Business Opportunities and Threats in the Technology Cloud

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.”