While it's clear that revenues from cloud-computing offers are rapidly growing, exactly how profitable these offers will be for technology companies remains to be seen. As part of Mediaplanet's Cloud Solutions campaign that unites like-minded industry leaders to highlight the technologies, people, and processes that are helping to empower, as well as seamlessly connect organizations across the globe, I contributed an article on behalf of TSIA exploring what it takes to be profitable in the Cloud. Here's an excerpt of the article I wrote which was published in both the San Francisco Chronicle and online.
“There is no doubt technology spending is shifting toward “as a service” offers. However, more revenue for cloud companies is not automatically translating into higher profitability. Oracle was profitable at fifty million dollars in annual revenues. In the Cloud 40 index, there are 24 companies with annual revenues over one hundred million and negative operating incomes. More disconcerting, many of these companies are spending a greater percentage of revenue on sales and marketing as they grow–keeping profitability at bay. In addition, the gross margin on subscription revenues is not demonstrably improving with scale for a majority of these companies. Finally, we are witnessing intense commoditization of almost all technology features.
Clearly, the future of the technology industry cannot be centered on unprofitable business models. And scalability is not a given path to profitability. For cloud-computing providers to be profitable, they will need to pursue the following design principles:”
About the Author
Thomas Lah is executive director of TSIA. Since 1996, he has used his incisive analysis, strategic thinking, and creative solutions to help some of the world's largest technology companies improve the efficiency of their daily operations. He has authored several books, including, Bridging the Services Chasm (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016).