Could Costs of Middle Men Impact Cloud's Advantage?

Loraine Lawson
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Just How Strategic is the Cloud?

Most see cloud computing as a strategic move, but security is still a prime concern.

Bad economies often create a do-it-yourself mentality, which, in turn, means more people eliminate any sort of "middle man." Most industry watchers will tell you that's why SaaS and all-things-cloud exploded in the past few years. Cloud saves money and it cuts out the IT division.


But as I'm sure you've noticed, the cloud isn't just impacting IT divisions. It's also affecting traditional enterprise software markets and the third-party companies - the IT consultants, systems integrators and VARs - so often attached to these mega-IT projects.


It's an interesting question: Will these players be able to reinsert themselves in the process as more companies move to the cloud? And how will that impact the cost advantages of the cloud?


As a sometimes tightwad and a sometimes couch potato, I can see both the benefits of using a middle man and the do-it-yourself approach. It's human to mistrust someone who provides a service efficiently and then wants to charge you a rate that amounts to $260 an hour for it.


Jeff Kaplan, managing director of THINKstrategies and founder of the Cloud Computing Showplace, says in some estimates, consulting fees for systems integration and application development work can be five to 10 times the original system or software license cost. By using cloud providers, companies feel they can cut that cost. Kaplan writes:

These exorbitant fees and the questionable results they often produced have been one of the many reasons that organizations are increasingly migrating to cloud computing alternatives that require far fewer skills and less expense to deploy and maintain. As a result, the advent of software-as-a-service (SaaS) and other cloud services poses a serious threat to traditional IT consultancies, which have made a living helping clients grapple with the complexities of legacy systems and software.

But then again, when you hire a consultant service, you're also paying for the years it spent acquiring that knowledge, plus any special equipment, as the head of Teradata's professional services marketing programs contends in his post, "Is Consulting Worth the Money?"


Realizing this, many of these third-party integration partners are reassessing their approach to business. Some are cutting back, some are focusing on adding new types of value, but others are embracing the cloud by building or buying their own cloud solutions, Kaplan says. This last group strikes me as the more business savvy of the bunch.


Earlier this month, I shared how Scribe Software is basing its cloud business model in large part on providing integration to SIs and VARs. Scribe CEO/President Lou Guercia told me in a longer interview - published this week - that these third-party partners are concerned about their cloud strategy, but he believes there's a place for them:

We think that when you start really mainstreaming SaaS with on-premise, there's a value proposition there not only for the IT organization, but for their trusted partner. I think those trusted partners in many cases are going be those local VARs and/or those global systems integrators that have to figure out how to mainstream all this stuff.


It's going to be heterogeneous in the broadest sense of that term. You could have Salesforce working with SuccessFactors, you could have Oracle Financials and you could have five other apps that have been built over the last 10 years running behind the firewall. How do you get all that to work together and abstract the integration in a way that doesn't require a lot of programming?

It's a good point, but I also think it could depend on how the traditional enterprise players manage the new cloud reality. Big enterprise software players are not only facing a shift in their own approach to enterprise computing, they're also facing a world where businesses need more integration and interoperability. In the past, they've relied on third-party partners to provide that level of integration. Some even contend traditional software vendors gained a competitive advantage by not offering out-of-the-box integration.


But IT consultant Ettiene Myburgh argues that locked-down attitude won't play well in today's business environment - and let's face it, cloud is a key component of that:

"Where once IT managers were simply looking for a solution that would enable their business, there are now hosts of other factors that need to be considered," Myburgh is quoted in this IT Web Business article. "These range from flexibility to the ability to choose from different vendors, ensuring that products from different vendors interoperate, making certain that existing investment is protected, saving costs, lowering total cost of ownership and ensuring that the organization is not constrained by its IT systems."

As IT systems combine on-premise with cloud apps and resources, will middle men become a critical part of the equation, particularly when it comes to integration? And if they do, could the cloud lose its cost-effective edge?

Add Comment      Leave a comment on this blog post
May 26, 2011 2:56 AM Kathryn Douglass Kathryn Douglass  says:

As much as I would like to think that Cloud/SaaS solutions could be a low cost/low maintenance solution, my experience tells me that this may not always be the case.  In a corporate environement, once you introduce a couple of standalone SaaS solutions to the equation, and combine that with legacy systems and data, you have created a complex environment that requires integration of some sort.   Business users will need to get their IT departments and/or consultants involved in this process, there is no question about it. 

For standalone solutions, SaaS solutions are terrific if you can live with the limitations of a SaaS tool.  Not all SaaS solutions are created equal, wit pricing, support, usability and user control varying all over the map.  Careful analysis of these tools and their associated support is needed to determine if they really are cost effective in a particular environment.


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