Originally posted on BDO Blog, by Jakob Sand, leader of the Global TMT M & A team.
Cloud connectors and their surrounding ecosystem promise a new, flexible approach to creating best-of-breed software and application solutions for individuals and companies alike. The approach might spell the end of system integration and software suites, as we know them. Meet three of the specialists who give you the inside view, of what is happening right now – and what the future of cloud connectors might be.
Cloud integrators are currently causing upheaval in the software and application industry. The integration Platform as a Service (iPaaS) approach, as it is known, lets you combine applications and software solutions seamlessly.
It is an approach based on creating flexible best-of-breed solutions across the board for both individuals and companies that – wanting to or not – throws down the gauntlet and will have software giants, who want to sell you bundled software, scratching their heads, if not biting their fingernails.
Because while it might not be for everyone, the LEGO-based approach to software solutions, with the ability to connect apps and software from any and all developer is gaining steam and has got large parts of the software industry, as well as venture capitalists and investment funds, buzzing.
For example, the cloud connector IFTTT recently raised $30 million in new funding and was valued at $200+ million by VentureWire. A valuation that will no doubt grow as the company expands its network of connected applications.
IFTTT can connect various parts an emerging ecosystem of apps that offers everything from Facebook and Twitter to small, highly focused and specialised services.
As I have written about in another article, the degree of specialisation might mean the death of bundled software from giants such as Microsoft, Adobe and Oracle, plus have wide-ranging impacts on adjoining industries such as system integration.
I spoke to three insiders about their take on the cloud connector ecosystem, as well as what possibilities and challenges might lie ahead.
Jakob Sand (JKS): To start with the positives, what are some of the main strengths of cloud integrators, not just for your company but also for users in general?
Renat Zubairov (RZ), Co-Founder & CEO of elastic.io, a provider of iPaaS that helps SaaS Vendors and companies using SaaS software with data and application integration:
Best of breed springs to mind. Companies have much better possibilities of creating solutions tailored to their needs.
It makes companies more flexible and able to react faster to changes in markets or internal organisational needs. Companies’ internal IT infrastructure and efficiency gains related to it are major competitive advantages in the current competitive landscape. If all companies bought the same software that advantage would not exist.
Evelina Georgieva (EG), Head of Business Development at Pryv. Pryv provides personal and health logging solutions to both organizations and individuals:
For us as a company, the main benefit is quick and easy communication with users, and quicker access to a large number of potential users.
The power of our service is to a degree dependent on the amount and quality of data available and the ability to seamlessly collect and integrate data from many different apps and platforms is a plus for both us and our customers.
Suzanne Cohen (SC), CEO at FollowUp.cc. – a company that provides users with the ability to set time-based reminders via email through formatted email addresses in the TO, CC and BCC fields:
The ability to make integrations on the fly without bringing in an IT person and engineering resources. Before cloud connectors, integration was a challenging and expensive process and now it is simple.
If we were to build an integration, we would test the market and see if there was a need to service, look at the cost of building and then perhaps start engineering. Only after we had some validation would be build and we certainly wouldn’t put resources into building a feature for a single user. That changes with cloud integrators.
The fact that our tool can be integrated with many others leads to a situation where our customer stickiness is vastly improved.
JKS: How would you say that the advantages of cloud integrators might vary between SMEs and larger companies?
EG from Pryv: There are certain advantages in regards to SMEs, due to the flexible approach. Using a cloud integration solution for your software and app needs definitely cuts your IT-costs.
SC from FollowUp: It eliminates integration costs – making it easier to on-board users and giving those users the features that they want almost immediately. This definitely helps speed up the sales process.
The size of the enterprise probably matters. The majority of our users are either SME companies or individuals.
RZ from elastic.io: You could argue that it is better suited for the needs of SMEs, but larger organisations see a lot of what I refer to as consumerization of software and apps. This means that individual workers, offices or departments use specific services that might not be part of the organisation’s official software ecosystem.
Just think about Dropbox; many workers use that or similar services to share documents – even if Dropbox is not the company’s preferred cloud storage service.
JKS: Are you afraid that your product might ‘drown’ in a sea of similar offerings in such an ecosystem? Or that cloud connectors being a new kind of software vendor and offering integration services might have an impact on your business?
