Cloud Service Providers: Intel with Guest Forrester

How customers use cloud services is changing, and thinking about how this usage will evolve in future is important for cloud service providers (CSPs) looking to grow their businesses. Learn more about the different types of cloud services customers are interested in.



Hi, my name is Niranjan Choudhary with Intel. Today, we're going to be talking about cloud service providers. The cloud service provider market today covers a broad landscape. Whether you offer cloud-based software services to the enterprise or custom hardware to the developers, how the customers end up using those services are critical to your business.

Enterprise use of cloud services and platforms are constantly evolving, and the customer expectation is changing. Today, they don't need basic analytics anymore. They're looking for differentiated services. Services like facial recognition, voice command-- and these are critical to their business now. They're looking for big data analytics that can process terabytes, or even petabytes, of both structured and unstructured data.

For the cloud service providers, the need to stand out and provide differentiated services are more critical today. Now, these providers are looking for new ways to generate revenue. The better insights to their customers' needs and behavior will help them pave way for their success.

Liz Herbert vice president and principal analyst at Forrester, is here with me today to discuss challenges that the cloud service providers are facing. In particular, the software as a service providers and how a better understanding of their customers will help them grow their business. So Liz, tell me. What's going on nowadays in SaaS world?

A lot of change going on in the SaaS world since we first saw the rise of these solutions about 20 years ago. One of the biggest shifts we've seen is that in certain categories of software, SaaS is now the preferred way to buy. So we've been tracking vendor revenue data and customer adoption data, and what we see is that in categories like human resources, customer relationship management, procurement, and productivity apps, there's more money spent annually on software as a service than on traditional on premises applications. So that's a dramatic shift from earlier eras of software as a service.

We also see that there's rising pressure for companies to really think about the future of their business and, effectively, how they can become more agile and innovative in the digital era. And that means that there is much more pressure on software as a service as a vehicle. One of our recent studies on business drivers and business trends, what we found is that most companies are thinking about digital business. And that software as a service adoption is very highly correlated with that goal because it fuels that agility and that continuous innovation. Saas has proven to be a much more flexible model, and also a model that brings innovation because of the vendor provided upgrades that go on.

So you spoke about change. So what next, now?

Even though there's been a lot of change, we still see some emerging trends going on with software as a service. I'll talk about just a few of those. One of the big shifts that we've seen is the rise of industry specific software as a service. A lot of the early adoption of SaaS was more horizontal processes, like I mentioned HR and CRM. Nowadays, we're seeing the rise of vertical and micro-vertical SaaS apps, such as an application for utilities or insurance claims processing. That's a new frontier in the world of software as a service.

We also see that there is a big shift towards software as a service marketplaces. We see that a lot of consumer behaviors around what you might do on your phone-- for example, in the app store-- are now appearing in the world of software buying for business. And what that means is that companies are now looking to these marketplaces and ecosystems to research, trial, ultimately to buy and renew software as a service applications.

Despite a lot of the pressure the last few years on digital and business growth, there's rising fears of economic decline. And what we see is that, for software as a service purchases, what that means with our clients is that they're more thinking about not only the growth and the agility and the innovation as they have been the last few years, but also much more pressure on cost and operational efficiency because they're anticipating an economic downturn at some point.

So customers are expecting lower cost. Do you see any other challenges that these customers are facing? And how are these challenges going to impact the buying decision?

A lot of challenges they're still facing, some that have changed over time and some new ones as well. So as you mentioned, cost is a big concern that we see matters when they're making a selection and in renewal time. We also still see a lot of concerns around security as well as performance, uptime, the ability to integrate with other applications.

Most of these have been concerns around software as service historically. But the way that companies think about them today has changed because they're spending a lot more money and they're using SAS for more mission local areas. The good news is that leading SAS providers actually fare better on most of those concerns.

And one of the things we recommend for anyone selling SAS is to be proactive about talking about how they achieve some of those security, costs, or integration elements, for example. And in some cases, what we've seen is that buyer concerns can even be turned into something where SAS does better than what the company was able to do on their own. So for example, in performance or in security, a lot of leading SAS vendors that can easily show they are doing far better than what that company was able to do on their own. They have much bigger budgets for it. And so that has really helped.

But there's some new challenges that we see as well. Because of the rise of software as a service and because of how easy it is for a line of business to go out and do self-service and purchase their own software as a service apps, one of the big challenges that we see is this proliferation. So some of the clients that I work with, they're running hundreds or even thousands of disparate SAS applications. Some of them are redundant.

And so something that was a great advantage, which was the ease of finding and selecting an app, has now become a bit of a challenge, where companies are thinking, you know, is this really the right mix of apps? How do I manage all these hundreds or thousands of vendors? And they're looking to simplify. They don't want to stifle that agility and innovation and the business empowerment. But at the same time, they do need to simplify.

And one third challenge that we see is around the renewals. So now that companies are not using SAS for just point solutions but they're using it instead for large scale, sometimes multimillions of dollars per year solutions, they're facing challenges around the renewal. So a lot of times, what you see in the SAS deployment is start small. You start using it more incrementally, get a great discount upfront because you're a new Client

And then in the renewal, the pressures are very, very different. And that's something that buyers are very tuned into now. And for SAS vendors, they need to be more aware of what that longer lifecycle looks like.

