Many Businesses will change their Cloud Software again

Jan 18, 2022 Written by Michelle Colbran (Founder of SOS Consulting)

I joined the software industry in 2003, the same year as Wordpress.  Back then just under 41m business were on the web, 2 years prior around 29m.  Now fast forward 20 years, today there are 1.92b websites. During those 20 years I have witnessed the fascinating journey of software and how businesses adapted to embrace the cloud. Today a new IT transformation is well under way and believe in the next 5 years many businesses will change their cloud software again. In this article I will recap on 20 years of software evolution and explain why I believe this transformation will happen.

In 2003, I was a financial adviser with a small UK business. I designed and built one of the first Cloud based CRM systems for the financial services industry.  Back then, the internet was becoming a thing of the future and businesses like mine were able to create an online database to manage customer data, pipelines and notes. They were simple but revolutionary, as we moved away from paper and filing cabinets. Software was like building a website, cheap and easy to develop.  I called it ‘Proprietary Software’

Proprietary Software started popping up everywhere, software designed by industry experts for industry experts. Builders, Trades, Brokers, any industry with a software need had an entrepreneur who started developing an application. If it was designed and built well, competitors wanted their software and many entrepreneurs ceased the opportunity and started a software business. I also went on that journey for the financial services industry.  In the first 3 years over 1,200 advisers in the UK were using my software and by 2009 I had secured my first multi-million-dollar contract in Australia.

In 2007, 4 years into my journey, Apple launched the first iPhone and that changed the landscape forever. Just one year later they launched the App Store with the first 500 mobile apps. 

Back then we could not easily view applications or websites on a mobile phone. To put it simply, you could use your iPhone to explore the web but websites were squashed into a little device, making them hard to read. 

People started developing mobile websites, specifically built for a small device. But internet browsers and devices kept changing, remember the iPad was not launched until 2012. With so many changes, mobile websites started crashing and more development was needed to fix them. The evolution of devices and browsers was too fast for mobile websites to keep up, without a significant ongoing cost.

Of course, Social Media, Facebook specifically was the first to market with an app in 2007, just 3 years after they started. A major milestone was reached in 2011, with the first fully functional Banking App delivered by the ‘Royal Bank of Scotland’ on an iPhone, later on the Blackberry and Android.  Xero Accounting App was released in 2011. Suddenly the world was moving into Mobile devices to manage everyday business activities, very limited back then but still an outstanding achievement in IT capabilities.

The next significant milestone that really stands out for me is 2014 when HTML5 was released, then technically we jumped leaps and bounds forward. HTML5 gave us the ability to build ‘Responsive’ websites that are compatible for any device and browser. Smart businesses quickly rebuilt their website and created a ‘Responsive’ one. HTML5 also created new opportunities for business software to be accessible on a mobile app.

Now the iPhone really took off, in 2015 they had their highest sales ever with 231.22m units sold, 172% higher than the previous year. Everyone wanted an iPhone to search the web and users wanted to start running their business using mobile apps.

In the business world, the war really began between server-based applications and the cloud. Server based applications made their case, saying that cloud was not secure. After all 'what was the cloud' very few people understood it. Businesses started asking who had access to their data and did they really own it. Cloud vendors had to make their case, educating users on back-ups, firewalls and disaster recovery, educating users that the cloud was much safer and their customer data was not floating in the sky, it was on a server in a data centre, which was far more protected and secure than the box sitting in business cupboard or garage.

With the internet evolving, so did cyber-attacks.  Virus’s like the ‘The Ransom Virus’ gained access to unsecured servers locking access to files.  Some businesses affected were paralysed as these viruses’ extorted money from them or they lost everything. IT technicians specialising in hardware started focusing on Data Security but the cost of maintaining server-based applications significantly increased. 

Eventually, the servers like any hardware gets old and starts to fail. The cost to replace servers was often in the tens of thousands, making the cloud with ‘SAS’ (software as a service) a very attractive alternative. The cloud subscription model often averaged around $50 per month, per user but didn’t require any servers or IT technicians to install it. The server went on the scrap heap and the cloud was the leader of the future.  

By 2017 over 50% of the global population were using the web, over the next 4 years this figure would grow to nearly 60%, with over 92.6% of traffic via a mobile devices.

