In an April 2014 article that has since been widely shared, I reported Workday CEO Aneel Bhusri’s prediction of five emerging application categories that he believes will dominate cloud computing. Four were functional categories — customer-facing, IT/operations, enterprise backbone, and collaboration/productivity. But the fifth was tangential to the other four, to some extent cutting across or sitting above them — what Bhusri called the “industry specific” application cloud.
This consists of vertical applications tailored to the needs of specific industries, such as patient care, manufacturing and so on. This was the least defined of the five clouds, he said, with no visible leaders at present: “those are still up for grabs.”
A year and some on, the vertical cloud remains unconquered, but it’s no longer the neglected backwater it may have seemed back then. Every enterprise cloud vendor has a vertical industry strategy of some kind, from Workday beefing up existing products with functionality and analytics that target specific verticals to NetSuite doubling down on its SuiteCommerce play in the retail sector or Infor splashing out two-thirds of a billion dollars on an acquisition that leverages its micro-verticals strategy in several sectors.
Why cloud applications are going vertical
What is it about the cloud that has led to so many players seeking to offer industry-specific functionality? To some extent it’s simply a reflection of the growing maturity of cloud platforms. Vendors have built out the core functionality of their cloud applications and the next logical step is to add capabilities tailored to the needs of specific sets of customers.
But there are other factors coming into play that allow cloud vendors to do a better job of offering vertically tailored functionality than was possible in the old, on-premise, client-server model.
For one thing, the cloud architecture provides much more flexibility to accomodate change than previously. In the old regime, customers that had added industry-specific capabilities often found themselves stuck with an outdated version of the underlying software, or else faced extensive and disruptive reprogramming each time an upgrade came out. In contrast, the cloud vendors have an architecture that allows them to layer on extra functionality while still allowing upgrades to the underlying code base. This means they can introduce new features more rapidly while still retaining the industry-specific capabilities.
The other side of this coin is that enterprises today want to move faster and must manage more change than they previously faced. Technology innovation is accelerating, bringing fundamental changes to working practices in its wake, such as the need to support mobile working or to provide instant responses in an e-commerce environment. Regulation is becoming more complex and also changes more rapidly. Thus there’s a strong demand for these more flexible, cloud-based industry-specific applications.
The final ingredient is that cloud vendors are able to work in a far more collaborative style with their industry customers than was ever possible in the on-premise, client-server days. When everyone is applying agile methodologies to a single, shared multi-tenant instance, it’s far easier to go back and forth with new capabilities and arrive at the best outcome to meet specific requirements. Modern development tools and frameworks support these more rapid, iterative working styles too.
Emerging vertical cloud ecosystems
One final enabling factor is the advent of cloud platforms on which ecosystem players can develop vertical solutions, while benefitting from all the advantages mentioned above. Pre-eminent among these platforms of course is Salesforce, although other cloud vendors such as ServiceNow and Box are beginning to pursue a similar strategy. But Salesforce is the only vendor that can already boast of a significant number of vertical players that have built up substantial businesses on its platform. Most notable among these is Veeva Systems, the publicly quoted CRM vendor for the pharmaceutical industry.
Over the next few days I’ll be looking at specific players in the Salesforce ecosystem, including Veeva and Vlocity. I’ll examine how they work with the cloud platform and the benefits they see of this approach to delivering industry-specific cloud applications.
Disclosure: Infor, NetSuite, Salesforce and Workday are diginomica premier partners.
Image credit: Five cloud smoke stacks in blue sky © chungking – Fotolia.com.