20WaysCloudComputingisChangingtheApproachtoProductManagement

20WaysCloudComputingisChanging theApproachtoProductManagement

SteveKeifer

20WaysCloudComputingisChangingtheApproachtoProductManagementbySteveKeiferislicensedunderaCreative CommonsAttribution3.0UnportedLicense OutsideInMarketinghttp://www.outsideinmarketing.wordpress.com Page1

20WaysCloudComputingisChangingtheApproachtoProductManagement EveryoneistalkingaboutcloudcomputingandSoftwareasaService(SaaS)thesedays.Almostevery technologyvendorhasannouncedacloudstrategyeventhetraditionalsoftwarezealots.Butwhatdo cloudcomputingandSaaSmeanforproductmanagers?Inarecentreport,ForresterResearchstated thatNomemberofthedevelopmenteffortfacesgreaterchangeinmovingintotheSaaSworldthanthe productmanager.1Thefunctionsperformedbyproductmanagersdonotnecessarilychangeinacloud computingworld.However,theapproachtoactivitiessuchasrequirementsgathering,marketing programs,pricingandcontracttermscanbedifferentthanwithtraditionalIT.Thereare20differences betweencloudandtraditionalITthatproductmanagersneedconsidertoeffectivelytransitiontothe newparadigm.Forpurposesofthediscussion,wewillusethetermcloudtoincludeSaaSandother newcomputingparadigmssuchasPlatformasaService(PaaS)orInfrastructureasaService(Iaas). Letsstartbylookingfromtheoutsidein.Whatarecustomersexpectingfromcloudproducts?And howmightthatinfluencethebehaviorofproductmanagers.Perhaps,themostappealingaspectof cloudbasedservicesformanycustomersisthepotentialforalowerTotalCostofOwnership(TCO). CFOsandCIOswanttoavoidthecashoutlayforcapitalexpendituressuchasserverequipmentand softwarelicenses.Furthermore,customersareattractedbytheflexibilitytoscaleuporscaledown costsbaseduponactualusage.

PricingModelsandContractTerms
Acriticalcomponentforanyproductmanagerscloudstrategyistheneedtodesignausagebased pricingmodel(#1).Forexample,emailsubscriptionsmaybepriceduponmailboxcount.CRM applicationpricingmaybebaseduponendusers.Storageservicesmaybebasedupongigabytes.An infinitenumberofpossibilitiesexistforproductmanagerstointroduceinnovativepricingmodels.In addition,tousagebasedpricingmodels,productmanagerswillalsoneedtoofferfixedfeesubscription options(#2).Mostbuyersprefertheusagebasedpricingstrategieswhentransactionvolumesorend userparticipationisrelativelylow.However,asadoptiongrows,customersoftenseekthepredictability ofafixedfeesubscriptionmodel.Subscriptionpricingmaybebaseduponparameterssuchasannual revenues,employeecountornumberofofficelocations.Manyvendorsofferpricebracketswhich guaranteefixedfeesifacustomersusagevarieswithinacertainrange. Theconceptofmarketbasedpricingtakesonanewmeaningincloudbusinessmodels.Amazon.com recentlyintroducedaspotmarketforitsEC2services,whichresemblesthesecuritiesexchangesusedto tradecommunitiessuchasorangejuice,crudeoilandporkbellies2.Whencomputingandstorage resourcesareinhighdemand,thespotmarketwilldrivethepriceofserviceshigher.Conversely,when resourcesareinlowdemand,thespotmarketwilldrivethepricelowerofferingopportunitiesfor bargainhunters.Suchamodelismoreefficientforsometypesofcloudsservicesthanothers. Nonetheless,productmanagersneedtoconsiderwhetherofferingexcesscapacityonthirdparty clearinghousessuchasSpotCloudcancreatenewrevenuegeneratingopportunities(#3). Anotherpricingmodelforproductmanagerstoconsiderisafreeversionoftheservice,whichis designedtoquicklycapturemarketshare(#4).Therearenumerousdifferentpermutationsoffree models,eachofwhichoffersdifferentopportunitiestogeneraterevenue.Forexample,with
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20WaysCloudComputingisChangingtheApproachtoProductManagement freemiummodelsalargepercentageofanendusercommunity(e.g.95%)usesabasicversionofthe serviceforfreewhileasmallergroup(e.g.5%)paysforaccesstoapremiumversion.Thepremium customerssubsidizetheremaining95%ofusers.Anotherfreemodelinvolvesprovidingnocharge accesstoacommunityofendusersthatissubsidizedbyathirdpartysuchasanadvertiser.The advertiserpaysforaccesstoinformationortomarketdirectlytoendusers,whichunderwritethecosts oftheservice. Cloudservicesareappealingtousersseekingtoavoidthevendorlockineffectthatoccurswith traditionalpurchasedsoftwarelicensesandhardwareequipment.Consequently,productmanagers faceamorechallengingscenarioforcontracttermsthanwithtraditionalIT(#5).Seniormanagement andinvestorswillpreferthepredictabilityofsecuringlongtermcontracts.However,endusersmay demandtheflexibilitytoterminateforconvenienceatanytime.Offeringlowerpricinginexchangefora longertermcommitmentisapopularapproachtoenticingcustomersintocontracttermsmore favorableforthevendor.

