How Cloud Computing can make the Long Tail profitable in the SaaS business
There's been a lot written about Cloud Computing being the wave of the future, but here at ENKI we're seeing that it can save our customers big money right now and enable them to sign a larger number of profitable deals. We're seeing an increasing number of SaaS (Software as a Service) companies interested in our Computing Utility service, many of whom offer middleware services like data translation, data communications services, or data aggregation and reporting. They sell their software as a service to end customers. Most of them have large customers, so their typical sales cycle has been:
- Sell and sign the business
- Engage their professional services and IT departments to build out their own data center or a new data center for the customer
- Set up the application software on the new new data center
- Activate the software and deliver it to the end customer
This has worked well for them, so they haven't been too focused on cost or time to market; but as you can see provisioning a data center or adding significantly to one can take weeks to months, and involve a great deal of labor and capital costs. However, they have been unable to profitably address smaller end customers: imagine using the process above if all you need is a one and a quarter server's worth of computing power! So, they were focusing on a few larger deals and leaving the many smaller deals on the table (the infamous "Long Tail", named for the asymptotically dropping curve of price versus quantity of customers.) And now, with the economy slowing, this ponderous process is beginning to look too expensive to SaaS providers, even when they provision an application for a large customer, due to the large capital outlays required to sign business that might not be around long enough to pay off the data center.
However, using our pay-as-you-go cloud computing technology based on AppLogic, ENKI can reduce the sales cycle for SaaS to look like the following:
- Sell and sign the business OR use a portal where the customer can sign up and pay via self-service
- Automatically provision a new copy of the application in a virtual data center sized to the customer's needs
- Automatically activate the software and deliver it to the end customer
By eliminating manual steps including hardware and software provisioning, the turnaround on the sales cycle drops from months to as little as minutes. Also, the cost - both of the sales cycle and of provisioning the resources - drops dramatically due to the reduced labor component and the fact that resources are allocated without waste (no extra capacity is needed to provide for future growth or redundancy for reliability!) This allows SaaS providers to profitably sign customers in the Long Tail and greatly increase their market.
I've found that the biggest obstacles they encounter in switching to cloud computing are internal resistance from departments who are used to doing things the old way, and switching their financial models from lump-sum expenditures to flow-through cash-basis, often paid with credit cards or ACH rather than invoice and check. But this is a small price to pay for increasing your market penetration and profits.
If you'd like to learn more about cloud computing, there's an excellent summary in a blog article here.
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