Appirio, shafting the global SIs

VCs placed another $10 million bet this week that global SIs will crumble in the face of the enormous change being wrought on the businesses by the advent of SaaS and cloud computing.
Written by Phil Wainewright, Contributor

VCs placed another $10 million bet this week that global SIs will crumble in the face of the enormous change being wrought on their businesses by the advent of SaaS and cloud computing. Jeff Richards of GGV Capital, who is joining the board of cloud integrator Appirio after the VC backed a new $10 million funding round, told me this week that Appirio is "building a leadership position" at the expense of established big-name integrators. [Disclosure: Appirio is a recent client].

"Appirio has very large customers that are signing on for multi-million dollar contracts," he said. "When a company like Japan Post wants to do something [in the cloud], they're turning to Appirio and not to the global SIs."

A recent blog posting by Appirio's CEO Chris Barbin discussed this phenomenon under the heading, Short the Global SIs, and inspired my more aggressive title, above. Forget shorting, these BigCos are utterly shafted (along with some others I could mention). Barbin recounts several examples of how woefully out of their depth they show themselves to be when pitching for SaaS and Paas implementations, summing up:

"Global SIs such as Accenture, Cap Gemini, TCS and others are still shackled by their dependence on old-school, on-premise partnerships with SAP, Oracle & Microsoft. While they may be paying lip service to cloud computing, most offer SaaS-based solutions at 2-3x the total cost necessary, are nowhere to be found in the relevant communities and developer ecosystems, and have few true SaaS enterprise reference customers to speak of...

"... enterprise executives are simply bypassing the Global SIs because of their bloated costs models, old school methods, multi-billion dollar partnerships with legacy vendors, or systemic lack of knowledge of cloud computing products and services."

This at a time when many large corporations are starting to get deadly serious about implementing cloud services. "There's been a huge uptick in Fortune 500 companies moving over to SaaS and cloud — it feels like a tipping point," Richards told me. Hence the eagerness to invest: "Appirio has the opportunity to build a very big company in a very large industry," he said.

Like an object lesson from Clayton Christensen's classic account of disruptive innovation, The Innovator's Dilemma, the established SIs are leaving the field clear for Appirio and its peers because they simply can't adapt their culture and business model to the new paradigm. As Richards explained, enterprises are adopting SaaS and cloud precisely because they haven't got the time and money to spend on the old way of doing things: "They want things done quickly and they want to save money. That doesn't necessarily gibe with the way the established companies do business."

The new funding round comes just seven months after Appirio won the backing of legendary Silicon Valley VC firm Sequoia Capital in a $5.6 million round. The latest round brings Appirio's venture backing to $16.7 million in total, most of which remains unused, CEO Chris Barbin told me this week. The money is there to fund product development, recruitment and partnerships, including expansion in Japan, but Barbin doesn't expect to burn through more than $2-3 million this year, leaving a comfortable cushion in place. One important purpose the money fulfils is to fund Appirio's expanding product portfolio, which helps companies harness and link together cloud services including Salesforce.com, Google Apps, Amazon Web Services and Facebook. (I recently recorded a podcast interview with Appirio's Ryan Nichols about its Facebook-to-Salesforce.com product that helps enterprises tap social networks for viral marketing).

The other key requirement is having the resources and stability to retain the confidence of larger companies who, said Barbin, are now looking to Appirio to help develop "three- to five-year strategic cloud roadmaps" — strategies that aim to cut 10-15% in costs out of IT budgets that run to tens and even hundreds of millions.

Of course the big global SIs are still huge in comparison to the likes of Appirio, and I know many readers may be tempted to dismiss a post like this as shilling rather than substance. But the really smart bets are the ones that are placed at this early stage in the cycle, before it becomes obvious to everyone else what's happening. If you want to find out more about who's making those bets and how to follow the smart money, then I hope you'll join me in two weeks' time at the SaaS Summit 2009 conference in San Francisco [see disclosure], where I'll be joining a panel on SaaS channels and discussing how SIs and solution providers are making money with SaaS.

UPDATE: Fellow Enterprise Irregular Vinnie Mirchandani also referenced Barbin's post yesterday, adding his own testimony that "the big SIs have done little in the SaaS/cloud space." Vinnie says that shafting is a golf term. As a non-golfer, I wouldn't know ...

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