I’ve written extensively on the disruption that cloud computing presents to IT organizations; I’ve focused much less on the disruption it poses for the entire IT supply chain—from vendors through to system integrators and on to outsourcing companies. Make no mistake, though, cloud computing will disrupt every part of IT. No sector of it will come through unscathed.
A couple of anecdotes that were shared with me at a conference this week brought this home.
The first anecdote outlined the challenge one large vendor was experiencing with its channel partners. Today, these partners help the vendor’s customers implement and integrate on-premise hardware and software. A typical project lasts months (if not years!) and requires a small army of technical people with different skills: project managers, data analysts, interface programmers, finance and accounting personnel, etc., etc. In a cloud world, these projects shrink to much shorter timeframes and require many fewer people, i.e., many fewer billable hours. So, from the channel partner’s perspective, cloud computing is much less palatable.
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The second anecdote came from an end user which had signed a large outsourcing deal. The goal of the offloading was to save money, which it accomplished. However, now it takes six months (that was the figure quoted) to get new resources provisioned. The speaker displayed visible anguish at the position IT was in: a resource provisioning process that take forever and end users with increasing demands for IT resources and an increasing impatience fostered by what they’ve heard about the “available in minutes” characteristic of cloud computing. Talk about a rock and a hard place!
With regard to the first anecdote, it’s clear that the asset-lite, easy provisioning, transparent economics of cloud computing require much less of certain portions of typical on-premise projects. However, it’s not clear that the “tip of the spear” part of on-premise projects—integration with existing systems, end user interfaces, etc., disappear at all.
It may be that if a SaaS solution is being used formerly necessary parts of projects that were part of the value of the project will not be needed—for example, traditional CRM implementations like Siebel had endless database and schema work, all aimed at creating an environment perfectly tuned to the user environment. With Salesforce, the service comes with a standard schema that customers are expected to live with—and guess what—they do.
Nevertheless, the valuable parts of system projects, even if the overall project is less costly, remain—and perhaps deliver even more value when the overall project is freed from expensive, low-value labor.
Case of Cloud and the Clipping Service
Let me offer an example. In the past, most company’s marketing departments subscribed to a clipping service—a service that subscribed to newspapers and magazine and would clip stories that mentioned the company. Every week or so, an envelope would arrive from the clipping service with all the stories they clipped neatly pasted to sheets of paper. Naturally, this was expensive because the people cutting out the articles had to be paid for. And, it was difficult to justify spending more on different clips, about competitors, say, because of the expense. Moreover, it was time-consuming and a hassle to change what you clipped for (we term this process friction), so it wasn’t done very often.
Today, I receive a daily report from Meltwater, an online clipping service. It scours 115,000 sites on the Internet to identify search terms and returns links to every mention that matches the search. It’s easy to add or change a search term and the results show up in the next day’s report—with no additional cost to the monthly subscription fee. Meltwater shared with me that many of its customers, because it’s so each to set up searches, now track information on competitors, members of competitor’s boards, individual products, and so on. In other words, the reduced process friction encourages increased use. And the flexibility of the service offers new opportunities—integrating the feeds into other applications. For example, I could take the information delivered by Meltwater, match it into Salesforce, and allow my sales team the ability to send a communication targeted at a recent development at a customer or prospect. Way more value than a traditional clipping service.
However, from the point of view of the clipping service, this online clipping delivery is a disaster. Who needs people poring through publications and using scissors to cut out articles? Who needs account managers to receive telephone calls asking for new things to be clipped when the customer can change the search on his or her own?
One might say this new environments presents an opportunity for a clipping service to reinvent itself, focusing more tightly on its true value—information delivering insight—and to identify new opportunities to create additional value. Or one could say that it ruins a pretty nice existing business.
In any case, as the Meltwater example illustrates, the low process friction and cost motivate people to consume more, not less, so the pie increases even if individual slices shrink.
Turning to the outsourcing situation, it’s easy to see that cloud computing is going to disrupt this business. The premise of the business has traditionally been “your mess for less,” in other words, we can manage your IT operations more efficiently and cheaper than you can. Underlying that premise has been an assumption of high infrastructure stability—that computing environments change slowly and with plenty of notice, making process-heavy outsourcing arrangements acceptable in light of the reduced costs.
There’s only one problem with that: we’re moving to an increasingly malleable computing environment—instability in the form of varying workloads, short duration applications, and unpredictable data flows make high process friction an impediment to doing business.
In a way, outsourcing resembles the utility business—a large asset base with highly predictable demand offering lucrative return on equity. However, in the future customers will expect outsourcing to support low predictability, which poses a threat to stable environments with high financial returns. Amazon is by no means perfect — it can be difficult to work with and its operations and security practices tend to be opaque — but, hats off to the company, it delivered a new level of resource immediacy and has changed user expectations forever.
Beyond the process friction aspects that Amazon has addressed, its offering has changed the expectation of cost flows. You pay Amazon for only the resources you use as long as you use them. Who’s going to want to stick with the $100 million plus outsourcing model when resources are available on a pay-per-use basis?
Again, cloud computing offers the opportunity for outsourcers to focus on the high value part of their equation and seek ways to reduce dependence upon the low value part. But for sure, there’s going to be disruption in that part of the IT supply chain as customers demand more agility and responsiveness.
As the agility, no-commitment, and pay-per-use characteristics of cloud computing infuse the IT supply chain, disruption will occur everywhere. Each link in the chain will need to evaluate which parts of their offering creates value and which are costs no longer necessary in the new mode of computing. It’s going to be an interesting ride for the next few years as the value shakeout takes place.
Bernard Golden is CEO of consulting firm HyperStratus, which specializes in virtualization, cloud computing and related issues. He is also the author of “Virtualization for Dummies,” the best-selling book on virtualization to date.
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