The Legacy IT Conundrum: Money Pit or Value-Add?

An analysis of IBM's new BlueMix project, which puts most of IBM's software in the cloud, reveals that 80 percent of IT spending goes to legacy systems. As organizations finally learn to stop worrying and love the cloud, IT departments will have to decide if they will continue to be a money pit or can find a way to add value to new cloud systems.

Last week, Saugatuck Research released an analysis of IBM's new BlueMix offering. In introducing BlueMix, IBM announced its intention to invest $1 billion in application-oriented initiatives, including a commitment to CloudFoundry and making technologies such as the venerable application server WebSphere available as an online offering. The always insightful Lydia Leong from Gartner weighed in; she's obviously impressed by BlueMix.

Saugatuck identified three main BlueMix elements, noting that IBM is doing the following:

  • Spending $1.2 billion to open 15 new cloud sites in 2014, adding to 12 existing IBM Cloud centers and 13 sites acquired with SoftLayer;
  • Delivering new SaaS-based offerings for mobile device management as well as analytics, human resources and marketing, and
  • Facilitating management of application workloads running on Cloud infrastructures and on hybrid infrastructures — that is, workloads with components running on traditional infrastructures and components running on cloud-based infrastructure.

[ News: IBM Begins Moving Software Portfolio to the Cloud ]

The Saugatuck analysis continued:

As most industry analysts agree, the majority (typically 80 percent or more) of customer IT budgets are consumed by operating, maintaining and managing existing systems and workloads. This makes the implementation of any new workload a costly endeavor. Further, as customers are learning, implementing a new workload on a cloud-based infrastructure may reduce costs for required infrastructure, but can easily increase the challenges of managing the workload.
While all three of the above areas of investment are truly significant, Saugatuck projects that the third area will likely yield the greatest impact on overall customer adoption of cloud.

These last two paragraphs are critical to understanding the threat cloud computing presents to IT organizations.

I applaud IBM's initiative to make creating, deploying and operating cloud applications more efficient — after all, I work for a company that provides cloud management software — as it offers the potential for making these new applications less expensive than traditional applications. However, it leaves undisturbed that 80% of IT budgets devoted to "legacy." Therein poses the danger to IT organizations.

Like It or Not, Cloud Is Coming

As noted in my last column, a revolution in application development is happening, fomented by the seductive agility and rapid infrastructure availability offered by cloud computing environments.

I also noted that until now the friction of traditional IT infrastructure made accelerated application lifecycles unimportant. In practice, infrastructure friction outweighed application waterfall methodology friction and made slow development and deployment methodologies immaterial.

[ Commentary: Why Cloud Computing Offers Affordability and Agility ]

[ Also: How Cloud Computing Changes Enterprise IT Economics ]

In addition, the need for heavy capital investment to roll out an application meant that, in effect, application demand was rationed. Each year, only so many applications could be put into production, since each launch required so much capital to be deployed.

Today, however, cloud environments are not only fast, they require no upfront investment — meaning, no capital. This removes yes another barrier to application demand. The implication is clear: The demand by business units to launch new applications is going to skyrocket, fueled by agile infrastructure and low initial investment requirements. This isn't even to mention the fact that most companies are becoming more IT-infused, as described by Mark Andreessen in his renowned Wall Street Journal editorial, Why software is eating the world.

However, as Saugatuck notes, most IT budget is already committed to keeping the lights on. Not only is most of the budget placed toward legacy, so, too, is most of the time and attention. In other words, for most IT organizations, cloud computing competes with the weight of legacy for management bandwidth, prioritization and money. That's a huge problem.

Eventually, of course, legacy systems will be retired. Someday IT organizations will run all of their applications in cloud environments. (In fact, when that someday arrives, we won't speak of cloud computing at all. It will be the de facto deployment environment, and no one gives attention to environmental factors that are assumed to be universal. It will just be the infrastructure environment, with no special name.)

Cloud Is Coming Quickly, Too

The question is, how long will it take for the 80 percent of spend associated with legacy systems to drop to only 10 percent or even 5 percent? As I noted in my review of The Second Machine Age, the transition from steam to electric factory power took nearly 40 years and was only fully realized when a new generation of factory designers and managers replaced those raised on steam power.

We see evidence of why these transitions take so long in the way IT organizations have responded to cloud computing. They doubt cloud security. They insistent that they can run cloud environments cheaper than public providers. They assert that most applications don't require cloud characteristics such as elasticity and large scalability.

IT organizations won't have 40 years to retire legacy environments in favor of cloud computing and thereby free up sufficient budget to meet increased demand. The demand for new applications is going to be so overwhelming, and the allure of bypassing IT in favor of public cloud computing so powerful, that IT organizations will need to be much more aggressive in retiring old applications and infrastructure. Otherwise, they're going to be like the Maytag repairman, left alone and undisturbed, tending to a devalued cost center.

[ Commentary: Why IT's Economics Revolution Is More Than OpEx and CapEx ]

[ More: How to Run Your IT Department Like a Business ]

There's evidence of this. Business units embrace cloud computing much more rapidly than IT organizations burdened by the sunk costs of inflexible legacy systems and hindered by sluggish processes better suited to traditional infrastructure timescales. Frustrated by these factors, business units bypass IT and setting out by themselves. All the warnings about lack of governance, provider security and VM sprawl are ignored in the rush to respond to business opportunity.

The choice is stark: Figure out a way to provide value or be relegated to a devalued cost center, discarded in favor of more responsive alternatives.

Bernard Golden is senior director of Cloud Computing Enterprise Solutions group at Dell. Prior to that, he was vice president of Enterprise Solutions for Enstratius Networks, a cloud management software company, which Dell acquired in May 2013. He is the author of three books on virtualization and cloud computing, including Virtualization for Dummies. Follow Bernard Golden on Twitter @bernardgolden.

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