Article originally published on Inc.com June 3, 2014
In the technology services industry, we love to talk about all of the business benefits of moving to the cloud: affordability, flexibility and scalability, to name a few. But there is another upside to the cloud that I find equally as exciting, and that is the vast landscape of opportunity now open to entrepreneurs who traditionally didn't stand a fighting chance against larger competitors.
The cloud is breeding a new generation of startups --and even established ventures--looking to capture market share from the technology giants. The movement reminds me of Malcolm Gladwell's latest book, David and Goliath, which recounts underdogs that have successfully leveled the playing field.
Before the Boom
For many years, small players were practically shut out of the business technology market by large software publishers like Oracle, SAP, Sage, and Microsoft. Organizations made costly investments in large IT platforms and packaged systems, such as enterprise resource planning (ERP), for financials, HR, and other back-office functions. These were implemented on-premises and required lots of hardware and complex integrations with other applications.
Companies needing additional functionality for their specific industry or business processes either paid a small fortune to develop their own software or purchased add-on, industry-based solutions from the publisher. Then came the cloud boom, which quickly redefined how software is developed, delivered, and consumed.
The Freedom to Buy What You Want
We should look no further than Steve Jobs as the single biggest influencer on our collective cultural movement in technology. The advent of Apple's app store brought with it a sense of empowerment, convenience, and freedom for the consumer that created a similar shift to commercial cloud-based point solutions.
The "I'll buy exactly what I want when I need it" concept of easily accessible apps successfully infiltrated the business world. Corporate executives began to ask: "Why should I purchase an entire suite from the software publisher and all the supporting hardware when my company isn't utilizing a third of its functionality?"
The cloud has given tech execs and business owners the ability to pick and choose the best-of-breed software that works for their individual organizations. A company's accounting and ERP system can be from Netsuite, their HR and talent management from Cornerstone OnDemand, and their customer relationship management (CRM) from Microsoft. Let the cloud providers worry about integrating and supporting the different applications, while you get to enjoy the business benefits I mentioned earlier.
Niche Apps Will Continue to Dominate
So how do the software developers-turned-tech entrepreneurs fit into the new cloud equation? Because the demand for large software platforms has decreased, there is plenty of room at the table for niche applications that offer industry-specific functionalities. And because the cloud offers sizable cost savings over traditional hardware and infrastructure investments, small- to medium-size businesses can now afford to get the software they need to compete on a grander scale with enterprise-level companies.
There are cloud-based software ventures entering the market every day whose sole focus is solving particular problems and challenges for industries from hair salons to HVAC. Consequently, it's becoming increasingly hard for the software Goliaths to justify spending millions in research and development to produce apps and offer expertise that the entrepreneurial Davids can easily provide.
Taking Market Share From Goliath
Even the large software providers with strong industry focus are feeling the heat from the competition. For example, Veeva is a software company that offers cloud-based CRM and regulated content management products to pharmaceutical companies. In seven short years, Veeva has experienced a 60 percent growth rate while capturing tremendous market share from the likes of Oracle, EMC, Microsoft, and IMC. The company is planning to go public by continuing its micro-focus on solutions designed for the life sciences industry.
Another example is Castlight Health. Founded in 2008 by three entrepreneurs who were frustrated by the lack of transparency in the price and quality of health care, the company offers a cloud-based suite of enterprise health care applications designed to reduce costs and improve quality and outcomes for organizations and their people. Castlight's impressive client list includes multibillion-dollar corporations, and the company has experienced a mind-boggling 200 percent growth rate, quickly grabbing market share from industry giants Aetna, Cigna, and WellPoint.
And then there is VectorLearning, a provider of cloud-based continuing education and compliance training for the manufacturing, oil and gas, and other industries. The company offers a turnkey solution comprising its Learning Management System software and more than 2,500 online courses, including over 300 mobile-ready courses (most of which are accredited for industry and professional certifications). By focusing its efforts solely on learning and content management solutions for these vertical markets, VectorLearning competes successfully against online training content providers such as Skillsoft and Lynda.com.
Similar to the advent of the Internet and e-commerce in the 1990s, the cloud has opened the doors to entrepreneurs from all industries to share their expertise and innovation. Success doesn't have to depend on taking market share from the Goliaths, however--it also comes from having the creativity and courage to create new markets.