The widening chasm

The widening chasm

Summary: Cloud application vendors are able to add new functionality at a far faster rate than conventional on-premise vendors, and with less cost and risk. That's opening up an innovation gap that the established incumbents will find increasingly hard to close.


Other commitments prevented me from joining colleagues at cloud ERP vendor NetSuite's user conference last week. Watching from a distance, one announcement that caught my eye was the tie-up with enterprise social networking platform Yammer [see disclosure: several of the vendors mentioned in this post are or have been clients or have funded attendance at briefings].

One of the questions I've raised in the past over initiatives like's Chatter is over the danger of creating new stovepipes of social interaction within an enterprise. NetSuite has avoided this by linking up with an independent platform with the potential to link activity streams across many different application stacks. The SuiteSocial initiative will be an interesting test case whether interacting with a third-party social platform can offer the same or better functionality and benefits than other vendors are achieving with an in-built native capability.

But the point I raise in my headline is a wider one. It's about the capacity of cloud application vendors to constantly extend functionality — for all their customers at once — at a much faster rate than the on-premise vendors, who will always struggle to keep up. Of course some of the on-premise crowd have already pretty much given up the ghost on that fight for survival. As Brian Sommer writes, there are not that many 'A' grade students in the ERP classroom these days. Many of the second-tier vendors have long since lost the plot over SaaS. Among the top tier, Oracle keeps on insisting the Fusion will be the platform that brings it back into contention. We'll see, but frankly I doubt it. Microsoft and SAP are making strenuous efforts to keep pace and the Sapphire Now conference this week will show the progress SAP has been making recently. But it's a tough road they've chosen.

SuiteSocial perfectly illustrates the chasm that is opening up between the old-school software publishers and the leading rivals among the pureplay SaaS providers. However hard they try to play catch-up, they're running a race with their legs tied together because of the need to keep faith with their on-premise installed base. This leaves them devoting a huge proportion of their development resources to support on-premise deployments, raising the overhead, risk and time-to-market of every innovative new feature they choose to introduce. Meanwhile, the cloud vendors can run ahead with new capabilities and instantly get valuable feedback from early users that helps them refine and build on the initial offering.

This is a textbook case of disruptive technology catching up with and finally overtaking an earlier generation. There comes a point when the newcomer transitions from being the 'good enough' alternative for customers who simply cannot afford the incumbent solutions. It finally reaches the point when it becomes a viable and preferable alternative for the incumbent's established customer base. NetSuite clearly believes it has reached that point, although it still needs to prove itself before it can claim to have won the battle.

The extra factor that adds tremendous momentum to its push is this ability to introduce and refine new features that lies at the heart of the SaaS model for cloud applications. One of the classic textbooks of technology marketing is Geoffrey Moore's Crossing the Chasm, in which the chasm is the gulf between early adopters and mainstream acceptance. SaaS has already crossed that chasm into mainstream acceptance. In doing so it has not only joined the mainstream but also changed the competitive landscape in which every vendor has to operate. Now there's a new chasm opening up that the incumbent vendors will find increasingly difficult to cross over if they want to keep pace with the cloud vendors — a chasm of differential cost and ease of innovation.

For enterprises weighing the case for cloud applications against on-premise alternatives, this is an important additional consideration to take into account when evaluating the return on investment. People tend to focus on the perceived risk of putting your data and processes in the cloud — a risk that's mostly exaggerated but probably merits a separate post as it's quite topical currently. What few people consider is the equally important risk of losing competitiveness because the application stack you've installed can't keep pace with the need to introduce innovative business processes. For a long time, the incumbent vendors have argued that SaaS alternatives don't offer the same breadth of functionality. Now the boot is on the other foot, and the question mark is over the breadth of innovation of the incumbent solutions.

Topics: Emerging Tech, Cloud, Data Centers

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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  • RE: The widening chasm

    ahem - you now they tried to build it themselves but couldn't and that they went all around the Valley trying to find a partner before Yammer said 'yes?'

    This may work for the $N demographic but impressive it ain't.
  • RE: The widening chasm

    I wonder when the Cloud preaching will end and the a new IT era will be here .. Gratner says 2015 do you believe it can be earlier than that ?

    search google for 'I Am OnDemand'

  • Naive

    This is a classic example of an author making an unfounded assertion (cloud vendors can add functionality at a faster rate than vendors of premise-based software) and then expanding on it. Exactly what is it about cloud-based software that allows the developers to write code more quickly? Nothing. Cloud and on-premises are two different deployment models. They both require painstaking software development and testing. There's nothing inherent in the cloud model that allows the software to be developed more quickly. It's obvious that the author's background ("blogger, analyst, consultant") doesn't include any serious software development. I'm afraid there's no magic and no free lunch.
    • I politely disagree (with evidence to back up my claim)


      I've been involved in managing teams of developers in both traditional software as well as SAAS settings. When you're in a traditional software setting, you often need to spend a HUGE amount of time and energy ensuring that your software works with multiple hardware and configuration options and the complications that come from having made customized modifications for different clients. That slows down the pace development dramatically. In addition, the cost to fix bugs released into production in a traditional setting is often extremely high (which provides a strong deterrent to release before code has been tested extremely thoroughly on a wide variety of different configurations and settings).