SC: I do not think we are likely to drown. What I think you will see is the emergence of a lot of specialist apps and software that only do few things, but do those things very well. There is a great strength in specialising and offering unique services, and I think that will be the future scenario: a lot of specialised products that end users can mix and match to create best of breed solutions across the board.
EG Our product is pretty specific and I do not think there is a similar product on a platform such as IFTTT at the moment. Of course, there might be others in future, but I do not think that it is likely that we are going to see a lot of direct competition. I agree on the specialisation, which also means that the development teams in app and software companies do not need to be very large – on a comparative scale with what you see in big companies, at least.
RZ: Well, if you ask system integrators, many of them will tell you that they are seeing a drop in the number of consultancy hours they do. That is not only related to the cloud integrators, but also has something to do with the general development of the software business.
I do not think that cloud connectors are the new system integrators, or that they even want that role.
JKS: It sounds like cloud connector could turn services into a system akin to LEGO where the individual user – be it a person, group or company – has the ability to mix and match solutions as they want. Is this a view you would agree with? And if so, what are some of the consequences for other parts of the software industry?
SC: I think some of that is already happening today. Take our own company, for example. We use intercom.io and close.io for customer interaction and sales that would otherwise be spread out over email, chat sessions, CRM, analytics, etc. Both apps do what they do extremely well, and suit our needs perfectly. Thanks to cloud integration, we can connect and integrate these solutions.
However, I think there will always be a place for enterprise software. Using a cloud connector to integrate is still a challenging process for the vast majority of people. We use Zapier to automate many business processes in our office and I have been super impressed with the functionality, but my mom could never figure out the system.
RZ: We are seeing the emergence of a different ecosystem of apps and connections between them that relies on some of the strengths of a cloud-based approach.
That said, there are still some issues and challenges when implementing a decentralised software structure in a business setting. One such issue communication latency that is specific for Cloud/SaaS applications, which is one area where on-premise applications behave differently. There is also an issue of trust. It is not that people do not trust cloud integrators, but that they know and trust the system integrators they work with, and who they have easier face-to-face access to.
In short, I think that there will still be plenty of room for solutions like SAP, and there will be many companies who prefer the single solution approach, but cloud connectors offer a customizable, flexible, best-of-breed approach.
EG: The LEGO approach is definitely one that we agree with and support. It seems to lead back to how the software and app industry was a long time ago, where there was much more room for smaller companies. To some degree, cloud integrators help support an emerging ecosystem inhabited by a multitude of small, agile and highly specialised companies who keep on coming up with new products. I believe it is a model that large software and app companies cannot compete with.
JKS: What are some of the mergers and acquisition trends we are seeing in relation to cloud integrators? Are we, for example, seeing big companies take on the newcomers by delving into their incredibly deep pockets?
RZ: In the first wave of acquisitions in the cloud integration space we saw the Dell/Boomi and IBM/CastIron deals. These two deals are in the deep enterprise integration area where cloud has just started to play a role.
It is difficult to know when we might see the next big wave come, but it might be tied to the maturation of business app stores like App Direct or Parallels, which will go out and buy very specific features and capabilities.
SC: There is to some degree a trend where some of the bigger players are buying up some of the smaller enterprises and start-ups they find interesting, or offer specialised services that they want to integrate. For example, this is what I think was behind Microsoft’s move to acquire Acompli and Sunrise.
An interesting trend that I think will continue is the emergence of specialists in the ‘pipes’ themselves. Twilio is growing rapidly, and what they offer if the connection between apps or software. In other words, it does not do anything on its own of offer channels like IFTTT.
EG: I am sure that the big companies will want to try that, but the organic and evolving nature of the market that is made possible thanks to cloud connectors will prove that it is an approach that is doomed to fail.
The question becomes: how do you identify the small companies that are going to be successful, the ones that might become a threat to part of your bundled software-solutions or offer a new, innovative solution that corners a specific market? I do not think that will be possible. It would be like trying to keep track of a continually growing long tail of apps and software.
For the smaller companies, the cloud connectors help them reach a number of users where they become interesting for VCs and investment funds.
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