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Product Lifecycle Management and the Cloud
The following post is an excerpt from a new eBook published by Tech-Clarity, “Cloud Considerations for the PLM ISV.”
The Cloud Opportunity for PLM
Cloud solutions offer companies a range of compelling benefits including lower cost, scalability, ease of implementation, and reduced need for IT resources. Most companies are taking advantage of some cloud applications at this point, and it’s becoming a de facto architecture for some. That makes it an important option for independent software vendors (ISVs) to offer.
Cloud adoption in Product Lifecycle Management (PLM) has been slower, at least partially due to limited demand from conservative customers. But initial concerns have given way to rational requirements and audits. This is creating a growing competitive need in PLM, and even the largest, traditional vendors are making strides.
Overall, cloud solutions offer lower implementation and cost risk for customers. But that same can’t be said for software vendors who find themselves facing a significant architectural transition. Many PLM vendors are already rearchitecting toward a “platform” approach, making it a natural time to shift architectures. The technical considerations can be significant, but it’s not just a technical journey. There are implications to processes and organization as well. This blog isn’t intended to provide all of the answers, just to make sure you’re asking the right questions.
“Cloud solutions are easier to embark on and offer lower business risk because they require no capital expenditures, no depreciation, and lower ‘sunk’ costs.”
- “Assessing the Cloud PLM Opportunity” – Tech-Clarity
“Cloud” Transition Isn’t Black and White
Moving application software to the cloud isn't suited to a cookie cutter approach. There are different options to consider, each with tradeoffs for the vendor and their customer base.
If vendors are starting from scratch, they may choose to take a 100% cloud, Software as a Service (SaaS) approach. There are still important decisions to make, like whether to build their own datacenter or partner with a cloud services provider. In fact, some companies choose multiple providers to avoid being locked into a single option. Another key consideration is whether to segregate client data through separate databases or by creating a multitenant model.
For companies with a large investment in traditional software, the path to “cloud” varies more. The easiest approach, and often a first step, is to move to a hosted or Infrastructure as a Service (IaaS) model. This model mimics an on-premises approach so there is less to change. On the other hand, it really doesn’t provide all of the scalability benefits companies demand, doesn’t reduce total cost, and can significantly impact margins.
Another option is taking a flexible offering or “hybrid” approach. This involves transitioning software to a cloud model, but offering customers flexibility by offering a cloud solution but also providing the full stack for customers to deploy in their own private cloud. This option might be a good one for PLM vendors to meet the needs of both their cloud-ready customers and their more conservative ones that want more direct control.
One final consideration is that PLM vendors may not choose to move all of their solutions to the cloud at once. Some are developing new, collaborative or resource-intensive solutions on the cloud first. As the quote below shows, some things are more naturally suited to the cloud because they leverage unique cloud capabilities.
“It’s important to differentiate between offerings that simply replace on-premises infrastructure from those that leverage special cloud computing characteristics to deliver previously difficult or impossible solutions. There are some applications where the cloud offers differentiated benefits that … fundamentally change the way a job is done.”
- “Exploring Cloud Options for Product Innovation and Development” – Tech-Clarity
Important Business Decisions
Before we get into a technical discussion, it’s important to acknowledge that there are critical business implications of moving to a cloud model that can mean the life or death of a software company. Clearly there is a cost to retool existing solutions and retrain personnel, but there’s more.
Allowing customers to shift capital expenses to operational expenses, one of the benefits that customers love, has a direct impact on vendor financials. Cloud subscription models fundamentally change revenue streams. While revenue becomes more recurrent and predictable over time, it starts at lower volumes. Shareholders need to understand the plan.
Depending on the cloud approach, vendors may also have to invest in new infrastructure. This could include physical hardware for self-hosting. It also likely includes purchasing infrastructure software licenses for operating and database management systems. These investments come in advance of subscription revenue, putting costs out of phase with revenue. Ideally, these costs can start low and scale rapidly as customer demand (and revenue) grows. Unfortunately, many of these solutions come with traditional licenses that require large up-front investments, and are hard to scale rapidly.
Vendors need to be able to reduce the total cost of ownership and not just shift expenses around in order to meet customer cost objectives. Replicating existing approaches via an IaaS approach can result in inflexible infrastructure driving high costs and holding the business back.
Changing from a traditional solution provider to a cloud provider drives changes to daily operations. A key benefit for customers is that the vendor takes ownership for functions like backups, security, performance, disaster recovery, operating and infrastructure software patches, and much more. Using cloud software relieves the customer from these burdens, but they expect to pay less due to economies of scale.
The vendor, on the other hand, has to assume responsibility for all of these functions. In addition, customer expectations of their cloud providers are often higher than they had for their own organizations.
Moving to a cloud model can drive significant changes to things like how and when patches are applied to the application and operating software, and may result in companies adopting a continuous upgrade approach where new functionality is rolled out as it becomes ready.
All of these changes demand much tighter integration and collaboration between internal development and support organizations. To address this, some ISVs are adopting a “DevOps” approach.
Becoming a cloud provider also changes the relationship with customers. A cloud vendor is expected to provide a holistic service, not just software. Customers’ demands for performance and availability are now shifted primarily to the software vendor, and service level agreements (SLAs) often put financial penalties on missed expectations.
Even without SLAs, subscription-based pricing means that customer satisfaction and retention are much more important than with traditional models. Even though switching PLM solutions typically takes more effort than with most other applications, revenue growth relies on happy customers expanding to new functions, departments, product lines, users, etc.
For PLM, the move to the cloud has begun. Whether a vendor is moving all of their applications to the cloud, some of them, or offering a hybrid solution, it’s an evolution that requires a lot of decisions. After all, shifts in computing infrastructure and paradigms have historically resulted in major disruption for vendors, leading to major shifts in the competitive landscape as new players emerge and older players fade into the sunset.
In my next post, I’ll explore some of the deeper technical considerations for delivering PLM on the cloud.
Jim Brown is the President of Tech-Clarity, an independent research and consulting firm that specializes in analyzing the business value of software technology and services. Jim has over 20 years of experience in software for the manufacturing industries. He has a broad background including roles in industry, management consulting, the software industry, and research.
Jim’s experience spans enterprise applications including PLM, ERP, quality management, service lifecycle management, manufacturing, supply chain management, and more. Jim is passionate about improving product innovation, product development, and engineering performance through the use of software technology.
Jim is an experienced researcher, author, and public speaker and enjoys the opportunity to speak at conferences or anywhere he can engage with people with a passion to improve business performance through software technology.