Tuesday, September 18, 2012

Cloud Adoption - The 80/20 rule...

Over the years I have worked for several small companies. These companies were in the 100-150 person range.  Back then (late 90's/early 2000's) the "cloud" wasn't really there with the exception of Salesforce.com. These companies that I worked for all had an on-premise Active Directory with some sort of email system such as Exchange and collaboration portals to share documents, etc.  Each of them typically employed 2 to 3 full time IT folks to keep it all moving. 

In today's world, a 100 person company can easily find ALL of their services in the cloud, without requiring any on-premise infrastructure or servers.  This is the "low hanging fruit" for Microsoft.  The companies are small and can easily log in to a cloud portal application, create their users and passwords and get to the cloud. These are the easy ones. 

Now lets move on up the chain to the medium and large enterprises.  These companies likely have an on-premise environment (i.e. Active Directory) and as the organization grows in size, its complexity grows.  They will have more and more user repositories, multiple platforms, etc.  Moving these organizations to the cloud is more complicated and difficult.  

Here is the rub and the 80/20

While you may be able to grab "80%" of the companies in the world under the non-complicated low hanging fruit scenario, this only represents "20%" of the total user population.  While there are fewer of the medium to large customers, they have more users and thus a greater total population. That wouldn't matter if cloud services were sold on a flat server/company fee, but most cloud offerings sell per user/per month. 

Here is some quick math shown in the spreadsheet below.   In the example, I averaged the "small" company at 100 users.  That would be a mix of some companies that have 5 or 20 people and some with 200 or 300.  As you can see for Microsoft's middle of the road Office 365 plan that would equate to $168 million dollars in annual revenue in my scenario of getting 10,000 of these companies.

Now let's look at my second example.  In this scenario, I assume that only 2,000 companies sign up for the cloud offering.  However, these 2,000 companies have on average 30,000 users (some higher/some lower).   In this scenario, using the same middle of the road Office 365 plan would result in annual revenue of 10 billion dollars...

Which would you rather have?  80% of the small companies or 20% of the large companies?  Obviously these aren't hard and fast numbers, but the 80/20 model is the base premise here.

Now it is probably pretty easy to see why my company Optimal IdM, developed our Virtual Identity Server for Office 365 solution.  This solution eliminates many of the most common deployment barriers for Office 365.  In a nutshell, we make complex environments easier to manage and cloud adoption a snap!   We charge a percentage of what Microsoft charges for Office 365 but as you can see with each new customer (they are typically large) that represents substantial recurring revenue.

It is sort of like target markets in general.  You would far rather have a product that has a target market with anyone in the world, then to have a product geared towards a specific age/gender/ etc.  In terms of cloud, I would far rather have a smaller number of customers that represent the bulk of the user base.

By not supporting multiple AD forests in Office 365 or other data stores for that matter, Microsoft went after the low hanging fruit.  The easy, non-complicated customers.   That's where partners come into play such as us.  We fill the gap and make adopting Office 365 fast and easy. We can take a customer to the cloud in a matter of days regardless of the number of data repositories they have and without changing or touching their existing infrastructure.  It is the easy and no risk way to go to Office 365. 

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