SaaS adoption is happening faster and slower than you think

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Commentary: Cloud adoption seems to have hit overdrive, but actual enterprise adoption will take a lot longer, according to Goldman Sachs.

Software as a Service SaaS

Image: putilich, Getty Images/iStockphoto

Buried at the bottom of a recent article on digital transformation, machine learning and mainframes by analyst Benedict Evans is a great phrase: “gradually, then suddenly.” Evans borrowed the phrase from Ernest Hemingway’s “The Sun Also Rises” (a character asks “How did you go bankrupt?” and the answer is “Two ways: gradually, then suddenly”) and applied it to enterprise IT. I’ve pointed out that as fast as we may think tech is moving, enterprise IT tends to move slowly. Evans adds some interesting color.

SEE: The most important cloud advances of the decade (free PDF) (TechRepublic) 

Getting ahead of ourselves

Speaking of cloud and Software-as-a-Service (SaaS), it’s easy to assume that CIOs have embraced cloud en masse–easy, but wrong. As I’ve highlighted, though we like to talk about cloud as if AWS, Microsoft and Google are divvying up an established market, the reality is that as much as 95% of all IT spending remains firmly on-premises. Will we get to a cloudy future? Sure. But in enterprise IT, the future tends to take a long time.

Moving beyond Infrastructure-as-a-Service (IaaS, which we often conflate with “cloud,” though it’s just one element of cloud computing) to SaaS, it’s much the same story. As Evans wrote, referring to Goldman Sachs research (Figure A), “If you live in Silicon Valley, it would be natural to think that cloud and SaaS are old and done and boring, but…less than a quarter of [enterprise] workflows are in the cloud so far, and they’re moving slower than they expected.” Why? Because “This stuff takes time, and you don’t necessarily have the budget or justification to rebuild everything overnight.”

Figure A

goldman-sachs.jpg

Image: Goldman Sachs Global Investment Research

Even those forward-looking three-year projections may be optimistic, absent a pandemic to expedite digital transformation projects. Enterprise IT happens gradually, as Evans noted.

Until it happens suddenly, that is.

The ongoing COVID-19 pandemic is presenting plenty of “suddenly” moments, Evans said:

I’ve spoken to a big CPG company that might be perfectly happy with its ERP, except that it can’t ship less than 1,000 units per order and now they want to do direct-to-consumer (this is part of the Shopify story). I’ve also spoken to people at a huge retailer that was perfectly happy with its point of sale system, but discovered that it can’t be extended to ‘buy online pick up in store’. The old systems are good at the old things. 

“Old systems are good at the old things.” This works fine…until it doesn’t. Customer expectations have shifted due to the COVID-19 pandemic or other factors, and suddenly the old tech doesn’t work to solve new problems. All of which may be a long way of saying that cloud, SaaS and [name your technology trend that you figured was already done] are increasingly mainstream, but that doesn’t mean they’ve hit mass adoption. 

Disclosure: I work for MongoDB, but the views expressed herein are mine.

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