When will loyalty embrace the cloud?

Dec 24 2012, 16:24 IST
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SummaryThe advent of cloud based services model has given rise to some questions among loyalty professionals regarding the actual definition of the word ‘cloud’ and its impact on loyalty programmes.

The advent of cloud based services model has given rise to some questions among loyalty professionals regarding the actual definition of the word ‘cloud’ and its impact on loyalty programmes. Loyalty programmes are offered by organisations, big and small, to attract and retain customers. Industries like airlines and hotels have been at the forefront of utilising loyalty programmes in the form of frequent flyer and frequent guest programmes.

Credit card companies and banks, following in the footsteps of retailers have adopted loyalty programmes as competition for customer acquisition and retention has intensified. Most large companies who use loyalty programmes have their own custom application systems, while others who do not, utilise specialised off-the-shelf loyalty software.

With the advent of outsourcing, many businesses running loyalty programme have outsourced the complete design, running and campaigns management to a loyalty specialist owning loyalty software. In the last few decades businesses large and small have increasingly jettisoned their own custom applications in favour of off-the-shelf enterprise systems like SAP and Oracle ERPs for automation of their backbone enterprise operations like financials, inventory management, procurement etc. Seeing the benefits of moving from custom applications to pre-packaged enterprise software, many companies are now switching from their custom loyalty application to enterprise loyalty software like Oracle Siebel loyalty.

It is important to understand the meaning of ‘cloud’ as everyone now calls their services or products ‘cloud enabled’, which may be some distance away from reality. The use of the word ‘cloud’ in IT originated from the depiction of internet as a cloud in diagrams displaying networks or information flow. Therefore, cloud services mean any services hosted from the internet. For example, Yahoo Mail or MSN mail or Google search facility are all cloud services. One can register, have 24/7 access from any end user equipment like a PC, smart phone or a tablet, as usage of this service requires very limited training. Users do not need to know the location of the servers, databases etc. One does not also require an expert at hand to resolve technical problems, optimise storage or the computer speed etc.

In essence, the largest providers of cloud services users are Google, Microsoft, Yahoo, Facebook, Youtube etc as well as newspaper portals, government portals for citizens, weather channels and many more. As the usage of cloud services comes at little or no cost, some corporations decided to exploit the model for commercial business. Salesforce began offering CRM software to corporates, Amazon started providing cloud computing power and storage, Google and Microsoft offered cloud private email services. Oracle and SAP joined the fray with Oracle OnDemand and SAP Business by Design. Gartner predicts faster growth for cloud based services in the coming years than traditional software sales.

The biggest benefits of cloud based services are lower costs, ease of use, high availability and minimal need of an in-house technical team to manage the technical aspects of the software. Therefore, there is a universal desire among providers as well as user companies to search for appropriate use of the ‘cloud’ model to reduce cost of IT in corporations as the global IT usage continues to expand.

It is in this context that the question arises –can we use loyalty software on the cloud? Will it deliver the same benefits that are often quoted for other cloud services?

The biggest benefit of the low cost of ‘cloud’ services results from scale of usage. Low cost is a result of multi-fold number of users sharing the same software, hardware, technical support, maintenance etc. Many customers who run loyalty programmes have utilised the ‘sharing model’ in a limited way through their outsourced service provider who services many other customers.

ITC Infotech, as a leading Oracle partner, has implemented Siebel Loyalty enterprise system for many airlines, hotels, and coalition loyalty programmes, readying them for possible future ‘sharing model’ as and when the customers feel confident to move to such a model. One of ITC Infotech’s customers is using Siebel Loyalty with multiple customer programmes in a single instance thus benefiting its customers from such a ‘sharing model’.

However, most loyalty programmes will not be able to move to a pure cloud service because of the following reasons: Loyalty applications of today are digitally integrated with tens and hundreds of in-house applications and partner applications. Such integrations can be complicated and need monitoring. Imagine the integration nightmare if ten loyalty programmes of ten different companies are brought on to a single application. Let us then extend the analogy to further hundred or thousand customer companies sharing a single loyalty software on the ‘cloud’. This is the sole reason why loyalty cannot move to real cloud anytime soon.

There are new technologies being implemented for integrating systems on the Web. However, such systems will require the applications connecting to the loyalty system to be Web-enabled for integration. There are other relatively less compelling reasons why loyalty is unlikely to be moving to cloud soon. Customer is the focal point for all consumer businesses and loyalty is a critical component in fighting competition.

Therefore, for most businesses, the ability to respond fast to dynamic customer market changes is a critical or core competency. Thus, many businesses will consider their loyalty application as core and hence demand ability to customise/modify the loyalty application to their needs. Customer intelligence held in the loyalty database is a gold-mine for the business to profile and target their customers with the most effective offers. Businesses with valuable data in the cloud will perceive this as a risk. There are no enterprise class rich loyalty applications cloud ready as yet, even though one could host applications like Oracle Siebel Loyalty for multiple customers to simulate ‘loyalty on the cloud’ in a limited manner.

The latest outage of Amazon cloud services and Gmail, data breaches like the Sony Playstation Network and AT&T security breach which exposed 100,000 email addresses of iPad 3G does not provide much confidence to those considering moving to cloud services. Incidents like these will push the timeline for loyalty moving to the cloud further away.

The writer is senior vice-president, ITC Infotech

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