Welcome to part 4 of my 6 part series on how the cloud is changing the economics of business. In this post I will discuss how enterprise software is moving away from large, complex systems with expensive software licensing models to simple, focused, pay-as-you-go pricing models. Huge opportunities exist to solve existing business problems better than they have been solved in the past.
One of the hardest things for entrepreneurs is deriving that killer idea that solves a business problem that people will pay for. Paul Graham wrote a great post called How to Get Startup Ideas. The problem with a lot of startups is that they build stuff that nobody wants. I can’t count the number of social media startups out there banking on ad revenue. Nobody wants to click on ads and unless the site acquires Facebook or Twitter size registrations, nobody wants to advertise on it either. To quote Paul:
The very best startup ideas tend to have three things in common: they’re something the founders themselves want, that they themselves can build, and that few others realize are worth doing.
In part 2 of this series I wrote a piece called Investing in Reality which pointed out how investors are turning away from advertising revenue models and focusing on B2B models. Why B2B models? Because enterprises want them and need them. Let me explain why.
Enterprises want and need better software
CIOs today have an incredible challenge. The technology that we use at home is much simpler and cheaper (if not free) than what we use in the enterprise. Mobile, social, cloud computing, and big data are all technologies that many CEOs want their CIO to embrace and implement but the CIO already has a full plate just to keep his or her decades of legacy architectures up and running. Meanwhile, employees are bringing in their own devices (BYOD) which creates additional challenges for the CIO to secure corporate assets. Couple that with the ever growing regulatory demands of HIPAA, PCI, SOC2, SOX and others, there is not much time left for innovation. To make matters worse, the CIOs are being charged with driving the costs of IT down.
How can the CIOs innovate? How will they get mobile, social, cloud, and big data into the enterprise this year or next year? How can they close the skill gaps within the organization? These are the problems that startups need to solve and many are doing that today.
Do it better, cheaper, and make it easier
I was evaluating campaign management software several months ago and the difference between the older more mature products and the newer products from emerging startups were substantial. When I looked at the UI of the legacy market leading enterprise product I felt like I went back to the 90s. The look and feel was very technical, really busy, and required a serious amount of training just to be competent enough to add a simple campaign. The software could be configured to do just about anything if you could figure out how to use it. You could tell that the product was a conglomerate of acquisitions as reporting and dashboards had a different feel than the rest of the application and the workflow looked even more foreign. I am sure the product works great but is it worth the cost? Behind the scenes somebody has to manage multiple servers including upgrading the different stand alone components (campaign engine, workflow engine, reporting engine, etc) and patch the operating system and application servers (Apache on some, Tomcat on the others). Then I thought about our users. We only needed about 20% of the functionality that this monolithic tool had to offer. The costs for professional services and training were astounding. I figured it would take a 2-3 months for someone to be effective with the tool and would have to repeat that training process if they left or moved to another job.
Then I looked at a couple of new campaign tools by companies founded within the last 3-4 years. The interface was simple and modern. They had mobile, social, and self service analytics baked in. They could combine data from the Facebook, Twitter, Pinterest, email, SMS, and more. The interface required minimal training in fact a user familiar with the modern web sites could probably set up and execute a campaign immediately. The pricing was a tiered pay-as-you-go model ranging from free to a few hundred bucks a month. There were no servers or software to buy and manage, no IT people to assign the maintenance to, and it could be up and running immediately. Did it have every bell and whistle that the legacy product has? No. Could I implement it and make money with it tomorrow? Yes!
That is just one example. If you look at today’s legacy enterprise you can find many needs that are being under serviced. In some cases the existing solutions are simply too expensive, too cumbersome, and not modern enough. That is why companies like Workday have come out of no where to take a big chunk of the market in HR software. Workday did not invent anything new, they just provided a service to make an HR person’s job easier and more effective for less money. Atlassian is another example. Atlassian saw that developers were using many different open source tools and they needed a way to manage them all and get them to work with one another. Atlassian provides a one stop shop for developers to use the tools of their choice without having to install, maintain, and integrate it all together.
The health care industry is ripe for automation and improvements in business processes. I attended the Rock Health’s Demo Day back in February in San Francisco. What I saw at the demo day and what is happening all over the world is companies are finding parts of businesses that are under serviced and solving that problem on the web. These innovative startups are enabling employers, insurers, and health care providers by automating business processes, improving information, reducing costs, and creating better health and wellness outcomes. Most of these companies did not invent anything new, they set out to solve problems that for the most part are being solved poorly, manually, or not at all.
I could go into every industry and find similar stories. Instead, I’ll share this thought provoking presentation on the 10 New Business Models for this Decade.
The cost of building new products and services have dropped substantially thanks to the cloud. Startups are emerging that are solving legacy enterprise problems in new innovative ways with modern technologies. CIOs are charged with bringing these new technologies into the enterprise and reducing costs while keeping the lights on at the same time. CIOs should think about the next generation of enterprise applications and start solving problems with new pay-as-you-go cloud services. This will help drive down costs, give customers the types of tools they are used to using at home, and get a few easy wins for bringing in mobile, social, big data, and cloud technologies into the company. Getting rid of the legacy baggage of non core applications should free up time to put some resources on enterprise priorities for those core competencies.