Investing in on-premise software is like buying a horse.

Why on-premise software and a private cloud make no business sense.

The value and utility of each investment changes over time. Also the benefit of ownership varies as well. Many companies throw away a lot of good money when they invest – into the wrong things.

For sale! super fast horse - a cunning way to market!

FOR SALE! A cunning way to market!

Well, maybe, not wrong in general but wrong as an investment at that time.

Many companies thought they needed their own server and data centre in-house because they thought that these were good things to have. As any accountant will tell you, the value of an investment varies over time. SAP, for example, was a great investment by the end of the 20th century. There was nothing better. In the 21st century, however, such an investment is no longer as justifiable. Let me give you an example. Would you, as an 1861 entrepreneur, buy a fine matched pair of horses for your business?

True, a fine horse was, for many years (and even for centuries), a great investment. In the 18th century it would have been awesome to own a fine horse. You would have a fantastic means of personal transport and even a business tool which could be used for speedy travel, delivering goods, pulling heavy loads, and even for intercity commerce (Britain’s pioneering Stockton and Darlington Railway, which opened in 1825, was originally intended to use horse-drawn vehicles). Such an investment, in those days, would be a wise one because a fine horse could make you a lot of money. And more such horses would have meant – you could make even more money!

However, if you lived in the second half of the 19th century, there was already a fast-growing substitute– steam locomotive-powered railways.

On the surface, at the beginning of the 19th century, everything looks much the same as before. Railways do not reach everywhere where you have customers so you simply have no other choice than to use your horses (or hire someone else’s) to deliver your goods to the next city. But, by the middle of the century, virtually a complete rail network has been laid down, the railway has come to your city and connects directly with the city where your customer is. This would immediately deflate the horse’s value for your business for travel and delivering goods. Why? The horse’s speed and haulage power remains unchanged. He always will run a maximum of 20 km per hour and his running costs, such as equipment, stables, food, water and maintenance have not changed. On the other hand, the new-fangled steam railway runs at 40 km or more per hour and has no maintenance costs that you have to pay for. (You don’t pay anything to the railways when you don’t use them.) How would you then look at someone who came to you and offered to build you your own railway and leave you with all the costs of running it in return for the benefit that you can use your own horses to run on it (as was the case on early railways)?

Would you, if you just needed to deliver goods to you clients in the next city? a) Buy your own pair of matched horses, b) Build your own railway and let your horses run on it, or, c) Use the local railway company to deliver your goods to your clients? Sure, it is obvious. In, 1861, the smart guy would use the local railway company for delivering the goods as it is cheaper and faster. Having your own railway built and running your own horses on it at the same low speed would make no business sense.

So why would you, as a smart guy in 2011, invest in on-premise software or some private cloud?

Isn’t such an investment a contemporary version of buying horse in the steam railway era or wanting to run your own horses on your own private railway?

Let’s look at this example from the perspective of today. You need a CRM system to deliver a high standard of customer service to your clients. 
So you may choose, a) On-premise Oracle CRM, b) Hosted by you Oracle CRM as a service (private cloud) or c) You may choose CRM.

If you choose A: you’ll pay the full cost of Oracle CRM and you’ll pay other money for hardware and software, such as servers, database licenses, maintenance, running your data centre . . . etc., then you will spend more capital on a long complicated delivery process.

If you choose B: you will pay for Oracle CRM which will be installed, as a service, on your own hardware and you still pay the same amount of money to have the system delivered . . . so there is no saving!

If you choose C: you’ll get better functionality and a more intuitive UI for the users than Oracle CRM, and no additional costs for hardware, database software, servers, maintenance and it will be delivered more than 50% faster because the development focuses only on customizing and developing applications not on building platform and infrastructure, which makes it cost less.

Why would you buy on-premise Oracle CRM or this so-called “private cloud”, when it will cost you more than and it will be delivered slower?

Private cloud? Well, it sounds like I would need, to build my own railway line, railway stations, buy a locomotive and wagons, just to deliver my goods to the next town. Sure, some companies may need to do that, but is your company one of them?

Imagine yourself in the the 19th century, you have a storming business making the finest suits – and need to get them to ‘market’ for sale.  There is a great railway just round the corner! Would you build, your own dedicated railway network to deliver them? Probably not, so why would you buy your own on-premise software or some private cloud, in 2011?

Investing in on-premise software is like buying a horse. It may be a nice hobby but it is not a good investment.


About the Author: 

Jiri Kram, is a consultant with Tquila, he specialises in Salesforce solutions and social media.  Jiri is one of the longest serving members of the Tquila team.

You may reach out to Jiri on twitter

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