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Cloud Computing, Strategic Marketing, and Independent Software Vendors

Geoffrey Anderson, back to the usual programming for the Technology Marketing Center.  This episode we will discuss the merits of the cloud, and how its promotion fits in with the principals of the TMC Strategic Technology Marketing course.  First I will digress a bit into the business environment that the cloud is beginning to enforce in the marketplace, and then we will dissect how that environment is altering the structure of marketing at ISV's (independent software vendors) and their distribution chain.

If you are an ISV today, you are staring at a precipice, and are terrified that your licensing revenues will fall off a cliff.  In the old time, you sold a license, and an annual maintenance fee, and had a relatively normal relationship with the market, your customers, and your competitors.  The Cloud is altering this dynamic irrevocably.  As more ISV's are moving to a structured service offering in the cloud, the classic licensing model is not as applicable.  Instead of buying seats, or instances of the software, the business model is moving to a subscription based service versus a license + maintenance.  Instead of a big up front cost, and an annual fixed cost, the customer is moving to a flexible payment, where they "rent" the SW per user per month.  This does wonders for the balance sheet, once you get past the lost revenue in big chunks, replaced with the steady stream of (hopefully growing in number) subscriptions.

Microsoft's Business Productivity Online Suite (BPOS) is leading the way towards this evolution, but it is far from the only case.  Google is battling with them for the desktop and the collaboration tools.  How is this relevant in the context of the strategic marketing of technology products?"  There is so much hype and misinformation on the benefits of moving your data and processing to the cloud, that as marketeers, you must be vigilant to properly position your offering.  The cloud offers a twist on the classical positioning exercise, as often you are taking a non-cloud based solution to the cloud.  So in essence, you are positioning against yourself.

Naturally, this can cause confusion within the customer population. Let's again illustrate with the Microsoft BPOS offering.  Here, Microsoft is positioning the strength of their offering against not only the competitor (Google), but also themselves and their on premise solutions.  This leads to a delicate balance between price sensitivity (on premise solutions typically are significantly higher cost up front, but have a lower annual cost per user, versus the "cloud" solution, where the up front cost is minimal, but there is a recurring monthly expense).  As companies weigh these factors, it is the job of marketeers to distinguish the two offerings, and the solution will most likely lie in price segementation and pricing strategy.

Of course, if you are fielding a product offering that doesn't have an on premise predecessor, or you are targeting a vastly different segment (for example, think back to the Salesforce.com offering.  CRM without the huge infrastructure that Siebel or Oracle demands), the exercise becomes much simpler.  Your marketing efforts to address this segment are similar to any normally segmented market, tied to knowing the communities, and their needs.  

An example of the cloud play without the on premise solution would be Mozy.  Mozy is an online backup service, based in the cloud.  Its competition is largely hardware based either tape or other long term storage.  One of the quintessential problems of modern IT infrastructure is the backup of user workstations.  Mozy reduces the complexity.   Mozy has two tiers of service, business and home, and markets as well as prices them accordingly.  Mozy is not competing within their product portfolio, but are instead competing with large in-house backup programs that are complex, costly, and an administration headache.  This is a marketing problem that we know how to handle.

In short, while the cloud offers many opportunities for fantastic growth, and deployment of innovative solutions, the role of marketing to ensure that the product offering is properly tailored to the target market is ever crucial.  

Until next time, happy marketeering!

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