CloudStrat: Managing Migration to the Cloud

CloudStrat places players in the role of the Chief Strategy Officer of LegaSoft, a large global software vendor. LegaSoft is a market leader in the Enterprise Resource Planning (ERP) market. ERP software is a suite of applications including financials, manufacturing, human resources and other modules that together automate the back-office business administration functions of an enterprise. LegaSoft has traditionally sold premise-based enterprise software based on a perpetual license model. However, a disruptive competitor has entered the market. This competitor, called NetWare, offers similar products but it uses the Software as a Service (SaaS) to deliver its software. The SaaS model, also known as the ?Cloud Computing? model, typically has a faster deployment time and a lower cost of ownership than premise-based software. NetWare has been in the market for a few years, and its offerings have been well received by customers. To compete with NetWare, LegaSoft created its own cloud-based offerings. LegaSoft expects that a significant percentage of its legacy customer base will migrate to these SaaS products. The migration will most likely proceed at different rates for different modules, different markets and different segments. The challenge that LegaSoft will face in this transition from the legacy software model to the SaaS model is that the SaaS offerings will potentially cannibalize the legacy offerings. This cannibalization will hurt revenues and cash flows because customers pay smaller annual subscription fees in the SaaS model as opposed to large up-front payments in the legacy model. On the other hand, if LegaSoft does not aggressively compete in the SaaS space, its market position will gradually erode. LegaSoft?s success ultimately hinges on its ability to navigate this migration to the cloud, by transitioning its business model to take advantage of the SaaS opportunity while protecting the profits from its legacy business for as long as possible.