      In contrast, when you're developing features in a SAAS setting (particularly when you're using a one-to-many deployment model without customizations that allows you to release new features to everyone at once vs. rolling them out gradually), the combinatorial explosion of different hardware configs, software configs, software versions, operating systems, etc. are easier to handle. In addition, the costs of fixing bugs that escape into production are much lower in a SAAS setting.

      As a case in point, here's a list of updates we've made at our SAAS firm recently:

      Even though there are traditional software firms and on-premise vendors in our market segment that are backed by the financial muscle of Fortune 500 firms, there are none that are releasing new features, improvements, or innovations at anywhere near the pace we are.

  • RE: The widening chasm

    "It?s about the capacity of cloud application vendors to constantly extend functionality ? for all their customers at once ? at a much faster rate than the on-premise vendors, who will always struggle to keep up."

    Kinda like how Google Chrome constantly updates itself?

    The ability to constantly update applications is possible, it's just that not everybody is doing it.

    It's also the case that half of the battle is with management, not the technology. As somebody who just entered the field, I'm pretty convinced that an overly complex system of bureaucracy is 95% of the problem - not the technology itself.

    The technology, AFAIK, is fine. I can deploy software and updates to all of our systems every day if so desired with some of the tools I've used.

    The problem is, I can only deploy what somebody else has put into the system, and I can only deploy what's been "approved." There's levels of management above my level that makes those decisions, and yeah they are super slow.

    SaaS "fixes" that by ripping control out of the bureaucracy. Websites don't have the same crazy approval process. It's not so much a tech problem as it is a bureaucracy problem.

    We certainly have the tech to compete with online services - the tech's fine. Deployment on a large scale is possible with current technology. It's the bureaucracy where I work that's the big issue.

    "People tend to focus on the perceived risk of putting your data and processes in the cloud ? a risk that?s mostly exaggerated"

    I'd disagree. The problem with the new risk model is that it's too centralized - all of not just your eggs, but [b]everybody's[/b] eggs in one big, huge basket. And all it takes is a bad employee at the provider and you've got a major security breach.

    The security model is, frankly, fundamentally broken. It sounded convincing when there wasn't much happening, but now there are breaches practically every day. The hackers have decided the "cloud" is a larger target now, so they're attacking it - and the fundamental flaws of the "cloud" religion are now becoming all too obvious.

    Sorry, not convinced.
    • RE: The widening chasm


      Well said!

      But don't blame Phil Wainewright as I have no doubt all the writers, whether they agree or not and whether they want to or not, are being forced to be pro-cloud so as to create the illusion that all are on board and anyone not embracing the Cloud with joyful glee and smiles is at best an old dog that can?t learn new tricks and at worst one of them there conspiracy theory wackos who believe the cloud could crash in part and make their services unavailable.

      The Cloud is simply the current ?End All to end all End Alls ? tech being sold to the public as the ?YOU Must Do IT now; And NO questions asked? option and thankfully many are wise to the sales pitch.
  • RE: The widening chasm

    Diversity vs Efficiency ..
    In nature or systems.. similar trade offs.

    Diversity.. less efficient but much less vulnerable to catastrophic failures.

    Focused / efficient systems (crops, animal life).. do much more with less energy/resources.. but are vulnerable to single point failures (deadly outbreaks/ malicious code)

    Both systems can be physically "diverse".. they only real difference: who is responsible for maintaining.

    Net result: it becomes an issue of in-house skill sets and capital reserves (for handling growth) in deciding a course for the future.

    I agree with levieuxmagicien and cobraA1..
    The speed of innovation and software delivery isn't dramatically affected by the use of the cloud.

    Unless.... you want to put out crap at a faster pace.
    (no reviews, no testing, no focus)
    For some companies.. this would the likely course of action.
    I don't recommend it.

    Better to work on improving the real bottlenecks...
  • RE: The widening chasm

    We are a SaaS provider for small, medium, and large companies. We can make enhancements to our product and roll out to our clients within 24hrs. This is one of the main reasons a comany like Siemens selected us: Bella Solutions