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SaaS and the Cloud: A Contrarian Voice Questioning the Hype

By Dick Weisinger

While cloud computing may be delivering on it’s promises to users of the technology, things may not be as rosy for the vendors that are providing the services.

Anthony Miller, analyst at TechMarketView, is one such contrarian.  It’s not that he’s not a believer in the many benefits that the cloud offers businesses, it’s that he thinks that cloud technology will be a blow to technology vendors.

Miller questions, for example, figures from other analysts like IDC that say that the Cloud will be an engine for job creation and growth for IT, creating as many as 14 million jobs.  Miller says that the very nature of cloud services is all about reducing expenses and cutting back, and that any effect of the cloud on IT will actually be ‘deflationary’.  Miller said that “Our own forecasts for the UK market suggest that spending on software and IT services will decline in real terms (i.e. excluding inflation) until 2015 and then will remain pretty much flat (plus or minus) till the end of the decade.”

What will the effect be on technology vendors?  Miller says that the problem with SaaS is the last ‘S’ — ‘Service’.  Up until the cloud, vendors only needed to build their software, now they also need to host and handhold it.  Delivering software in that way is simply more expensive than just shipping it on a disk.  Yet vendors are charging less for it.  Miller especially questions the rationale behind the pricing of SaaS options.  He says that “Flexibility should come at a premium, not a discount.”  He points to cloud-vendor star  Salesforce continues to lose buckets of money, despite their rising revenues.

Miller said that “The underlying factor is that cloud computing, just like every other major technology trend in the market, is designed to lower the cost of computing for organizations, whether they are private sector enterprises or public sector bodies. So, not surprisingly, as organisations look for ways to cut costs, going to the cloud is one of the things they are looking at…  But suppliers need to be aware of the cost of delivering the service, because if the cost doesn’t change and the revenue comes down, that will hit profit margins.”

In an interview with TechWeek Europe, Miller said that “We are in our sixth consecutive year of market decline – and the IT market will continue to grow more slowly than gross domestic product (GDP) till the end of the decade, and probably indefinitely.”  To Miller, within IT, only the outlook for mobile seems promising.  “Mobile is breaking the mould: it’s the biggest disruptive force we have ever seen in the technology sector.”

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