7 Strategic Considerations for ISV Cloud Strategy


As more and more organizations become familiar with the cloud, they are moving towards buying software as a services (SaaS) based on actual usage. In fact, it is predicted that SaaS will become the dominant software consumption model by 2018. According to Gartner, as this occurs the steep decline in maintenance fees will translate into a total revenue loss of up to 40% for Independent Software Vendors (ISVs). This means that ISV’s priorities are shifting, leading to changes in their current operating models.

Having been in the software industry for many years, I have seen first-hand what it means to transform from a traditional license and maintenance fee model to a subscription based SaaS. Through numerous discussions with ISVs with regard to transforming their business, what I’ve found is that while there is no single right approach, there a few common themes that always arise. What follow are 7 strategic considerations to keep in mind.

1. Should I build my own cloud?

Building your own cloud means that you have to invest substantially in infrastructure and in developing new capabilities. If your business has the scale to build a cloud in a cost-efficient way, including access to the technology, budgets, and the skilled resources to maintain the infrastructure, it can definitely be an opportunity. However, if you lack the scale of a larger enterprise, building a cloud solution probably won’t provide a competitive advantage, so it’s worth outsourcing to a partner who can meet your current needs and scale with you as you grow. 

2. Can you benefit from the ‘one size fits all’ approach from a hyper scaler?

When ISVs are first starting out they often turn to Microsoft, Amazon, or Google, mainly attracted by their branding and their special start up programs that offer free capacity. This can indeed be very attractive for early stage organizations, especially for ones that are infrastructure intensive. However, not all business can be supported by a public cloud platform once they really take off. Research suggests that as organizations mature, hybrid cloud adoption rises. 71 percent of cloud users are now using a hybrid cloud; only 6 percent are private cloud only users.

For reasons of stability, large organizations usually choose a combination of different types of cloud infrastructure: a dedicated solution for basic workload that requires dedicated storage and high performance computing power, and private or public cloud services for the variable parts of the business that require more elasticity.

3. Be aware of potential lock-ins

Vendor lock-ins can impact your ability to capitalize on future opportunities, limit your growth options, and make it more difficult to adjust your strategy. I have seen several examples where ISV’s growth opportunities were severely impacted because of technology choices they made in the past. Before making a technology decision that is difficult to reverse, analyze customers’ demands and translate them into the optimal underlying infrastructure both for now and the future.

4. Where are your customers?

The distance between infrastructure and a customer affects performance. If your customers are local, offering your services from a local data center provides a speedy exchange between systems and databases. If, however, you have a global customer base or target audience, you may need a global presence with capacity in multiple local data centers to offer customers your services at the speed they require.

5. What do your customers need in terms of data law compliance?

Customers may be obliged by law to have certain certifications. For instance, German financial institutions need to comply with BAFin rules, and American health companies with the HIPAA standards. This means that the cloud providers they use need to have the right certifications. Also, data residency regulations may dictate where data is stored. For example, German laws state that German governmental institutions must store their data in Germany.

6. Secure business continuity

Which business risks are you willing to take? A large provider can offer all the advantages of a worldwide presence, where a smaller, local party might be able to customize services and offer a more personal relationship. It’s important to consider things such as fall back scenarios, backup (where the facility is located), and disaster recovery. Does your business require you to have all of your data in two different locations? And, how many miles apart should the data centers be? You should also consider if your business requires you to deal with several infrastructure providers for risk mitigation.

7. Balance quality, price, and performance

Most ISVs want to benefit from the purchasing power and advantages of scale that come with a hosting provider. This is why they buy computing power ‘as a service’ instead of investing in their own hardware (placed in the provider’s data center). It provides them with both flexibility and scalability.

Since flexibility has a price, always choose the price-performance ratio that is right for your business. Keeping your costs low will increase your margins (allowing greater investments in R&D and innovation), but poor performance can have a significant impact on customer satisfaction levels.

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