Next in Cloud: Mission-Critical Business Apps

There is a transformative change happening in the cloud right now: the enterprise cloud is shifting from non-mission-critical apps to mission-critical ones.

Little over a decade ago, this was unthinkable. I remember meeting with a prominent industry analyst firm who told me with utter confidence that it was just a fad. “The cloud is not a permanent thing for enterprise software — it’s just try-before-you-buy and will never penetrate the enterprise beyond unimportant, ancillary business processes,” the analyst insisted.

To be fair, at the time that was the prevailing view. Cloud pioneer Salesforce.com, for instance, was then a tool for sales reps to put their contacts online. It was a great application, but it certainly wasn’t mission critical. If the system went down, the sales rep could still go out and sell. His company could still function.

Indeed, in those days most companies had limited faith in the cloud to run vital operations. They lacked trust in providers as stewards of their most sensitive data. And they questioned the ability of the cloud to deliver the kind of high availability and high performance they needed from their mission-critical applications.

But the cloud has come a long way since then. It has gained the trust of pretty much every enterprise on the planet and is now starting to touch the very heart of every organization.

It should. Because today, the race is on for businesses to digitally transform themselves and embrace agility. To compete, companies must be quick, nimble and receptive to change. And, increasingly, organizations are looking to the cloud to make this happen.

Take, for example, a manufacturing company that has been using the same on-premise client-server system for the past 20 years. That system has done a reliable job running the core business processes—but it’s never going to help the company with its digital transformation efforts.

Why now? Multi-enterprise agility

These days, companies of all sizes realize they need to fundamentally improve the way they operate. And they realize the cloud is the way to do that.

They know it’s no longer OK to run old-school mission-critical applications that are hard to modify and can only be updated every few years. Such software stands in the way of change and slows down the business. They know cloud-based apps are more flexible and can foster greater innovation because their release cycles come in weeks and months, not years.

That’s one reason why the time is right for mission-critical cloud apps. Here’s another: Business is now more collaborative than ever—and business systems must be able to facilitate greater collaboration, greater information and decision sharing between partners, vendors and suppliers.

Business systems based on outdated on-premise applications are not up to this task. They help companies do business within their own four walls but they collapse at the edge of the enterprise and fall short when it comes to enabling collaboration with partners and suppliers outside those walls.

Think about the kind of supply chain it takes to get the latest smartphone in your hands or the latest pair of sneakers on your feet. It requires a cloud-based infrastructure that transcends the boundaries of a single enterprise and allows partners to truly collaborate.

Consider that pair of sneakers I just mentioned. The shoe company may do the designing and branding at its corporate headquarters but it relies on partners for the materials, the manufacturing, the shipping and the retailing that ultimately make the pair of sneakers a success.

Shoe brands that can work on the same, shared application infrastructure as their partners have a tremendous advantage over competitors that don’t, because they’re able to easily share information, quickly make decisions and keep their extended value chain operating in synch. That’s why it’s becoming essential for all companies to move their mission-critical processes to the cloud.

Tremendous opportunities for cloud entrepreneurs

And that’s why there is still enormous upside in cloud business apps. As an investor in cloud companies, I hear a lot of people say the market will soon be saturated with both entrenched players and startups. I disagree. The reality is that mission-critical applications, for everything from front-office customer experience to back-office manufacturing, supply chain and product-lifecycle management, still represent a massive opportunity for forward-thinking cloud startups.

From where I sit, startups that successfully target the heart of the enterprise will be hugely valuable. Why is that? First, the timing is right as many companies now have an open mind about swapping out their tired, old-school on-premise applications and embracing the cloud.

Second, if you truly understand the problem and enable an innovative and compelling new way of running the core business, you will immediately have the attention of the C-suite. That’s a luxury cloud startup for ancillary business processes can only dream of.  And that attention gets deals done and makes for a long, “sticky” relationship where account churn is a rarity.

Lastly, when your cloud software runs mission-critical processes, you’re touching the underlying business itself. And therefore the value proposition that you bring to the business is far greater. In my career, I’ve seen many cases where a company implemented game-changing software that increased the top line, the bottom line, and the value of the company by hundreds of millions of dollars.

Yes, that requires complex and feature-rich applications. But it also affords an average selling price far in excess of what is typical for non-mission-critical apps. This can be the success model for cloud companies even in seemingly narrow markets and verticals.

What is the catch?

Sounds pretty good. But if you’re a cloud entrepreneur, you need deep domain knowledge of the business problem you are solving. Mission-critical is synonymous with complex. You need to understand it is a marathon, not a sprint. Mission-critical apps rarely enjoy fast adoption, but once implemented, they are there for a long time because they provide tremendous value to the business.

And you need experienced investors who understand all that. Investors who have the patience and the right funding model for enterprise cloud companies. Investors who have walked in your shoes—and who can provide the operational guidance you need to build a category-leading mission-critical cloud company.

Personally, I see a world of opportunity for a new generation of cloud startups to fundamentally change the nature of business. And I know some of them will have the foresight and ambition to do just that.

Edited by Maurice Nagle