Top Business Metric for Enterprise Software for Public Cloud

“If you cannot measure it, you cannot improve it” — Lord Kelvin

This article gives insight into key metrics needed to understand and optimize a Enterprise software for public cloud business (ESPC).

What is Enterprise software for public cloud? — this is a new category of software business where the company builds and sells enterprise software (not a SaaS) however it’s purpose built for public cloud (AWS, Azure, GCP, IBM, VMWARE etc).

So why not just call it Enterprise Software business? — because in the ESPC business, the software is installed and used in public cloud infrastructure like AWS, Azure or GCP. This leads to minimal variation in customer environment and therefore is not as customized and complex as a typical enterprise software business where the product is installed in Data Center which is completely custom. Furthermore, because public cloud has only a few variation, its simple to build extreme automation and out of box integration thereby further simplifying the implementation and operation of the software just like SaaS models.

So why not call it SaaS business? — because the software is installed and managed by the customer running in customer environment and so the provider is not on the hook to provide infrastructure and to run the operations.

So is it better for ESPC companies to convert to SaaS? — not really because they are building core infrastructure technologies like Networking which interacts with other core infrastructure technologies like IaaS, PaaS, Firewall, Routers, IDS, IPS etc. And so for ESPC products to become SaaS, customer’s will have to delegate control of their core infrastrure to the ESPC vendor which will be both complex and risky.

When did ESPC businesses come in to play? — here is an evolution chart of various software businesses.

Clearly the ESPC software is for customers who are consuming public cloud. However with the rapid rise of public cloud, there is rapid growth in ESPC segment, both in terms of number of companies shifting to this model and the growth of their business. For example Aviatrix System which started in 2015 and is already a leader in the space of Cloud Networking.

Lets look at each one of these 3 business model by segment — product, business and operations. This chart will help you understand and appreciate how the key metrics in ESPC varies from Enterprise Software and SaaS businesses.

The problem of ESPC companies is that their management (executives and board) is still learning the uniqueness of this space and in absence of a pre-existing model or prior experience they mistakenly force the traditional business metrics to the ESPC business resulting in misrepresentation of the state of the business.

For example, the Magic Number of the SaaS or the CLV to CAC ratio etc all makes assumption about the business to be either enterprise software or SaaS and does not take into account the complexity as well as the stickiness of the ESPC business and hence do not apply “as-is” to the ESPC business.

For a ESPC business to be successful, it is extremely important that their management team understands this variation and appreciate both its benefits and challenges. For example, Aviatrix team realized that the sales and marketing effort in their business has to be co-sell and co-market with the cloud partners. They innovated a program called “SA Program” to facilitate and track such effort which resulted in extraordinary results.

Note: the author is part of the executive team at Aviatrix Inc.