Puffing and Blowing the Cloud in New Orleans

It’s 5:45 am in the morning (on Jan 17th) and I’m jogging on the spot with hundreds of other crazy people down by the riverside in central New Orleans. It’s still dark and we are about to start a 2 mile “fun” run .  While there was nothing fun about my predicament, the run has been organized by SAP to raise money for a very worthy local charity – the Tipitina’s Foundation (http://tipitinasfoundation.org/) – which supports childhood musical education and preserves New Orleans musical heritage.

The race begins and off I go huffing and puffing into the darkness. I have never been a quiet runner and when I exhale you can hear me from 50 yards away. So as I passed a local man who was still celebrating from the night before, I was not surprised when he yelled out “You be blowing like a whale!”

When I staggered across the finish line, I was blowing like a whole school of whales. I headed straight back to the hotel, showered and made my way to the SAP event I was attending.

As SAP executives presented their key initiatives and strategy for 2012, the Cloud was very prominent. While SAP has been a little behind some of the other major software vendors with its Cloud solutions, Bill McDermott, co-CEO said in a recent interview about this very point that SAP was about to ‘unleash the tiger”. So the announcement that SAP is acquiring the human resource management cloud application company SuccessFactors, for $3.4 billion (pending US government approval) is a big part of that tiger. SuccessFactors has a stated 15 million cloud users which is apparently five times more than salesforce.com.

SAP does need some help in this area because their BI cloud offering known as On Demand has not been hugely successful. I believe this is not because companies are not interested in running BI applications based on Crystal Reports, Xcelsius and Web Intelligence in the Cloud, but more to do with the poor return on investment.

Most large software vendors that have created Cloud based applications have made the implementation and annual subscription costs so high that it is difficult to show that they are truly saving money over the equivalent on-premise solution. The same software vendors have created a climate and a culture where they dramatically discount their on premise software (particularly at the end of a quarter) that the Cloud equivalent does not really save any money. This takes away the major reason why companies would choose a Cloud solution.

Unless these software giants wake up and start offering bargain basement pricing for their Cloud solutions and reinstate the most compelling reason to use them, they will lose market share to those new and up-and-coming Cloud application companies that are willing to do so. If that happens, the SAP tiger could quickly turn into a whale that will be blowing the Cloud away.

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