What is the expected life cycle of a cloud application?

Expected product life cycles have traditionally informed forecasts for software demand – they could be used to help estimate the number of organizations likely to be in play any given year because their solutions had reached their natural refresh cycle. The shift to cloud applications muddies the water in terms of this traditional forecasting approach.

Cloud solutions lack a natural life cycle – the technology doesn’t wear out. Unlike legacy on premise software cloud solutions aren’t tied directly to the organization’s infrastructure or the software’s old code. As a result:

• There are fewer natural refresh cycles where organizations look to update their data center and enterprise applications at the same time.
• There are fewer sunk costs where organizations need to use their solutions for a set number of years to achieve the required ROI.
• Contracts, where they exist, have shortened freeing organizations to switch vendors without penalty.

However, these changes do not mean that cloud applications don’t have a life cycle of sorts. They do, but they are driven more by human interactions and expectations than on technology.

Based on our research in various markets we believe the average cloud solution will have a 4-5 year human life cycle and will unfold as follows:

Year 1: Transition

Despite the ease and speed in which cloud solutions can be deployed, deployment does not equal immediate productivity. It takes time for people to learn new systems and processes (regardless of how easy they are to use). And the longer an organization has been using its previous processes the longer the conversion process – it takes a long time to teach old dogs new tricks. In the end it generally takes a year for people to become comfortable with a new system and achieve the productivity and efficiency it is designed to provide.

Years 2-3: Maximum benefit

Once the solution becomes the new norm, employees and the organization will receive the maximum benefit of their investment. The solution will be delivering the core set of benefits the organization hoped to achieve. These are likely to be tactical areas of improvement.

Years 4-5: Diminishing returns

After four years or so a number of dynamics are likely to unfold.

• Organizations will begin to have more complaints about their systems and find that they cannot do everything that they would like to do. This may be due to the solution’s failure to delivery on the strategic functionality promised, or simply an increase in the organization’s needs and expectations.
• New vendors and technologies will have entered the market with buzz and hype: The grass is always greener and older solutions tend to get pigeon-holed into what they were originally purchased for, even if they can provide the new functionality.
• Over the course of 4-5 years there will be some inevitable staff turn-over and new decision-makers will enter the organization. New decision makers often bring solutions they had success with in prior organizations into their new ones.

All of these contribute will contribute to a general tendency for organizations to begin to consider other vendors and conduct their due diligence – like they always have.

So what does this mean for vendors in terms hoping to win market share from competitor cloud solutions? On the up side, markets are likely to look at new systems on a more frequent basis. Unfortunately, like on premise solutions before them, cloud applications inherently have a barrier to switching – inertia.

One reason organizations stick with the solutions they have—even when they believe better solutions exist—is that the solution they have works well enough and the benefits they gain by switching don’t outweigh the pain and suffering that comes with switching. Cloud solutions reinforce this trend because they constantly update making it more likely that they remain good enough to stick with. This is an advantage once you have customers using your cloud solutions. But, it means to motivate prospects to switch vendors will have to provide concrete and significant benefits over existing cloud solutions. This may be enhanced functionality, integration with other systems, specialization, customization, a higher level of customer support, etc. But it cannot just be an easier to use system or a reliance on dissatisfaction with another cloud system – they will never be that old or that hard to use.

Cloud applications prove the proverb; the more things change the more they stay the same. There are forces at work creating both inertia and switching motivation. The shift in life cycles is that traditional models are based on the product itself, the new is based more on how the solutions are used by humans.