Hi, I'm Riku Seppälä and this is page is my central presence on the web. I come from Finland and live in Montreal. I'm A Business Strategist And Corporate Information Systems Developer. Currently I'm Working on My Masters Thesis In Business Strategy. I'm A Firm Believer Of The Clan Of Getting Things Done. On my page you can find links to my CV and the projects I'm working on at the moment.

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    Friday, 10 July 2009

    The Chrome OS and a glance of economics behind cloud computing

    Someone finally got it. Quite a wonder actually that it was Google. I will just point out two facts about the good ideas behind the Chrome OS. In addition, I'll discuss the most important two things that will drive the move towards SaaS in the enterprise. (It might not be what you think)

    Firstly, which two annoyances does the Chrome OS promise to help us with?

    1. The most annoying thing about a laptop: Slow Booting.

    Chrome OS just boots to a browser. It's fast. It skips most memory handling events which make Vista the slowest booter ever.

    2. Not being able to smoothly collaborate and access your data from a distance securely.

    Chrome OS is built around security for your web apps. And it will run your cloud applications faster, as we've seen with the Chrome browser. Chrome OS will be ready for enterprise applications to move to the cloud.

    Now we come to my second point: Why do I predict that enterprise applications will move to the cloud?

    Because the fixed costs for the providers are much lower and the relationship in a SaaS model shifts the advantage to the customer:

    One of the key cost structure drivers is the need to support legacy versions of software. Because the SaaS provider doesn't have to support legacy versions, the costs of innovation will be lower, because the developers time isn't used in support. For example, if we compare the COGS (Cost of Goods Sold) to revenues of SAP and Salesforce.com:





    This is an indicator that Salesforce is able to sell its software with a margin of 87%. The rest can be put on developing the software and ensuring sales. SAP on the other hand sells the software with a margin of 52%. SAP has to rely on heavy support fees to keep its business running (54% of SAP's software related revenues come from support).

    The difference in these business models is unsustainable, which is why enterprise software will be driven to the cloud.

    In addition to the cost structure difference, the SaaS model has advantages because of the relationship that is built between the provider and customer:

    The provider relies on the customer to be satisfied enough to continue paying the monthly fee.

    In a packaged application relationship, the seller wants to extract the maximum price beforehand, and after that has a monopolistic position to demand high service fees.

    I think these differences are the key to why software in the enterprise will move towards the cloud. Security issues will just be solved, that's the beauty of technology.

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