Cloud computing is exploding, and we have the analysts’ numbers to prove it. A recent Gigaom survey showed that most enterprises have 1 to 50 public cloud instances running on any given day, with 4 percent of the respondents reporting more than 1,000 cloud instances running on any given day (see figure below).

The pattern here is one of acceptance and adoption of public clouds. Take a look at the number of public cloud instances running on a typical day within the surveyed enterprises. No surprise that the majority of the enterprises were running up to 10 instances. However, it was certainly a surprise that 23% were running from 11 to 50. What’s more, a few (4 percent) are cloud “super users,” running over 1,000 cloud instances in any given day.

The numbers that reflect the true use of the cloud is rather impressive, relative to what we’ve seen in the past. Enterprises are putting more systems and applications into production on public clouds, and thus spinning up more instances to support an increasing processing and storage load.

What’s an ISV to do?

If the cloud is exploding, then what do the ISV (Independent Software Vendors) do to take advantage of the changing market? The kneejerk reaction is to push ISVs to the cloud, no matter if they should go there or not. 10 years ago, when the SaaS explosion occurred, many ISVs declared themselves SaaS providers. While some did okay within the shifting tides of software consumption, many did not, and many actually went away.

Today we have thousands of ISVs that have not made or not succeeded in the journey to the cloud. These are still thriving businesses that were hoping to see the cloud fade and go away. Now that cloud computing is clearly here to stay, their marching orders are clear: Adapt or go away.

Key issues to address include:

The software cost pressures that exist within most enterprise IT shops. While budgets are coming back, slightly, CIOs are being asked to do much more with much less. The notion of paying another $100 thousand dollars up to many millions of dollars in software licensing costs is now out of the question in many enterprises. As one CIO told me: “We want Saleforce.com versions of everything.”

The movement away from capital expenditures. While the value of cloud computing around doing opex versus capex is well known, this is getting pounded home with the number of enterprise data center projects that are now queued up and awaiting funding. The management in those companies now question the need to build or rent more data center space, and they push back on CIOs to look for cloud-based applications to replace local applications.

The demise of the “cloud computing Chicken Littles.” In a recent Gigaom study, as depicted in the figure below, the maturity of cloud adoption clearly shows that we’ve moved from the experimental and skeptical state to the acceptance of cloud computing as a sound direction. Those who pushed back on cloud computing due to security and reliability issues were proved wrong as these issues did not rise up as real concerns, and most enterprises are well into their 2^nd or 3^rd implementations.

 

Not only is the market asking ISVs to redo their software as cloud services, but their existing customers are doing the same. Most ISVs have looked into cloud-enablement over the years, and perhaps even stood up some pilot projects, only to balk at the cost and the risks around building a true cloud-based offering.

Some ISVs made half-baked attempts, but never got beyond single-tenancy offerings, which where just too costly to place into production. This includes offerings that were basically single physical servers that were matched to single users, and passed off as a true cloud-based solution. The users eventually figured out the limitations, and those projects went on the back burners.

How to “cloud”

ISV’s that want to move over to SaaS solutions, or even to a bunch of cloud services or APIs, need to create competitive public cloud-based offerings. The new products should include the ability to:

• Deal with tenancy issues.
• Provide Web scale features.
• Provide usage-based accounting.
• Provide client management.
• Provide data integration and migration solutions.
• Provide “cloud native” performance.

The path to get to these “cloudy” features can be rather simple with software systems that have been well designed, maintained, and implemented. However, ISVs that have been around for awhile must deal with older legacy code and databases, or layer upon layers of code on top of code that was suppose to be fixed, but never was. The ability to get to the cloud could mean a great deal of rewriting and re-architecting, perhaps leading to more risk and cost than any value the cloud-enablement could bring.

That’s the core debate going on in the conferences rooms of most of our older software players. It’s not “if” they can cloud-enabled their systems; they certainly can with enough money. The question is, “Will there be value?” if they take the risk and spend the money to move to a true SaaS solution with all of the features the industry, and their customers, will expect.

After you deal with the “If we should cloud” question, it’s time for the “How we cloud” answer. The figure below depicts one approach to cloud-enablement, working from the initial vision to the operations of the cloud solution. This includes defining the target market for the SaaS cloud, which leads to the core requirements. From there, you need to define any changes to the architecture and enabling technology. Move to development, testing, and deployment, typically leveraging Agile and DevOps best practices and technologies. Then move to the go-to market, and define all aspects of operations around the new cloud service or services.

 

As a general rule, you’re going to spend about 10 to 20 percent of your yearly software revenue to move a typical software system to a cloud-based solution. So, if you make $500 million dollars, you’ll spend $50 to $100 million to refactor, re-architect, and redevelop into the right cloud offering.

For many ISVs, that’s a hit to profits that most won’t accept, including the smaller ISVs that maintain smaller margins. There’s also the fact that the smaller ISVs haven’t taken a beating by cloud-based competitors, in many instances.

All that said, for the most part, ISVs have very little choice. ISVs that waited to jump into cloud can wait no longer. It will take a year or more to get the right cloud solution into production, so it’s actually past the time when most ISVs should begin the move to the cloud.

However, there is still work to be done on the front-end to determine the actual value of the move. While most will benefit, and, indeed, will have to move to stay in the market, there are a few that should stay put. You need to figure out what category your business falls into before you toss money at this issue. Again, there are many different reasons why not every software system should exist in the cloud. However, most should. At least send do some quick research as to the potential value that a cloud-based offering can bring, or perhaps how to avoid bankruptcy-by-cloud.