Cloud In Retail Is Here To Stay

Last week I attended Oracle’s Industry Connect, an event part thought leadership, and part an opportunity for Oracle to present its roadmap to its retail customers in a conference-style setting. Oracle has a very strong point of view regarding the future of cloud — the company is betting pretty much the entire future of its industry businesses on cloud. And the strategy in 2016 is fairly unchanged from 2015 — steady onward.

While at the event, my colleague Paula and I started talking about what cloud really means. We get pitched all the time by solution providers who claim cloud as a descriptor or a strategy, or, our personal favorite “We’ve been in the cloud since 1985”. But what does that really mean? And what should it mean?

There are various degrees of cloudiness, or various layers of it, if you want to look at it that way. But there’s a huge difference between a company that has outsourced its hardware and basic infrastructure support, and a company that is all-in on a multi-tenant business software solution, with no customizations or extensions to that solution.

Last year, at Oracle’s Industry event, retailers’ acceptance of the company’s move to cloud was first embraced with enthusiasm, which lasted all of five minutes when the first question in the Q&A session that followed the cloud strategy for retail presentation was “But I get to keep all of my customizations, right?”

Oracle’s customers — retail customers, at least — have seemed slow to embrace cloud, but not any slower than anyone else’s customers. And they seemed to have made great strides in understanding the implications of cloud, over the level of understanding on display last year.

So what does cloud really mean? I know I won’t get the industry to standardize on one definition of the term. At one level, it means outsourcing and on the infrastructure side, and I don’t think we’ll ever get away from that. But when you get to software solutions, you’re talking a whole different game, and the differences are very important.

Cloud in software means no customizations. Some cloud solutions provide API’s and frameworks to enable extensions, but adamantly, there is no touching the solution’s code. Forget it. For retailers, that means, within the bounds of configuration, you’re running the same processes on the same technology as everyone else.

For a lot of retailers, that’s a non-starter. They believe that process is differentiating. They believe that the fact that they do it, whatever it is, differently than anyone else gives them secret sauce. Magic. A leg up on the competition.

Does it? I would argue that it is not the process that is differentiating. It is how well you execute on that process. It doesn’t matter if you have the most optimized supply chain in the world if you can’t get the right product into your customers’ hands at the right time.

But let’s say that some processes are indeed differentiating. Customer-facing processes could easily fall into that category. Okay, you could probably make a real business case for it being worth it to do something customized — unique, your own custom development that gives you something no one else has, for now.

But here’s where the other side of cloud – the other most important aspect of a solution for it to be considered cloud in my book — comes into play. That next most important factor is upgradeability.

Upgradeability is something retailers have historically discounted. When evaluating how a new system should support a process, there is often a mindset of “I don’t care how much it costs, I want it the way we had it before.” And a bit of a tendency to claim that something is differentiating when it really isn’t, just to justify the cost of a customization.

But in the traditional software world, as soon as you customize, you increase the cost of upgrading to the newest version of the software. And if you customize a lot, the cost of upgrading becomes so exorbitant that you can only justify it once every two years. Or every five. Or never.

Customer-facing processes may indeed be differentiating, but they’re also evolving at a pace retail has never experienced before. You can’t wait five years, or even two, to add new capabilities, most especially if a process is differentiating. You need to be evolving your customer-facing processes every six months, or every three.

And that’s the great tradeoff that is going on right now in software. When a company gets version-locked — they can no longer upgrade because upgrading is so disruptive they might as well consider a whole new implementation from scratch — not only is the retailer at risk, but the software vendor’s relationship with the retailer is at risk. Most companies, when faced with a total reimplementation, will throw it open to a whole RFP process. The incumbent vendor’s only advantage is familiarity with the client, if they’re lucky. Otherwise, they’re starting from scratch just like everyone else.

For retailers, this trade-off is so big, it’s almost existential: flexibility and speed but without the ability to create differentiating processes. Is the trade-off worth it? I would argue yes. I would argue that processes are not differentiating, but that outcomes are. And outcomes are dependent not just on processes but on the people who perform those processes. And the insights that inform those processes. And the culture that empowers those people.

Software companies are all making big bets on cloud. Oracle isn’t the only one, though of the big enterprise software companies I feel like they are the one beating the loudest drum. It’s a tough sell for retailers (though that’s changing, slowly). But whatever opinion retailers have about the cloud, I think it’s important to know that cloud is here to stay. Not because the value is so self-evident for the retailer. But when you look at that upgrade path, and the ability to keep retailers on it for much longer than traditional software can and usually does, it becomes clear that the value is self-evident for another group — for software vendors.

In other words, love it or hate it, cloud (multi-tenant, non-customizable business software) is here to stay.