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Cloud Computing + POC = ‘Obvious’ ISV Revenue Growth

One thing is clear to me - ISVs are doing POCs in the cloud

I've always found that the obvious things in life are easy to understand once you see them. I've got a good one for you.

Question: If an ISV can bring install time close to zero, their proof of concept (POC) efforts will:

  1. Take less time
  2. Become predictable and repeatable
  3. Go more smoothly in the eyes of the potential customer
  4. Provide more time for actually working with the customer and proving the concept
  5. Look impressive compared to competitors who need to send SEs on site for hours and days of sweating through glitch-filled installation and configurations
  6. Increase the likelihood of a win
  7. Use less of the most skilled and valuable ISV asset - the knowledgeable SE who is also good in front of living, breathing, revenue-generating potential customers
  8. Lower the cost of sales
  9. Generate incremental revenue
  10. All of the above

The obvious thing here is ISVs should reduce POC installation and configuration time to near zero. It is obvious, isn't it? And easy to understand. As it turns out, it's also easy to do.

How do I know? Because that's what we do at AppZero. Delivering an application as a pre-installed, pre-configured virtual application appliance with zero OS component shrinks install, set-up, and configure time to minutes. Yes, even large German ERP applications. (You knew I had to get at least one company mention in, didn't you?) In fact, I'd worked up a nifty Excel-based calculator to let potential ISV customers of ours quickly bang out the financial impact of having zero POC install time. I ran the calculator by some of our ISV clients to give it a real-world sanity check.

Talking with one AppZero-using ISV with revenue just under $1B in 2008, I was looking for just a few inputs to make my case: # of POCs, average deal size, average time invested per POC, win rate, how many SEs and the cost of an SE. Turns out that if you're the SVP that owns responsibility for that almost $1B worth of business, you know the win/loss metrics. Cold.

Before I could finish explaining my cool calculator concept, he had it filled in: 400 POCs per year, average deal size is $350K (for the first year of course), 5-day average POC duration, time to install and set up POC is one day of the 5-day duration (or 20%), win rate of 70%, SE salary of $130K .... 20 seconds later we had the answer.

Zero install's effect of reducing POC duration by 20% can go to straight cost savings or to increased time spent actually working with the client and application. It can go to more POCs conducted a year per SE. In all scenarios, it goes to increased revenue. In the case of this ISV, the very conservative answer is in the millions. My client agreed.

Life is good.

The logical next step in the conversation was how to leverage the cloud to get the POC job done. I've talked with many ISVs ranging from startups to 10s of billions in revenue, as well as leading cloud providers such as Amazon and GoGrid.

One thing is clear to me. ISVs are doing POCs in the cloud. Mature, established players are hovering around 10% for cloud-based POCs. Start-ups are 100% cloud-based POC. Of course, I'm loving this because AppZero's instant provisioning in the cloud or on-premise and ability to move applications from the cloud to data center is a bulls-eye for this market.

Yes, Virginia, I did say "moving from the cloud to the data center." It turns out that ISVs want to be able to start a POC in the cloud and have an easy way to move that instance of the application to the customer site when the POC converts to a win. All of the work that was done on the POC transitions to a production implementation. (Yippee. More savings.) Interesting that this sensible approach has gone unremarked by the cloud-hyped media.

In fact, that ISV SVP I referenced earlier in this piece summed up the POC cloud case pretty well, "Greg our partners build their apps on our platforms and are faced with selling in this economy. For example, they may sell back office manufacturing applications to the likes of the automobile industry. Fun, huh? Well, in North America, the ones that are using the cloud for their POCs have revenue up 5-6% compared to last year. The others? They are all down for the comparable period."

I know first-hand how hard it is to start a business, create a new product from a blank sheet of paper, create a new category that Gartner eventually buys into, raise money,.... But I can not imagine how hard it is to sell ERP to manufacturers that sell into the auto industry right now. That has got to be tough to the 10th power.

Even more reason to run POCs in the cloud - and it's good for marriages. "Honey, I'm going to run down to the ball bearing factory to check on the POC. Don't worry. It's running on the cloud so I'll be home in plenty of time to pick up the kids from school. Should have time to finish painting the fence before dinner."

Maybe if we used the TARP money to accelerate cloud evolution, we would have full employment, a housing boom, and time for Mr. Cleaver to pick the kids up from school.

Just a thought.

More Stories By Greg O'Connor

Greg O'Connor is President & CEO of AppZero. Pioneering the Virtual Application Appliance approach to simplifying application-lifecycle management, he is responsible for translating Appzero's vision into strategic business objectives and financial results.

O'Connor has over 25 years of management and technical experience in the computer industry. He was founder and president of Sonic Software, acquired in 2005 by Progress Software (PRGS). There he grew the company from concept to over $40 million in revenue.

At Sonic, he evangelized and created the Enterprise Service Bus (ESB) product category, which is generally accepted today as the foundation for Service Oriented Architecture (SOA). Follow him on Twitter @gregoryjoconnor.

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