside the technology industry.  I’ve seen many instances of people arguing about what SaaS really means, trying to score points against each other based on their particular interpretation.  What customers care about is price, capability and quality of service.  The apparent conflict between technophiles sends all the wrong messages and leads to distrust amongst the very people we’re trying to sell our software to.  So they stick with what they know and trust.  That’s why our no. 1 competitor isn’t another online accounting specialist, it’s Sage with their massive customer base using old fashioned software that’s installed on each customer’s computer.  People are putting up with the cost of traditional software licenses and the ongoing costs of ownership (such as taking backups, applying bug fixes and buying upgrades) because it’s what they know and trust.

As suppliers we need to talk in plain language about the business benefits of so-called cloud computing and stop spouting technology.  I feel like I’m sticking my neck out (never mind buzz words, you’ll have to forgive the use of old-fashioned idoms!) and I can’t help worrying that I might be shot down in flames by the technophiles who love to bicker over definitions of technology, but I’m going to try explaining it using mainly business terms with as little use of buzz-phrase babble as possible.  Deep breath, here goes….

Cloud computing” means using the internet to make use of software that you don’t need to install or maintain.  Users visit the software’s web site and log in using security credentials known only to them, creating a secure and encrypted connection so that no-one else can use it, see what they are doing or get hold of the information they are storing in the application.  Lots of us do this every day, whether we’re logging on to our bank, Hotmail, Twitter, Salesforce or some other online application.  The importance of cloud computing has risen with the availability of many common business applications “in the cloud”.  Some companies have gone as far as having all of their software applications in the cloud so that the only thing they maintain themselves is a relatively low powered (and low cost) laptop or desktop computer for each employee for running an internet browser in order to access their online software applications.

This way of using software brings some important benefits in terms of price, capability and quality of service:

1. Price

The cost per user is usually substantially lower than buying traditional software licenses and installing the software in your own IT infrastructure.  This is true both at the outset and over the life time of your usage because the ongoing overheads of traditional software are eliminated (e.g. backups, bug fixes, upgrades).   The saving is achieved by spreading the cost across all of the people using the software.  All of the users share the resources being consumed (hardware, software, electricity, data centre personnel, support teams, development teams and so on), there’s no need for any individual customer to maintain their own resource capacity.

The degree of saving varies from vendor to vendor (as it does for traditional software) depending on the vendor’s underlying cost structure.  A significant factor affecting this is the number of installations of the software that the vendor has to maintain.  Traditional software has to be maintained at the location of each customer, but in the online world the most efficient mode of operation is to have one copy of the software that all users log in to (this has been christened with the wonderful term ‘multi-tenant’).  Some online vendors are unable to use this method, especially those who deploy traditional software over the internet, so they maintain a separate copy of the software for each customer, which obviously increases their costs and usually results in a higher price.

As well as the lower overall cost, there’s an important difference in the way that you pay for online software.  It’s just like paying for a utility service (which is what led to someone coining the term “Software as a Service”).  There’s no up-front capital expenditure on software licenses.  Instead, you make regular, smaller payments according to the amount you use the software.  And the one payment usually includes support and upgrades.

2. Capability

Software that has been developed specifically for online use is inherently woven into the fabric of the worldwide web, opening new possibilities for improving business efficiency.  I’m going to highlight three elements – co-operation, flexibility and continuous development.

One of the often spouted benefits of online software is the ability for people in different locations to log in and see the same thing.  In the accounting industry, for instance, it makes a tangible difference to the accountant/client relationship if the client can pick up the phone and ask a question while the accountant views the exact same screen and information that the client sees.

Not only can multiple parties co-operate across multiple locations, they can log in from any location where they have access to the internet.  This massively increases the degree of flexibility that businesses, and the individuals within them, can have.  Work can be carried out and information received from whatever location and at whatever time suits.  If something urgent comes up, you don’t have to wait until the relevant person is back in the office.

Online software is usually based on commonly accepted standards for such things as security, communication and programming languages.  This makes it much easier for one system to be integrated with another.  It’s becoming commonplace, for example, for online customer relationship management (CRM) systems to be linked to online accounting applications, enabling a financial view of the customer (payment history, outstanding invoices, trading history) to be viewed alongside information held in the CRM system.  This linking together of software applications is growing fast and making many business processes more efficient.

Most online software has been developed using modern tools, taking full advantage of the latest improvements in screen design and ease-of-use, with obvious benefits for customers when it comes to learning the system and using it every day.

But just as important is the ability of the software vendor to respond quickly to market dynamics.  With traditional software, the vendor has to package up any changes into releases that must be sent across their distribution network and installed by each customer.  It’s simply not economical (for either vendor or customer) to do this very frequently.   In the online world, the vendor can make a change almost immediately by implementing it in the one copy of the software that all users log in to.  There’s no need for the customer to do anything.  Small, regular enhancements become commonplace and every customer benefits because they automatically use the most up-to-date copy of the software every time they log in.

As well as more frequent enhancements, bugs (even modern online software has bugs!) are fixed in the same way, meaning that issues are often fixed before most customers have even become aware that there was a bug in the first place!

3. Quality of service

Online software is maintained for you by the supplier in a data centre dedicated to serving thousands of users at the same time.  Not only do they maintain it all for you, they ensure that the data centre has the capacity to service customers across fluctuating workloads.  It can be argued that this sharing of resources makes computing “greener”.  This may well be true and could be an aspect of cloud computing that receives more attention in the future.

The data centre infrastructure will almost certainly be of a quality that far surpasses the level that an individual company can afford (except for large organisations).  This means that the level of reliability and the amount of hardware available to you as an online software user is much greater than anything you could experience using traditional software.  How do we prove this is so?  Word-of-mouth reputation and the experience of existing customers play an important role, but Twinfield also provides real time data that all users can view, and our infrastructure and application are regularly certified by EDP auditors from one of the world’s largest audit firms.

The one thing an online software vendor cannot control is the provision of an internet connection where the user is.  But now that reliable broadband internet is taken for granted by the majority of people (in almost the same way that we expect water to come out of the tap), online software has become viable for mass consumption, resulting in significant growth in user numbers and positive growth for online software vendors even during the economic downturn.

The quality of service you receive from an online software vendor is also influenced by another important factor – they need to listen to you and respond to your needs more than traditional software vendors.  Why?  Remember that a traditional software vendor sells you a software license which you sign for in its entirety upfront.  They’ve already got your full commitment financially, no turning back.  But an online vendor is dependent on receiving regular payments from customers who are happy to continue using the software.  This is the reason why many online vendors say that “service” is the most important word in Software as a Service.  They need to provide good service to you on an ongoing basis in order to maintain your loyalty.

Cloud computing and SaaS are buzz words.  I hope that this post has helped to de-mystify them and shed light on the significant business benefits that online software can bring to businesses who choose it instead of traditional software.