Some thoughts on Cloud pricing models
As most of us probably know SAP recently announced the SAP HANA Enterprise Cloud (HEC), a move that caused quite a bit of an echo on the web. Making a living as a Cloud Platform Evangelist at SAP I try to stay at the pulse of the industry and hence I have been doing lots of reading the last couple of days.
Can’t help it, but sometimes I get the impression that many critics are drawing hasty conclusions based on narrow-minded definitions reciting articles they picked up and then writing tabloid-like “bash-ups” just to get a headline and some attention. Reading those I cannot help but be reminded of a great quote from the movie Ratatouille:
“In many ways, the work of a critic is easy. We risk very little, yet enjoy a position over those who offer up their work and their selves to our judgment. We thrive on negative criticism, which is fun to write and to read.” – Anton Ego [REF]
One particular piece that made me scratch my head was this article titled Google And SAP: Two Very Different Cloud Strategies on readwrite.com, which was heavily based on a blog post from Forrester’s Stefan Ried called “HANA Enterprise Cloud – Pro and Cons“. The two articles have in common that they both argue that the SAP HANA Enterprise Cloud does not even deserve to be called Cloud as its pricing model is not fully elastic but rather requires customers to bring their own license.
While I would agree that pay as you go (PAYG) is an important aspect of cloud computing I find the arguments rather narrow-minded and they fail to acknowledge the fact that the value proposition of cloud is more than just elasticity. In conversations I have with potential customers I hear that one of the most sought after benefits of cloud computing are time-to-market and faster innovation cycles. In this context, offering a new deployment option for core systems like the SAP Business Suite and BW in a virtual private cloud seems to properly address this demand. Furthermore, operating these core systems as managed services is only one aspect of the SAP HANA Enterprise Cloud offering, yet the one that got the biggest attention from what I can tell.
Another thing I notice in the public critique is that people seem to lack the understanding that enterprise software may not be comparable to other industries and that enterprise scenarios may require a different take on things. Unlike Amazon, SAP does not aim to be the backbone of services like Netflix, which stream HD video on-demand to a constantly growing user base.
Stefan Ried writes:
“The announced Hana Enterprise Cloud follows the “Bring Your Own License” paradigm. While this is great for customers that already have a Hana license and would like to relocate it into the cloud, it is useless for customers that might have largely fluctuating data volumes or user numbers and might specifically use a cloud because of its elastic business model.” – Stefan Ried [REF]
Now, that statement puzzles me: on one hand he underlines the benefit that the BYOL model brings for existing customers and that it may ease their transition to the cloud, on the other he talks about customers with largely fluctuating data volumes or user numbers. I’d argue that the data volumes and user numbers of Business Suite systems are usually not prone to fluctuation and consequently it’s a smart move to first cater to ease of adoption.
Matt Asay writes:
“SAP […] appears hamstrung by its past, in true “Innovator’s Dilemma” fashion. It has so much revenue tied up in legacy deployments of legacy software that even releasing a kind-of, sort-of, not-really cloud offering is the best it can do.” – Matt Asay [REF]
He was at point blank and still missed the mark?!? What he calls the “innovator’s dilemma” I’d rather call the best way to help our current ecosystem to transition to the cloud. Other’s may would call it “innovation without disruption” but the term has been over-used lately I fear. As such I would say that starting with a BYOL model was in fact the “best it can do” to address the current market’s needs!
The one aspect to keep in mind is that in an enterprise context there may be pricing/licensing models that are less disruptive than others and as such may ease the adoption! In (bigger) organizations there are usually well-established processes both in the professional buyer as well as the IT department. Providing a licensing model that is comparable to existing ones helps to speed up the internal decision making and consequently speed up the adoption.
Either way, the SAP HANA Enterprise Cloud is still in its infancy as is the whole industry segment of enterprise software in the cloud. I’m sure that over time and with more demand we’ll see other, more elastic pricing models emerge. Ultimately, I believe SAP would be stupid not to address the whole market from low-touch, fully automated elastic pricing to high-touch individual contracts for large customers.