Academic journal article Journal of Theoretical and Applied Electronic Commerce Research

From On-Premise Software to Cloud Services: The Impact of Cloud Computing on Enterprise Software Vendors' Business Models

Academic journal article Journal of Theoretical and Applied Electronic Commerce Research

From On-Premise Software to Cloud Services: The Impact of Cloud Computing on Enterprise Software Vendors' Business Models

Article excerpt

Abstract

Cloud computing is an emerging paradigm that allows users to conveniently access computing resources as pay-per-use services. Whereas cloud offerings such as Amazon's Elastic Compute Cloud and Google Apps are rapidly gaining a large user base, enterprise software's migration towards the cloud is still in its infancy. For software vendors the move towardscloud solutions implies profound changes in their value-creation logic. Not only are they forced to deliver fully web-enabled solutions and to replace their license model with service fees, they also need to build the competencies to host and manage business-critical applications for their customers. This motivates our research, which investigates cloud computing's implications for enterprise software vendors' business models. From multiple case studies covering traditional and pure cloud providers, we find that moving from on-premise software to cloud services affects all business model components, that is, the customer value proposition, resource base, value configuration, and financial flows. It thus underpins cloud computing's disruptive nature in the enterprise software domain. By deriving two alternative business model configurations, SaaS and SaaS+PaaS, our research synthesizes the strategic choices for enterprise software vendors and provides guidelines for designing viable business models.

Keywords: Cloud computing, Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), business model, Enterprise systems, Enterprise resource planning (ERP), Customer relationship management (CRM), Revenue model

1 Introduction

Cloud computing is an emerging concept that allows users to conveniently access computing resources as pay-per-use services [4]. As is often the case in a new technology concept's early phases, expectations are high and growth projections are impressive. In 2013, cloud computing is among the top 10 technologies considered strategic for most organizations [22]. Analysts project that the cloud services market will grow from $25.5 billion in 2011 to $159.3 billion by 2020 [47], and expect that almost all computing resources will move towards the cloud. Whereas cloud offerings such as Amazon's Elastic Compute Cloud and Google Apps are rapidly gaining a large user base, enterprise software's migration towards the cloud is still in its infancy.

The relatively slow migration towards cloud solutions in the enterprise software domain can be explained by different factors: Looking at the demand side, business users have more complex information technology (IT) needs than private users, since they use enterprise software, such as enterprise resource planning (ERP) or customer relationship management (CRM) systems, to support their core business operations. Given the business criticality of these systems, companies are more concerned about security and peformance issues [49], but also face significant switching costs when migrating to new technologies. Accordingly, the business user perspective has been extensively investigated in recent studies on cloud adoption drivers and challenges [6], [27] as well as approaches for migrating to the cloud [36]-[37]. However, this slow migration towards cloud enterprise software may also be explained from the supply side, where vendors are reluctant to introduce cloud offerings. For them, cloud computing implies profound changes: Not only does it force them to deliver their solutions via the internet and to replace their software license model with service fees [40]; it also requires them to rework their solutions to become fully web-enabled and to serve multiple customers with the same instance, whereas traditional applications are installed and often extensively customized for a single customer. In terms of competencies and resources, delivering cloud applications implies that software vendors operate data centers and manage applications in addition to their traditional software development activities. …

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