RequirementsGathering
Requirementsgatheringdramaticallychangeswithcloudbusinessmodels.Fromoneperspective gatheringproductrequirementsforcloudservicesandSaaSapplicationsismorechallengingthan traditionalIT.Cloudservicesarenotdesignedforextensivecustomization.IntraditionalIT,softwareis notexpectedtomeetacustomersneedsofftheshelf.Instead,acommunityofsystemsintegrators andValueAddedResellers(VARs)areutilizedtocustomizeenterprisesoftwaretotheclientsspecific businessrequirements.However,cloudservicesaredesignedtobeturnkeyandreadytouse immediately.Consequently,cloudprovidersneedtogetthecompletefeaturesetrightthefirsttime. Productmanagersshoulderalargerburdenthaneverforunderstandingcustomersspecificneedsand priorities(#6). Fromanotherperspective,however,gatheringrequirementsiseasierthanever.Productmanagerscan alsobuildintrackingfunctionswhichmonitortheactualfeatureusageandnavigationpathstoprovide insightsintopopularity(#7).Productmanagerscaneasilycrowdsourcenewfeatureprioritiesfrom theusercommunityonline(#8).Salesforce.comwasanearlypioneeroftheconceptwithits IdeaExchangeportal.Userscansubmitideasfornewproductcapabilitiesthenvoteonthemost importantonline. Perhaps,thebiggestchangeforrequirementsgatheringistheneedtothinkbeyondhowtheproductis manufacturedordevelopedtoalsohowtheproductwillbeoperatedandservicedthroughoutits lifecycle.Withcloudservices,productmanagersneedtodefinerequirementsforoperationalaspects suchasprivacy,security,upgrades,interoperabilityandservicelevelagreements.

PrivacyandSecurity
Onekeybarriertoadoptionofcloudbasedservicesissensitivitytohostingdataoutsideacompanys firewall.Akeyissuesurroundsownershipoftheintellectualpropertyandusergenerateddatawithin
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20WaysCloudComputingisChangingtheApproachtoProductManagement cloudbasedservice.CRMapplicationsmaycontaincustomerdatabases.Emailapplicationsmay containsensitiveinternalmemoranda.Financialapplicationsmaycontainemployeepayrolls.Buyers willbereluctanttoembracecloudapplicationsiftherearenolimitationsonhowdatacanbeusedby thevendororthirdparties.Productmanagersshouldensuredataownershipisclearlyexplainedin termsandconditions(#9).Uponterminationofacontract,cloudvendorsneedtoprovidemodelsfor thecustomertoextractdataintotheirownenvironment.Additionallymeasuresshouldbetakenbythe vendortoensurethatthecustomerdataispurgedfromitsdatabase. Theconceptofprivacydependsuponstrongsecurity.Productmanagersneedtofamiliarizethemselves withtheappropriatesecuritypoliciesnecessarytosafeguarddifferenttypesofdata.Ahighprofile securitybreechcouldbecatastrophictoacloudvendor.Salesforce.comwasthevictimofaphishing attackin2007inwhichacustomercontactlistwasexposed3.IntraditionalITmodels,thecustomersin housesecurityteamwouldberesponsibleforensuringtheprotectionofsensitivedata.However,with cloudservices,productmanagersneedtoensureappropriatefundingexistsforsecuritytechnologies suchasVPNs,firewalls,antivirus,intrusiondetectionanddatabaseencryption(#10).

