Editor’s note: Vinnie wrote this series as Year-End Musings … but hey, even your EI Editor can take time off 🙂
First of New Year posts I will run over the next few days.
This time of the year, my wife Margaret likes to take the family to the Caribbean, usually on a cruise. The island breezes are gentle, the rainbows at sea are spectacular, the pace is extremely relaxed. So much to like, but you have to accept the slow sea travel pace. Top speed of 20 knots, usually much slower with the resistance from the headwinds and currents.
It is always a reminder to me about the state of enterprise software. That cloud customers – in spite of impressive success of Amazon, Workday, Salesforce, NetSuite, and others – are still islands in a sea of on-premise customers.
This year as I wrote SAP Nation 2.0 and looked at slow migrations in the J.D. Edwards, Oracle, Microsoft and Infor customer bases, it was a striking reminder of what Bill McDermott of SAP has called his and could be said about other on-premise customer bases : they are unassailable like Fort Knox.
The problem is customers paid gold prices for on-premise implementations, but against cloud benchmarks, what is stored in that Fort Knox is merely gold plated and needs to be dramatically depreciated. And with most high-profile security breaches in the last few years in on-premise settings, Fort Knox is too ambitious a term to use for them.
Several things need to happen.
CFOs and audit firms need to become more demanding in accelerating write-offs of hundreds of billions of on-premise investment costs that are still on so many customer balance sheets. The fair market value of most on-premise cost components – software, compute, networks, systems integration – has dropped significantly. Realize it is a very tough decision, but many companies wait too long and then have to take spectacular end of life write offs when they should have accelerated the depreciation over the last few years and could have made the cloud switchover decision easier.
Wall Street needs to start valuing vendor on-premise revenues at public utility comps – predictable, but low growth and under margin pressure from third party maintenance and other competitors. On-premise vendors bitch and moan that cloud vendors are over valued given their low profits. Frankly, it’s the other way round. If Wall Street were to value on-premise revenues at much lower multiples, you will see those vendors get a lot more serious about migrating their customer bases to the cloud. Less than 10% of SAP’s new S/4HANA customers are expected to adopt its public cloud option. You think SAP would behave differently if Wall Street valued the “private cloud” revenues much lower?
Rather than waiting on audit firms and Wall Street, cloud vendors need to do their part. Their functional footprint has to keep growing, especially when it comes to industry functionality. They have to automate migrations to the cloud – too many are still reliant on the on-premise implementation paradigm and systems integrators from that world.
The good news for cloud vendors is there are hundreds of thousands (easily) of on-premise customers waiting to be converted. They just need speedier boats to get customers there, not the relaxed cruise ship I was just on
(Cross-posted @ Deal Architect)