Business Opportunities and Threats in the Technology Cloud

By Jessica Davis  |  Print this article Print

Small businesses are likely to be the first customers that are broadly receptive to the idea of putting their entire IT infrastructure in the cloud, and that could mean an opportunity for VARs who are ready with offerings. Meanwhile, business models of such IT giants as Microsoft are at risk as their traditional offerings compete with what’s online.

Cloud computing threatens to disrupt many of the business models around the IT industry as traditional desktops and client computing are transformed into something different. But don't expect big enterprises to make the move right away.

That's because it's harder for big companies with their investments in legacy IT to make a quick switch to new infrastructure. Think about the complexity of such firms' SAP implementations, and you get an idea of the monumental task it would be for them to move all their operations to the cloud, according to executives at outsourcing consulting firm TPI, which helps large firms discover if outsourcing is the right solution for them, and then helps match them with the right contractor. Clients include 3Com, AT&T, ING and Lockheed Martin.

Large enterprises with custom applications aren't going to be quick off the mark. But "quite a few of our enterprise clients are talking about e-mail first, and perhaps desktops. Companies are looking at what's available that they could buy off the cloud versus what they could build or buy, and even the federal government is considering some of the cloud applications that Google is offering," says Thomas Young, partner and managing director of media, telecommunications and financial services at TPI.

If you are looking for the right market to target for cloud services initially, TPI says smaller firms are the most likely early adopters for cloud computing because it's easier for them to do it. And the first applications for the cloud will be the familiar ones such as PCs and e-mail.

"Companies will be buying terminal access for a lot less money and putting everything you would currently know as your PC out in the cloud," says Young. "This will allow you to log in from any terminal and have full access to your PC."

Also available will be the full benefits of centralized administration such as virus remediation, updates and upgrades.

At the same time, work force trends are also dovetailing into a change in how IT is delivered. For example, those who travel for work are relying on smart phones more often these days and less on their laptops. They may even leave their laptops at home. If these virtual PCs are delivered via the cloud, road warriors will be able to access everything from whatever terminal they happen to be logged into.

Meanwhile, TPI executives say that 10 to 40 percent of their clients' work forces are now made up of contractors. Providing these workers with PCs delivered over the cloud may become preferable to providing them with desktop computers or laptops. IT administrators then keep the centralized control and can provision a "PC" and deliver it much faster than was possible back in the day when everyone was issued a physical PC.

These shifts to the cloud could put traditional players in the IT industry such as Microsoft at risk.

"If companies don't make the pivot, they run the risk of going the way of the railroads," says Young. And don't think that hardware vendors are immune to the disruptive effects of the cloud, either, even though the cloud is made up of servers in some data center somewhere. These traditional hardware players may also see their markets shifting as big data centers come to the fore.

"Google doesn't buy OEM equipment from someone else. They build it themselves," says Young.

But there's still time for the traditional players to adapt their business models to fit the markets of the future. TPI executives point out how Cisco has been working to move into the server space. Plus, Chairman and CEO John Chambers has stopped traveling and instead is promoting the benefits of telepresence and video conferencing by using that instead.

"All the major suppliers are thinking hard and heavy about this," says Young. "The losers are the ones who think this is not a big deal and aren't doing anything about this."

One of the big challenges for incumbents will be "internal resistance to products that are not making a lot of margin." That is, the margins for cloud computing may be less than the margins, say, Microsoft has enjoyed from selling software licenses.

"If you look at some of the SAAS [software as a service] or early cloud services, the margins aren't terrific," says Young. "That is a big concern if you are an incumbent today. You don't want to move to the cloud if your margins slip by 50 percent. No one has demonstrated that there is a pot of gold from having a cloud offering."

Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com