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Monday, December 14, 2009

Cloud Computing & IT Spending!

In continuation of the previous note:

Involved discussions on cloud invariably turn towards the question: would embracing cloud help business bring down IT spend? This question assumes more relevance given the fast early adoptors are seen to be increasing and IT spend by various counts could be seen to be flat to marginally higher numbers in the coming quarters.

Today cloud vendors seem to mostly follow the path of playing the volume game to make their money – very different from conventional approaches. In most of the cases, early adopters in the past, used to spend at higher costs to gain the first mover advantage in business and therby recoup the costs, while the technology matures and begins to be offered at lower prices. But doay, partly the confusion is sown by some vendors when they boldly proclaim huge cuts in IT spend with the adoption of the cloud. I think that this may be true in a few cases but this is hardly the way to push cloud computing. Why not, one may ask.

As recorded by Joe Mckendrick, at a recent panel at Interop, AT&T’s Joe Weinman, raised doubts about the sustainability of cloud computing economics, describing a scenario in which they break down as enterprise management requirements come into play. “I’m not sure there are any unit-cost advantages that are sustainable among large enterprises,” he said. He expects adoption of external cloud computing in some areas, and private capabilities for others.

The belief is that in the immediate future as investments get made in establishing infrastructure by cloud service providers and business setting up private clouds, there may be a surge of spending but with more sophisticated infrastructure management technologies, cost of automation may come down just as net virtualization benefits would begin to outweigh the costs incurred substantially.

Let’s look at the processing power acceleration inside the data centers this game never ceases to progress and so we will at any point in time see more and more investment to embrace the latest technology – the corollary is that business begins to see better and better usage of the progress but as we have seen in the last 25 years amidst this cycle , the spend in absolute terms have not come down at all. All of us know that more than higher % of virtualization is a pipedream even in the best of the circumstances. A new hardware refresh cycle looks to be a sold case as cloud computing gains more and more traction. Data centers are in constant race to improve performance, flexibility and delivery – in turn opening more opportunities for new software/services. All these will begin to reflect in additional IT spending.

All of us recognize the explosion of information and data in our day-to-day life and business experience similar explosion of data. From handling a few terabytes of data years back, today we are seeing the top 5 internet giants turning out several hundreds terabytes of data annually. The other day a friend of mine told me how he got reports about a smartphone launch push communication almost clogging the internet bandwidth some time earlier this quarter. This means that while unit cost level saving may provide for savings on paper, the information complexity would begin to leverage more and more of technologies like cloud – imagine every business beginning to expect/invest in cloud based analytics – the infrastructure needed to support such initiatives could become significant. Leading VC's like Evangelos are rolling the red carpet for investments in creating such companies that can cater to this pent up need. Now extend the argument further –more and more data followed by more and more complex realtime analytics – some skeptics may say - this is a never ending game of pushing the frontier – they may well be right in a way, but this could become the way of doing business in this century.

Like BI being a big ticket/focus item inside enterprises today, we shall potentially see more and more of analytics in the cloud becoming a very large component of cloud activity/spend landscape. David Linthicum notes a trend toward much of the innovation around leveraging larger amounts of structured and unstructured data for business intelligence, or general business operations, coming from innovation in the cloud, and not traditional on-premise software moving up to the cloud. This is a shift. Considering this trend and the fact that cloud providers provide scalability on-demand could be the one-two punch that sends much of our business data to cloud computing platforms.

Let’s look at this from a different plane. Business will begin to leverage advancements in cloud to seek more and more differentiated edge for themselves – this means the small efficient biz can really compete well against large inefficient business and win in real circumstances. The winner would spend more to maintain the edge and the responsible lagging business would imitate/surpass the enabling winning model and this means more and more cloud/IT involvement is a foregone conclusion. Maximizing benefits would in general give way to pull backs in IT enablement in an expanding business scenario. Cost, efficiency & flexibility leverage for improving productivity would be self serving for business but this would trigger more and more incentives to keep stretching this approach, in turn fuelling more leverage of IT enablement. In a dream situation , IT enablement must release locked –in value from investments and release more and more for funding future strategic initiatives, and directly help in creating new business models, facilitating new business channels etc.
The Bottomline : Expect more and more business leverage of IT and ironically, with clouds , this may not be through less IT but more and more benefits may flow out of engaging IT lot more. Just in case, business begins to demand more bang for the buck - the scenario looks plausible : Few mega vendors may dominate the space and they would again be at each other's throat promising low cost -high value computing benefits to the CIO - But i still believe the benefit frontiers would keep shifting forcing business to commit more and more IT leverage!

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