Atlassian, Slack, and the decline of on-premise software

“Et tu, Atlassian?”

That’s how some HipChat users felt upon learning that their collaboration tool was on the chopping block.

Last summer, Atlassian-which builds a product suite of developer tools including Jira and Trello-announced plans to sunset HipChat and Stride (another Atlassian team chat tool) at the end of February 2019.

Atlassian bought equity in Slack- the fastest-growing B2B app of all time-and encouraged users to migrate their data from HipChat and Stride over to Slack. Atlassian sold the intellectual property for HipChat and Stride to Slack with the promise of better integrations between Slack and Atlassian’s product suite.

You’d be forgiven for questioning if this choice puts users first. After weeks of strife in Atlassian’s forums, co-CEO Mike Cannon-Brookes issued a mea culpa (emphasis added):

"In the long term, I'm sure this is the right choice for all of our customers.

But in the short term, I'm not going to sugar-coat it, it's bad news for some of you.

If you're using HipChat or Stride, I acknowledge it's very disruptive and I apologize for that. It means your teams will need to migrate your data."

This move affects HipChat’s on-premise users the most. Slack is cloud-based and doesn’t offer an on-premise version of its product.

Likewise, Atlassian has no plans to make HipChat Data Center open source. And if your technical team uses on-premise versions of other Atlassian products, you’ll need to buy Slack Connector apps for Jira, Confluence, and Bitbucket as well.

Finally, there’s the cost conundrum. HipChat’s Basic version was free for unlimited users. This allows everyone in a small and midsize business (SMB) to use group chats and one-on-one messaging at no extra cost.

If you wanted additional features such as video, those cost $2 per person per month: a literal fraction of Slack’s Standard plan, which costs $8 per active user per month when billed monthly.

All of this confirms a crucial point: On-premise software is far from the default that it has been in the past. In fact, you’ll need to build a business case for why your SMB needs it more than the growing field of cloud-based contenders.

News of Atlassian’s move comes at a crucial time for IT spending. Gartner research (available for clients) shows that SMB IT spending will see a compound annual growth rate (CAGR) of 4.2 percent through 2020.

SMB leaders will spend most of it on software and IT services rather than devices. And those who invest in cloud software will surpass their on-premise peers in innovation.

It makes sense why some SMBs choose on-premise products. Once you pay the upfront fees for on-premise software, you own and maintain it in house. Despite its pricey reputation, on-premise can ultimately cost less than its cloud counterparts.

And for companies that work in highly regulated industries-including healthcare, energy, and aerospace-the need for privacy keeps them on premise. This is especially true for businesses that have contract clauses demanding that they keep data in house.

Sixty percent of small businesses that suffer data breaches go out of business within six months. So, the prospect of handing your servers to an external cloud provider might sound daunting.

But keeping your data on premise isn’t the only option, or even the new norm: Gartner research shows that just 15 percent of organizations plan to stay on premise indefinitely.

In tandem, we’ll see cloud-first vendors keep adding technology like AI to their products. These innovations range from using sentiment analysis to predict audience reactions to marketing campaigns to machine learning being able to auto-populate details from PDF bills into accounting software.

These cloud-based software features automate rules-based, repetitive tasks that are important but not strategic. In turn, this gives users more time to focus on the strategic aspects of growing their businesses that only a human can currently do.

SMBs must adopt new technologies within two to three years if they want to outperform competitors. Now, consider that on-premise applications tend to make major releases every few years.

At a time when tech evolves faster than ever, this timeline isn’t feasible for SMBs that must outperform their peers if they want to survive. The time they’ll spend waiting for on-premise product updates will cause them to lose ground within their markets.

Moving forward, SMBs that keep using on-premise products will need to share why said products are the best fit for their organizations’ tech and business goals. Those that stick with on-premise due to “no cloud” policies, perceived necessity, or personal preference will stifle their abilities to pass competitors and compete with enterprises.

More crucially, they must work with business leaders to make the case for staying on premise. If an SMB can’t move all of its data or users to the cloud, hybrid deployments are a viable choice. Amazon Web Services, Microsoft Azure, and Google Cloud Platform are just three vendors offering hybrid options.

Slack’s success-and HipChat’s demise-show that today’s market for communications software is firmly cloud-based. Tech leaders at SMBs using on-premise options need to take an honest look at why they’ve chosen to use such tools. To justify staying on premise in the long run, they’ll need to ask if innovation trumps convenience.

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