• Peter Wagner | AcctTwo

Companies are Cloudwashing Their Products and Their Revenue

In a recent article in the Wall Street Journal, Angus Loten and Kimberly S. Johnson draw attention to something we've been hammering on for a few years now: Cloudwashing, or the practice of painting over traditional IT technology with the word “cloud.” The article quotes Clay Johnson, CIO of GE Power and Water saying:

"..it takes 'extra work' to determine what are and aren’t 'true' cloud services, or which services will be around for the long haul. The latter has become a growing concern as software deals stretch to three years or more."

As companies try to decide what software or cloud-based services they will buy, figuring out what is true cloud and what is not is one part of the equation. But Johnson and the authors of this WSJ piece point out another important question: which providers have a real cloud strategy and will therefore be around in 3 years/5 years/10 years? Finding their product descriptions to be full of jargon and marketing speak, potential customers and analysts are looking at the financial statements of these vendors to see how much of their revenue is from "cloud" software. What they're finding is that those numbers are being "cloudwashed" as well!

In the same way that some vendors are wrapping services, managed hosting, hardware, and maintenance into their "cloud" products, they are also including revenue from these legacy and decidedly non-cloud products and services in the cloud portions of their financial statements.

Our advice is to look at what they offer on their websites and in their datasheets. True cloud Software-as-a-Service products will have the following characteristics (and the vendor should make them clear):

  1. SaaS software is subscription-based, often determined by the number of users, and often with some up front implementation costs.

  2. The software is entirely hosted by the vendor.

  3. The software architecture is multi-tenant and dependent on metadata structures. This means that there is one code base for all customers.

  4. Upgrades are often automatic and released frequently; they are often functionally very rich; and they require the vendor to maintain open communication with its customers, both to gather requirements for new functional changes and to keep them informed and educated on new functions and opportunities.

  5. The last characteristic we'll mention here, although there are surely many more, is that most SaaS software is configurable rather than customizable, meaning that the software can be shaped to each business without additional code being written, without the complexity historically seen with customizing an on-premises ERP solution, and without the knowledge and skills for this customization being locked away in the heads of a small group of developers.

If it's difficult or confusing to find out whether the vendor's products have these characteristics, there's likely a reason for that. The characteristics listed above allow the true cloud vendor to provide customers with more value at a lower cost (especially up front). They allow vendors to beat any on-premises or managed hosting service level agreements for performance, uptime, availability and security. They generally allow for faster, more feature-rich upgrades, better integration, better configurability, and more flexibility.

This is not to say that any true SaaS solution is a good one, or that any solution that isn't truly SaaS is a bad one - all businesses have different needs and any solution, SaaS or not, can be a poorly constructed one. This is, however, quite clearly the future of enterprise software, and you have to ask yourself whether you will take advantage of these benefits or let your competition take advantage, leaving you with a costly, unsupported, inefficient enterprise software system that will, in the not too distant future, be considered a relic of times past.

Beware of the cloudwashers, whether they do it with their marketing or their financial statements.

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