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Cloud Business and Cost Models

Cloud computing is less a technological revolution than it is a business revolution. In this session we'll look at trends that are driving cloud computing and the opportunities these bring to ISV organizations to compete in the marketplace. We’ll see how cloud computing can change an ISV's business model in potentially radical new ways and discuss concrete ways your business can grow in the modern world of software.

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Cloud Business and Cost Models

  1. 1. evilazaro@brsolucoesintegradas.com.br
  2. 2. Source: National Institute of Standards and Technology
  3. 3. A nice incremental cost improvement for most scenarios… A peerless solution for a few
  4. 4. Private (On-Premise) Storage Servers Networking O/S Databases Virtualization Data Applications Integration Youmanage Dedicated (Managed Hosting) Storage Servers Networking O/S Databases Virtualization Data Applications Integration Managedbyvendor Youmanage Infrastructure (as a Service) Managedbyvendor Youmanage Storage Servers Networking O/S Databases Virtualization Applications Integration Data Platform (as a service) Managedbyvendor Storage Servers Networking O/S Databases Virtualization Applications Integration Data ISV’s Unique Value
  5. 5. Remaining competitive Staying focused Reducing costs Managing datacenters Security, privacy & continuity Embracing globalization Improving free cash flow Boosting capital value Top of Mind Issues for ISVs
  6. 6. Financial Metrics Churn Rate Cash flow and cost of sale Customer Lifetime Value Committed Monthly Revenue Sales & Marketing Licensing Customer Acquisition and Cost of Sale Try before Buy – Click, Try, Buy Sales Cycle Referral Programs Distribution & Support Delivery rhythm Channel Dynamics Service Level Agreements Support Billing
  7. 7. Large upfront fees replaced by smaller ongoing payments collected and recognized over time Cost of sale has to be managed very carefully Ongoing cost associated with application delivery Upfront investments in R & D, sales, marketing and support with no immediate payback Capital markets that assume exponential customer adds and reduced acquisition cost at the margin
  8. 8. New Financial Drivers Source: Bessemer Venture Partners: 10 Rules Of Cloud Computing And SaaS CMRR C-PIPE CAC Cash Flow Churn Rate CLTV
  9. 9. Source: David Skok, Matrix Partners Assumptions • 5-year model • $10k bookings in month 1 • $2k monthly growth 5-year impact • At 2.5% churn, $(64,000) • At 5% churn, $(90,000)
  10. 10. Source: David Skok, Matrix Partners Assumptions • 5-year model • $10k bookings in month 1 • $2k monthly growth • Expansion revenue of 2.5% to current customer base
  11. 11. Increase stickiness Track and react to customer engagement Contact your customers Put top sales talent on cancellations Consider longer-term contracts Track and react to churn
  12. 12. Traditional Sales Process: Sales Led, Sales Driven Steps in Sales Process How is this Done? Steps in Sales Process How is this Done? Cloud Sales Process: Customer Led, Support Driven
  13. 13. Business Value For ISVs
  14. 14. Pay as You Go Enterprise Agreement Open Licensing Resell Azure and maintain direct customer relationships
  15. 15. Using Azure IaaS to support easy trial of existing ‘click-wrap’ software Dynamics CRM as a unified customer and app instrumentation platform Azure as a low cost data distribution & storage platform Augmenting existing apps with cloud based instrumentation and analytics

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