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Wednesday, December 08, 2010

The Cloud & Its Impact!

Was on a long flight to Asia, when conversation with the co-passenger began to get centered around cloud computing and what could be its impact that an educated executive ought to know. I have seen the various definitions of cloud computing that include elements of the varied description of the term, yet they typically do not address every single aspect that is associated with cloud computing. The definitions vary from being seen as IT as a service independent of location by IT resources to massive scalable IT capabilities provided as service across the internet to multiple customers to infrastructure hosting of customer applications and billed by consumption.

My intent here is not to add confusion with yet another attempt at fine tuning the various definitions that are currently available. Each and every thought strand provides a good job at giving an idea of what is involved. Nothing of importance suggests to me that there is any particular value in having an authentic/authoritative/cardinal definition. The attributes provide a more meaningful way to provide a near close authentic touch : off premise, elasticity, pay-as-you go billing, virtualization, service delivery, universal access, centralized and distributed management, multi- tenancy etc.

For me, the way I see it, the innovation of the internet from a technical perspective lies in identifying the confluence of several technical trends , look forward and visualizing how these can combine with improving cost factors, a changing environment and evolving societal needs can combine to create a virtuous cycle that generate an ever increasing economies of scale and benefits from network effects. Look carefully. One can see that cloud computing is similar in nature while admittedly its difficult to isolate a single grain of technology strand triggering the cloud’s advent and progress. A number of incremental improvements in various areas ( notable among those fine grained metering, flexible billing, virtualization, broadband, SOA, service management) have all come together recently. Combined together they enable new business models that can dramatically affect cost and cash flow patterns and are therefore of direct great interest to the business . In the backdrop of economic changes affecting the business environment and a investment overhang of IT , cloud and the opportunities it presents look very significant to business.

If we examine further, the combined effect has reached a critical threshold by achieving sufficient scale to dramatically reduce prices, thus leading to a virtuous cycle of benefits (cost reduction for customers, profits for providers), exponential growth and ramifications that may reverberate across many of our lives, including technology, business, economic, social & political dimensions. As cloud computing establishes itself as primarily a service delivery channel, its likely to have a significant impact on the IT industry ( by maximizing service interconnectivity), by stimulating requirements that support it.

The Capex Vs Opex discussion is well known and I won’t repeat it here but would like to point out that the reduction in fixed costs also allows the company to become much more agile and aggressive in pursuing new revenue streams. Since resources can be elastically scaled up and down they can take advantage of unanticipated high demand but without being burdened with the excess costs when the market softens. The outsourcing of IT infrastructure reduces the responsibilities and help organizations focus in the area of delivering true value of IT. The shift can help IT to focus from Plan-Build-Run onto Source-Integrate- Manage mode of functioning.

Another form of business impact may be that the high level of service standardization that cloud computing brings may blur the traditional market segmentation. The conventional distinction that separates small and medium businesses from enterprises, based on their levels of customization & requirement for sales and service support may fade in favour of richer set of options & combinations of service offerings. Let’s zoom out and come back. In some ways, cloud computing is only a small part of a much larger trend that is taking over the business world. The transition to services centered economy is gaining momentum over the decades - the critical constraint had been on collaboration - if we do a root cause analysis we can find that the constraint is rooted on trans- enterprise barriers and a cohesive well geared technical infrastructure.

The difficulty rests on the fact that unlike in a tangible product, it is very difficult for one to break services into its elemental components that come together to provide a seamless efficient service. The transaction costs that are associated with identification, contracting, monitoring and collection were far too high to justify bringing different entities together. A s we progress towards an ecosystem where everything –as-a-service becomes a defined norm, the gamut expands to include a lot of business as well. From Human resources management to finance to logistics to manufacturing all can be potentially handled by a strategic partner. And cloud here can play a critical enabling role of providing an infrastructure that acts as a critical component of this transformation.

Regardless of whether a company seeks to adopt cloud computing, the technology may have a significant impact on the competitive landscape of many industries. Some enterprises may be forced to look at cloud computing simple keep pace with external efficiencies in their ecosystem. And for some, it could be the case that their core business is being eroded by the arrival of newer agile competitors. As a result, I think that it very likely that there will be a market shift as some companies leverage the benefits of cloud computing better than others. These may trigger a reshuffling of the competitive landscape, an event that may harbor high risks and huge opportunities. More on this theme later

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