SaaS and Cloud Vendors Stumble Out Of The Gate

In today’s enterprise software market the cloud and SaaS has made the point of entry a lot lower for SMB and organizations of all sizes more palatable. Software vendors that were previously on-premise have now added cloud solutions and newer vendors are cropping up daily.

There are a number of factors that are causing vendors to enter the cloud market. Such factors as specialized companies entering the market such as Menlo Logistics offering pointed solutions in the cloud for a WMS, former employees forming specialized solutions, new venture capital funding new software ideas and existing vendors trying to all compete for business.

 A lot of these new market entries delivering products and services through the cloud are at this point still an idea. Sound familiar? An idea that requires extensive venture capital in some cases but no users and non-sustainable business plan. A subscription based solution doesn’t guarantee an expanding revenue stream. Often these new software companies have a single source of revenue. Just because a vendor offers a cloud solution does not automatically guarantee successful revenue generation.

A scary precedent of users translates to high company valuation. In the cases of Twitter, LinkedIn, Facebook which have a lot of users and increasing revenues models have found new ways to increase their revenue which can provide a viable business model. How do high users translate to valuation – bottom line isn’t just advertising that forms the core source of revenue. Is that an endless stream of incoming revenue or just a one revenue stream business model ?

 If these cloud vendors such as Quora, StumbleUpon, Digg, Delicious, Google Buzz, Reddit may have volume but a fragmented user base spread over many of these social media platforms might cause too much segmentation to be effective. Question is how many of these cloud vendors and solutions will survive? Another threat for this potential bubble is the risk to organizations that are looking for cloud advice, technology direction, software evaluation and business process optimization using the cloud should be wary of consultants that do not understand the entire cloud picture. These include business strategies, TCO, ROI, security and how to unite disparate systems using the cloud are all areas where organizations need to be wary. A possible result of the cloud bubble is that organizations may be  bum advice regarding cloud consulting whilst not providing any value to their organization. .

Although the cloud is great for delivering products and services let’s see who will survive and what dollar amounts will be pinned to the valuations of these companies after this all shakes out. One major area where of concern that has recently emerged through our research is that will these small SaaS and cloud vendors be around in a couple of years. Can you release your data, offoad it and migrate it to a new system? 

Eval-Source is a consulting firm that provides enterprise software selection and strategic consulting services for organizations to achieve success in their IT initiatives. Our Tru-Eval selection system allows organizations to avoid IT failure, receive greater ROI and provide accurate decision support for enterprise software. Our strategic consulting practice encompasses cloud computing services, cloud evaluation services, strategic technology planning and business process optimization. Eval-Source is an industry leader in the analysis of software technology and our thought leadership has placed us in the elite of consulting/analyst firms.

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Jim Love, Chief Content Officer, IT World Canada

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