Cloud application war moves into the suite phase

Posted by Mike Vizard on Feb 16, 2016 11:30:00 AM

Cloud_application_wars.jpgWhile cloud computing clearly represents a new model for delivering IT, many of the same old rules concerning how vendors compete with one another still apply. Back in the 1980s, there were best-of-breed applications that dominated the market. Slowly but surely, however, suites of applications usurped them all. That same drama is now playing out once again in the cloud.

Led primary by Oracle and SAP, IT organizations are opting for suites that they believe will provide both a common user interface experience as well as lower costs over time in terms of the number of applications included and the effort required to integrate them.

Oracle, for example, recently reported that its cloud billings increased 68 percent in its second quarter, and Oracle co-CEO Mark Hurd has stated several times that he expects that 80 percent of all enterprise applications will be delivered via the cloud by 2025.

SAP, meanwhile, has reported that it now has roughly 3.7 billion euros in deferred cloud revenue coming its way. Furthermore, at a recent SAP Capital Markets Day in New York SAP CEO Bill McDermott made it clear that any rival attempting to gain share in accounts where SAP currently dominates would be “entering a house of pain” in terms of what it will cost them to compete.

Fierce competition

The primary targets of both SAP and Oracle are Salesforce and Workday. While Salesforce has recently expanded its application portfolio considerably beyond its traditional customer relationship management (CRM) application base, it only recently began to turn a profit. Workday, best known for its human resources applications, has started to report declining net income growth quarter over quarter.

Oracle and SAP have made it clear that both companies are being restructured around recurring revenue models that depend heavily on cloud applications. In both cases, Oracle and SAP are essentially acting as managed service providers that control how the applications are delivered and manage everything underneath those applications.

Why IT service providers need to adapt

For IT services providers that sell enterprise applications, that rate of change has become a significant issue. Not only will there be fewer enterprise applications running on premise in the months and years ahead, the number of opportunities to integrate disparate software-as-a-service (SaaS) applications might begin to level off as more best-of-breed applications fall prey to competition from cloud application suites.

In addition, IT services providers should take note of the fact that this level of competition has historically driven waves of merger-and-acquisition activity. Both Oracle and SAP are clearly using price to destabilize rivals in a way that would make them much less costly to acquire later on.

Regardless of the ferocity of the competition, there’s no doubt that the cloud landscape is being altered by the arrival of cloud application suites. The issue facing IT services providers now is figuring out how best to adjust to that new reality in a way that emphasizes more business consulting opportunities at the expense of technical integration projects that might not be as easy to come by soon.

Intronis blog

Photo Credit: Tambako the Jaugar via Flickr.com. Used under CC 2.0 License.

Topics: Cloud Trends

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