What else do buyers look for in software as a service provider? Now, will the criteria change in a year or two from now?

Some of the areas are pretty consistent. And some are changing with these new dimensions around broader usage, industry specialization, and ecosystems. A lot of clients, they are looking, of course, at what the solution is, what features does the solution offer, how well does it fit what their business is looking for. And that hasn't necessarily changed.

But in some of these other areas, we see that there is a lot more pressure and a change in the way that buyers think about solutions. So if you look at things like security, we see a lot more companies investing in a security checklist. They know more what they need to ask about. There's emerging certifications that they want to make sure the solutions adhere to. Of course, there's changes going on around the globe in terms of regulations and compliance, which also lead to certain decisions with software as a service.

And then we see that there's a lot of pressure on innovation. We see that companies are much more aware of tracking how well the vendor does deliver on that promised innovation. Now that they've had more exposure in used software as a service for longer, they're much better at looking at, does the vendor really achieve what they say they're going to achieve on the roadmap? Is it really that easy to get the upgrades as every SAS vendor says that it will be? So that's another area where people's experience over the last couple of decades has led them to be a lot more thoughtful about that in the overall selection process.

And then we see that pricing and TCO has become much more scrutinized. Again, with some of the growth in the usage, the bigger spend on software as a service, the companies that we work with, as Forrester, are much more tuned into, what do I ask for? And they put much more emphasis on not just things like the discount but broader elements such as any extras.

There are SAS vendors who charge for extras like sandboxes. Any increases at renewal time or any way to lock in a long term price because, typically, these solutions have a subscription that's renewing every year. And it's not a cheap magazine subscription. It can be hundreds of thousands or millions of dollars. So they're much more tuned into that.

And then also other cost factors like resourcing and support-- as companies in the early days really thought SAS covered everything and would eliminate support, those who have more experience realize there's not only sometimes a charge for support from the vendor but also they need their own resources to do some of the support, especially business specific or integration and customization type of support. So those are some newer areas where we see companies are much more careful in the selection and as they evaluate their overall portfolio in the longer term.

So we spoke about cost. We spoke about challenges. We spoke about innovation. What are your top three recommendations for SAS providers? Now, are they different based on whether they're new or they're established?

There are a few things that we recommend for SAS vendors really aligned to what we talked about we see on the buyer side. And some of those recommendations are different if you're a more established vendor or if you're newer on the scene and you're just coming out with your first SAS solution. One of the big recommendations that we have is, don't go it all alone.

For most SAS companies, their focus is really on a function, or process, a role. They're not going to be the best at operating and running a cloud. They're not going to be the best at architecting a developer platform for extending the cloud.

Early SAS entrants oftentimes had to build everything themselves. They had to build the data centers. They had to build the platform. If you're one of those, you may look at, is that still the right strategy? Or should we actually port to a provider where that's their core competency if yours is not?

If you're new, it really makes sense to just, right away, look to third-party technology companies who can help enable a great SAS business. And that lets you focus on the core competency of the type of SAS that you sell. So those recommendations are slightly different, depending on if you're established or newer.

Other recommendations we see are more similar, whether you're very well established, somewhat new, or brand new to software as a service. And one of those is the idea of customer led innovation. So we see a lot of focus on outside-in thinking. And that can take the form of a formal voting, formal feedback from customers, customer advisory panel. That can also take the form of design thinking and journey mapping sessions, where you incorporate customers and partners into the planning of feature releases.

But one of the interesting dynamics we see with SAS vendors is, because they're sitting on this data about how their solution is being used without violating the specifics of what an individual customer did, they can see who is using what pieces, what kinds of help desk requests are coming in. And they can use all of that information, really, to fuel their development and their pipeline of innovation and make sure it aligns with what customers need and want.

And then a last recommendation that we have ties back to what we talked about earlier about marketplaces. We see such a major shift going on with buyers that, whether you're older new, making sure that you are part of the marketplace buying experience is critical. So particularly, if you're a smaller SAS vendor, look for marketplaces where you can list.

Recognize that more and more buyers want to go to a store to research, try and buy their solutions. And if you're larger, typically, think about how you might foster your own marketplace or improve your own marketplace if you have one today so that you can make sure that you're supporting your customers in the context of other add-ons that they might be using. So those are some of the big ones that we see.

Liz, thank you so much for your insights.

Thanks for having me.

As we heard from Liz, customer expectation is evolving, and the audience for SAS providers is changing. Gen X and millennials are the key technology buyers today. And they're expecting new products and services. Innovation, new services, and support for emerging technologies are as important as security, pricing, and customer service.

The dual workloads that these customers need require a powerful computer to process everything and provide insights in real-time. These workloads also require faster access to memory and storage to avoid higher bottlenecks. So the massive amounts of data that the CSPs need to handle today require better databases and storage performance.

Legacy system with old CPUs, lower bandwidth network, and hard disk drives are not going to be able to provide that level of performance required for the big data analytics. Now, if you're a CSP and offering database as a service or in-memory database, it's critical to be able to move that data very efficiently and fast across several platforms. And as Liz mentioned, data security remains the number one concern for decisions made on the SAS platforms. Investing in the latest security technologies across the entire stack, from the core to the edge, is a must for all CSPs. For more information about solutions available for cloud service providers, visit