OperationsandIntegration
ThepastfewyearshavewitnessedhighprofileoutagesatcloudprovidersAmazon.com,Workday,Intuit andGoogle.UnlikewithtraditionalenterpriseIT,endusersofcloudservicesarenotboundbyloyaltyor restrictivecorporatecommunicationspolicies.Intodaysweb2.0world,newsofservicedisruptions spreadsvirallyacrossdiscussionforums,usergroupsandpopularblogs.Vendorsmustbepreparedto communicatequickandhonestlytotheusercommunityduringoutages. AnalystRayWanghascalledfornewlevelsoftransparencyfromvendorsinitsmanifestotheSaaS CustomersBillofRights.4Wangstatesthatcustomersshouldbeinformedofknownfunctionalbugs, potentialsecurityrisks,recurringperformanceissuesandserviceavailabilityproblems.Hestatesthat customershavearighttoknowthehighlightsoffinancialstatements,locationsofdatacentersand compliancewithgovernmentregulations.Productmanagerswillneedtoconsiderwhatlevelof transparencyisnecessarytoensurethatofferingsarecompetitiveinthemarketplace(#11). IntraditionalenterpriseITmodels,thecustomerwasresponsibleforoperatingthesoftwareand hardwareinacorporatedatacenter.Operationalissuessuchasdisasterrecoveryplanning,system backupprocedures,NOCmonitoring,hardwarerepairwereconcernsofthecustomer.IntheSaaSor cloudmodelthevendormustmanageoperations.Cloudproductmanagersshouldplayamoreactive roleinspecifyingoperationalrequirementsofservices(#12)relatedtobackup,monitoringanddisaster recovery.Poorlyexecutedoperationscandestabilizeeventhemostwelldesignedproducts. Akeybarriertotheadoptionofcloudbasedservicesistheabilitytointegratewithinternalenterprise applicationsbehindthefirewall.ProductmanagersmustensurethatcloudbasedservicesofferAPIs, webservicesandpreconfiguredadapterstosimplifythirdpartyintegration(#13).Variousindustry consortiasuchastheOpenCloudManifesto,OpenCloudConsortiumandOpenGridConsortiumhave formedtopromotestandardsforcloudrecently.Akeytenantofeachoftheseorganizationsisthe
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20WaysCloudComputingisChangingtheApproachtoProductManagement inherentinteroperabilityofcloudapplications.BothDellandIBMhavemadeacquisitionsrecentlyin cloudintegrationvendorssuggestingthattherewillbegrowingneedforsuchtypesofservices.

UpgradeCycles
Upgradesinthecloudmodelpresentanewsetofchallengesforproductmanagers.Fromone perspective,cloudservicesareeasiertoupgradethantraditionalITproducts.Productmanagersand softwaredeveloperscandesignapplicationswithasingleplatforminmind(#14).Thereisnoneedto maintainseparateversionsofproductstosupportdifferentoperatingsystems,databaseserversor hardwarearchitectures.Furthermore,cloudservicesaremultitenantmeaningthatmanyclientscanbe upgradedsimultaneouslyusingthesameserverhardwareandruntimeenvironment.Singleplatform, multitenantenvironmentsintroduceeconomiesofscalenotpossibletraditionallyfromtechnology vendors.However,singleplatform,multitenantenvironmentsalsointroduceanewsetofchallenges. Specifically,thelimitationsoncustomizationcanpresentasignificantchallengeforproductmanagers (#15),particularlywithlargeenterpriseaccounts.Fortune500companiesareaccustomedtobullying technologyvendorsintoaddingfeaturesspecifictotheirbusinessneeds.Itwilltaketimeforlarge customerstoadapttothenewparadigm.Inthemeantime,productmanagerswillbeentrustedasthe gatekeepersofrequirements,whichmustensureupgradesareprioritizedtosuitthebroaderneedsof thecustomerbase. Thefrequencyofupgradesisanotherchallengetoconsider.Oneofthekeybenefitscustomersare seekingfromcloudisatimetomarketadvantagewithcloudproductsthatwasnotpracticalor affordablewithtraditionalenterpriseIT.Productmanagerswillneedtodeterminehowfrequentlyto introduceupgrades(#16).Manyvendorsschedulequarterlyfunctionalupgradeswithmoreurgentfixes toknownsecurityrisksorbugs.

