The document discusses how the software industry is at a crossroads due to economic pressures forcing cuts to IT budgets. It predicts that chief information officers will increasingly demand software as a service (SaaS) models from vendors to reduce costs. For vendors to provide competitive SaaS offerings, they will need to build virtual private clouds that span legacy and new applications across on-premise and cloud infrastructures. This transition will significantly change the economics of the software industry.

1. Software Industry at a
Crossroad.
What’s next for the
Software Industry?
1
Anand Deshpande and
Ashok Korwar
Persistent Systems
June 2009
1

2. In these difficult
and uncertain
times the CEO is
focused on
2
ways to reduce
costs.
2

3. IT budgets
will also be
cut.
3
Potentially
20% to 35%.
3

4. Do More
For Less
4
Is the mantra
across the
organization
4

5. What will
the CIO
do?
5
5

6. Squeeze vendors …
6

7. … and will handover
the entire IT to a
vendor with a pay-
per-use model
to reduce the
total cost of IT
ownership. 7

8. Welcome to
Software As A Service
This is not about
technology but a business
8
imperative.
Buyers will force the
adoption of Software as a
Service even before the
infrastructure is ready. 8

9. To provide Software As a
Service, vendors will demand:
-- long-term commitments
-- more control over how
the environment will be
9
managed.
… and at the right
price they will get it.
9

10. To provide this service at
the price point being
demanded, vendors must
build Virtual Private
Clouds that span legacy
applications and new
technology and are
deployed on premise and
in the cloud. 10

11. Enterprise Virtual
Private Cloud will be
 Private, secure and firewalled
 Some components on premise and
11
others will be distributed across the
cloud.
 Centrally managed
 One fine-grained pay-per-use bill
11

12. Infrastructure for Virtual Private
Clouds must be super
efficient.
Must support:
12
 Multi-tenancy
 Virtualization
 Security
 Remote Monitoring
 Handle Legacy Applications 12

13. manage relationships with
enterprises and ensure
continuity of business processes
including legacy systems.
13
own, create and
manage high
performance cloud
environments.
13

14. own, create and manage high
performance cloud
environments.
14
manage relationships with
enterprises and ensure
continuity of business
processes including legacy
systems.
14

15. manage relationships with
enterprises and ensure
continuity of business processes
including legacy systems.
15
own, create and
manage high
performance cloud
environments.
15

16. System Integrators who
understand enterprise
processes with significant wallet
share and good relationships
with CIOs are candidate Virtual
16
Private Cloud Operators
16

17. Who could be a Cloud Operator?
17
17

18. Three Level Eco-System
CIO – the ultimate buyer of IT.
18
Virtual Private Cloud Operators
Cloud Operators
18

19. Enterprise Data will be
an integral part of the
Virtual Private Cloud*
19
* And not part of the application.
Data Integration challenges will force
CIOs to accept standardization of
data, processes and the application 19

20. The Cloud Operator
and the Virtual
Private Cloud
Operator are not
ready to provide
20
the service at the
price that the
Enterprises are
demanding today. 20

21. How do we get there?
21
Who pays for it?
21

22. What’s the future
for software
product vendors?
22
22

23. Software Vendors can be classified as
• Infrastructure software providers.
They provide software that is part
of the cloud infrastructure.
• Application software providers.
23
They provide software that runs on
the cloud.
23

24. 24
Infrastructure Software Vendors
have a very small number of
cloud operators to sell their
products to. 24

25. Since data is part
of the cloud
infrastructure
and a not part of
the application,
25
replacement of
software
components will
be easier. 25

26. Who will buy
Application Software?
CIO: Directly for
the Enterprise
26
or
Virtual Private
Cloud Operator
26

27. In both scenarios the Application Software
Vendors have limited lock-in for their
products.
Application Software must be built
• Quickly
27
• Upgraded continuously
• Have new features otherwise be replaced
• Componentization and Service Oriented
Architectures will be standard design
philosophies.
27

28. This spells the
death of the
custom
28
Application
Development
Business.
28

29. The economics of the
new software industry
will be very different.
Vendors will provide
software with regular
29
(monthly) payments
being made depending
on how the product is
used.
29

30. With this model, we may expect the
following changes to the life of the
software vendors:
 The need to deploy
faster
 The need to upgrade
30
frequently – if you
cannot, you run the
risk of getting replaced
 Operate at a lower cost
base 30

31. The market will
change very
fast. CEOs want
to cut cost now!
31
Once the
change
begins, it will
become a
31

32. Software vendors must invest
now to be ready for this new
world or become extinct.
32

33. 33
Persistent: your trusted
partner to help you get
there now!
33

34. We welcome your comments:
Anand Deshpande (anand@persistent.co.in)
Ashok Korwar (ashok_korwar@persistent.co.in)
Persistent Systems
April 2009
34