How to make money in cloud computing
“Every kid coming out of school now thinks he can be the next Mark Zuckerberg, and with these new technologies like cloud computing, he actually has a shot.” — Marc Andreessen, co-founder of Netscape, Facebook board member.
When discussing top innovations that have changed the way we live, and how we do business, technology like the internet, Wi-Fi, the smartphone, Bluetooth, e-commerce, and Bitcoin come to mind.
And although all these things continue to play a significant role in the world, here at InfoStreet, we would argue that cloud computing has been one of the most transformative technologies over the past decade.
Or more. According to Wikipedia:
Cloud computing is believed to have been invented by Joseph Carl Robnett Licklider in the 1960s with his work on ARPANET to connect people and data from anywhere at any time.
In 1983, CompuServe offered its consumers a small amount of disk space that could be used to store any files they chose to upload.
In 1994, AT&T launched PersonaLink Services, an online platform for personal and business communication and entrepreneurship. The storage was one of the first to be all web-based, and referenced in their commercials as, “you can think of our electronic meeting place as the cloud.”
In the mid-1990s, InfoStreet’s Siamak Farah was focused on developing cloud-based solutions, and by 1999, he was selling them for $100,000 per installation.
But Mr. Farah works with the understanding that everything is about balance.
His motto: Something’s best attribute is also its worst. In this case, when it comes to cloud-based solutions, the good news is that users get to benefit from all the amazing things the cloud brings to the table. The bad news is that you can become tied to that solution and ecosystem.
So, he rethought the model, and over the next 10 years developed his formula for making money in cloud computing. He has been building on that story ever since.
The first part of the formula was to adjust how one thinks of the cloud. It wasn’t just software anymore. It became a billing model.
“The same way buying a car was revolutionized following the advent of leasing, the cloud turned the software licensing contract model upside down,” Mr. Farah explains.
In other words: More clients, at a lower price.
That was the first part of the formula, and it was a hard pill to swallow. Going from $100,000 per customer to $0.10 per user was a wake-up call, but it was a start.
Still, pricing wasn’t the only issue. Reach and volume are key components of the equation, but how do you reach the masses without a big budget and the brand power and legacy of Google and Microsoft?
The solution: Automation.
- Automate Relationships
- Automate Reach
- Automate Sales
You can’t have a relationship with every customer. “Did Steve Jobs have a relationship with every iPhone owner,” Mr. Farah asks? “No, but everyone who owns an iPhone loves that product.”
Have a product that addresses a need, Mr. Farah explains. Enable the client to build a relationship with that product. They will make it a part of their day-to-day and that product or service will become synonymous with their ability to do whatever they need to do.
Easier said than done, of course, but that’s what relationship building and sales are all about. Add value. The rest will work out.
To be viable in this space, you need volume. Tens of thousands of clients. More. How does the average SMB do that?
One option is to join and work with app markets. Their audience base and existing customer roster are significant.
Plus, they offer a wide range of products to that wide range of customers. By piggy-backing on their network, you can expand your own offering.
Once again, the above approach won’t be effective if you don’t have a product or service that fits a need.
A big part of this is being comfortable with revenue sharing and partnerships. Reaching a mass market at a 30–50% revenue share is often cheaper than the cost of reaching the same market for 100% of the revenue.
From another perspective, 30% of a sale is significantly more than zero…
Ultimately, use the ⅓ rule as a guideline:
⅓ to those who sell it
⅓ to those who support it
⅓ to those who develop and operate it
Software sales often come with long lead times and sales cycles. Or at least that used to be the case. Now, the easiest thing about your product or service should be buying it.
Figure out how to streamline your sales process, and offer free trials so users can understand how your product works, and how it can add value to their own process quickly and easily.
Make sure that your product or service can stand on its own. This is the product your customers are building a relationship with. If it can’t work without another product, or it doesn’t do what you promise it can do, you will have a problem.
If you are part of an app market or offer various products and services, but your featured offering can’t stand out, you won’t be able to sell it, or anything else with any frequency.
In a nutshell? Create something that fills a need. Add value. Be okay with partnerships and sharing the wealth.
The cloud isn’t going away anytime soon. It isn’t a fad or trend, and increasingly the world continues to shift from cloud-first to cloud-only.
If you would like to see Mr. Farah talk about his secrets to cloud success, you should check out his presentation from 2011. What was true then, is even more true now.