SalesandMarketingApproach

Withcloudservices,theonlinedemoexperiencebecomesoneofthemostimportantphaseofthesales cycle.TraditionalITdemosareperformedwiththeadultsupervisionandhandholdingofasales engineer.However,mostcloudproductsofferprospectstheabilitytotestdriveafreetrialversionof theproductonlinewithoutanysalesinteraction.Toensureapositiveenduserexperiencewithonline trials,productmanagersmustensurethattheuserinterfaceforcloudproductsisbothintuitiveandself guiding.Toensureahighconversionrateoffreetrialusersintopayingcustomers,productmanagers needtodesignaseamlessupgradeprocess.Prospectsshouldbeabletoupgradefromasingleuser demotoamultiusersandboxandthenultimatelytoacompanywidesubscription(#17). UnlikemanytraditionalITproducts,cloudserviceswillbesoldprimarilythroughdirectsaleschannels. SignificantlylessvalueaddopportunityexistsfortraditionalresellerssuchasVARsandSystems Integrators.Anewsetofpotentialchannelsisbeginningtoemergeintheformofonlinemarketplaces. ExamplesincludeSalesforce.comsAppExchangeandMicrosoftsAzureMarketplace.Itremainstobe seenhowsuccessfultheonlinemarketplacemodelwillbecome.Nonetheless,productmanagersshould considerwhetheranofferingcanbepackagedforsaleviathesechannels(#18).Smallandmedium
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20WaysCloudComputingisChangingtheApproachtoProductManagement businesseswilllikelybethebiggestadoptersofonlineappstores.However,evenlargecorporate buyerswillbebrowsingthesetypesofwebsitestoresearchproductsbeforecontactingavendorssales representative.Consequently,productmanagersneedtoensurethatthecontentpostedoncorporate websitesiseducational,consultativeandsufficientlycomprehensivetomeetcustomerexpectations (#19).

FinancialMetrics
SuccessfromafinancialperspectiveisdefineddifferentlywithcloudbusinessmodelsthantraditionalIT. Venturecapitalistsinvestingincloudstartupshaveadifferentsetofexpectations.Forexample, investorsexpectmorepredictabilityandconsistencyinrevenuesduetothemonthlyrecurringbilling modelutilized.Marginsaretypicallylowerthanenterprisesoftwareandhardware.However,lower marginsareoffsetbyalargerpotentialrevenueopportunity.Theaddressablemarketforacloud serviceisexpectedtobe34timesanequivalentopportunityintraditionalIT.Cloudvendorshavethe potentialcapturetheentirelifecycleofoperatingexpenseforatechnologyratherthanjusttheupfront capitalexpenditure. However,contributionmarginsandrevenuegrowtharenottheonlyimportantfinancialmetricsfora cloudbusiness.Infact,manyinvestorsbelievethatthetraditionalmetricsusedtogaugethesuccessof enterprisesoftwareorhardwarebusinessesarenotappropriateforcloudmodels.Instead,investors recommendcurrentbacklog,newbookingsanddeferredrevenueasimportantpredictorsoffuture revenues.Customeracquisitionrate,netnewsubscribersandusersperaccountarealsobarometersof longtermgrowth. Afewsavvyinvestorshavecreatednewmetricssuchascustomerlifetimevalueandthemagic numbertoprovideastandardcomparisonmetricforcloudproviders.Customerlifetimevaluerefersto therecurringrevenuefortheaveragecustomerperperiodmultipliedbythetermofcustomerlifetime. Themagicnumberisthedifferenceinthepasttwoquartersrevenuemultipliedbyfourthendividedby lastquarterssalesandmarketingexpenses.5Productmanagerswillneedtobegintrackinganexpanded setoffinancialmetricstomeasurethesuccessofofferingsascomparedtothecompetition(#20). Conclusion Theshifttocloudenvironmentsunderscorestheneedforproductmanagementasthevoiceofthe marketthroughoutthedevelopmentandsalesprocess.Whilethecoreroleoftheproductmanager doesntchange,thewayweapproachandprioritizedifferentitemsmayneedtobeadjusted.

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20WaysCloudComputingisChangingtheApproachtoProductManagement

References
1. ForresterResearchSaaSDictatesDifferentProductManagementPriorities http://www.forrester.com/rb/Research/saas_dictates_different_product_management_prioriti es/q/id/45055/t/2 2. Amazon.comSpotInstanceshttp://aws.amazon.com/ec2/spotinstances/ 3. WashingtonPostSalesforce.comacknowledgesdataloss http://voices.washingtonpost.com/securityfix/2007/11/salesforcecom_acknowledges_dat.html 4. AltimeterResearchCustomerBillofRightsSoftwareasaService http://blog.softwareinsider.org/2009/10/12/researchreportcustomerbillofrightssoftware asaservice/ 5. ChaoticFlowSaaSEconomics101http://chaoticflow.com/saascompetitiveadvantagesaas economics101ebook/

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