I witnessed the internet advance into a powerful platform that changed landscape forever on how we do business. Those businesses that took that leap onto the cloud before 2019, were fortunate. Covid19 wasn’t a virus that attacked the software, it attacked the people, the software provided a remedy that helped businesses to survive by helping individuals to easily work from home. The demand for software to provide more functionality peaked long before Covid, Covid just aspirated it. 

Businessses always innovate and want their software vendor to keep up.  They were under pressure to deliver a holistic solution that provided document management, email integration, digital signatures, digital forms, electronic payments, integrations, dashboard reporting and the list never stops growing.

Proprietary software applications struggled to keep pace with the changes and demand. Their revenue model was very different to the ‘disk in a box’ that server-based applications sold. A small cloud software company, with a budget of $100,000 per month will get you a team of 4 or 5 developers if you’re lucky. A cloud vendor with a $50 per month subscription needed 2,000 users just to cover costs. The reality is your treading water, unless you have a significantly bigger development team and a very large user base.

Browsers were evolving fast, and software had to quickly adapt just to support their existing functionality. Many small software companies could not keep pace with changes, subscribers jumped ship to other applications that supported their business needs and the problem spiralled out of control, as their user base rapidly decreased. 

Without developing new features, they couldn’t retain or grow their user base and without the users they couldn’t pay for the development. The day of the ‘Proprietary’ software boom abruptly ended. 

Some Proprietary applications survived and have successfully grown a user base and continued to improve their application. The best made it to the global market. The survivors of the Proprietary software believe they were the leading competitor for their industry, but in background a different type of software is rapidly growing and about to take over.

In 1996 Zoho was released, then 1999 Sales Force and 2004 Sugar CRM.   Whilst Proprietary applications thought they had a competitive advantage of industry knowledge and expertise; these cloud software vendors were targeting whole of market.   

Proprietary applications boasted of hundreds of thousands of users, whilst applications like Zoho boasted of millions. These types of applications quickly adapt, building functionality so businesses can customise their software to make it compatible for almost any industry. I call these ‘Modulated Applications’.

Even the best Proprietary applications struggle to keep pace with user demand. They are designed to work a specific way. Even though they were designed by industry experts, its architecture was based on an entrepreneurs view of the market. The design is often rigid, making some applications clunky as they try to bolt on new features. Proprietary applications challenge is that every business is unique, and many have a different way of doing it. Some businesses also diversified and offered new services, which were not supported by the Proprietary software, this meant businesses had to start paying for extra software to support additional needs. 

As the number of applications, a business uses starts to grow, vendors recognise they are not everything to everyone, technology is evolving too fast.  Integration is the key! Proprietary and modulated applications race to build API’s to integrate to third party applications, helping data to flow from one software to another.

A lot of Proprietary applications struggle, they are limited with a ridged structures that makes integration difficult. They develop handful of integrations mostly focusing on accounting software, emails and calendars. 

Modulated applications are whole of market and different industries have different integration needs. So Modulated applications create an open API, which means anyone with the right skillset can build an integration to them. Other software vendors, free-lance developers and implementation partners start delivering integration solutions to meet their client needs.

Even with integration, it didn’t take long for staff to complain about jumping from one software application to another. Plus having to enter the same information in multiple places. There is also the cost, business start adding up how much they are spending on multiple applications, which creates duplication and frustration. The Proprietary software reaches the end of their game, some customers will continue to love their software but some customers will eventually outgrow it.

In the meantime, Modulated applications keep expanding on the suite of solutions, allowing businesses to consolidate their software under one subscription. They create their own version of an Apple Store called ‘Marketplace’, for developers to bridge any gaps. The are no longer just a modulated application, they are an ‘Eco System’.

The needs of a business have changed once again. Instead of technology driving change, this time it is the people. Most businesses have about a decade of experience in cloud software, this means they have valuable feedback from their team and are qualified to understand what they want.  Instead of proprietary software dictating the process, they want to tell the software what they need it to do. It’s not longer about features and functions, it’s about people and process.

Let’s fast forward another 5 years from now, what do you think businesses will be using. The Proprietary Software or will they change to an Eco System.