There’s something about boarding a plane to another continent that causes one to reflect on how things are different (and the same) in different parts of the globe. As I head to post-Olympic London, I can’t help but wonder about whether the inflection point for Cloud demand has been passed in both Europe and North America.
The problem with inflection points, of course, is that they’re never obvious until they’ve passed. And by that point, it’s generally too late to catch the wave. The die is largely cast, the winners and losers already determined.
There is little question that the demand for Cloud offerings is building momentum on both sides of the Atlantic. Early movers in this space are experiencing far stronger revenue momentum than those who continue to focus on on-premise offerings. Trouble is, strong revenue growth does not necessarily mean strong profitability. At least, not immediately.
Part of this is the simple nature of building a subscription-based business. Investments are made up-front, while the annuity is reaped over time. Inevitably, cash flow and profitability are negative in the beginning.
But the bigger challenge is that a subscription business has to have its profitability “engineered in”. It will not happen by accident. A traditional services-based business, by contrast, requires only that one’s labor pool be relatively well utilized, and that an acceptable billable markup be achieved. It does not, in general, require robust financial analysis and engineering upfront.
Compounding this, at the moment, is the fact that most of the “Cloud-born” entrants are coming to market with dramatically lower price points than can be matched by incumbents transitioning their offerings to a subscription format. The functionality offered by these “Cloud-born” entrants, of course, is far less than that of the traditional players. And in part, this is in fact what the market is demanding.
But many of these offerings fall short of being truly market-relevant, while traditional offerings seem “bloated” to many customers. So who is covering the middle ground?
In many vertical segments, the answer is no-one. And therein lies both the issue, and the opportunity. Until truly market-relevant offerings are available on a subscription basis, it is hard to imagine the market truly turning. Candidly, I don’t see these offerings really yet available on either side of the Atlantic.
So the good news is, there is still time left to field a truly relevant offering, and capitalize on the Cloud wave.
The bad news is, that time is probably short.