Cloud Economics

| February 11, 2012

When a major change arrives on the IT scene it’s not always clear what the implications will be, if any, and so for large organizations a risk-managed wait-and-see attitude tends to prevail. Occasionally however some shifts offer cost savings, improvements to operations, or ways to tackle business problems that offer significant strategic advantage. The larger the benefit in one or more of these areas, then the more strategic the advance is and the greater potential it will impact the bottom line.

Cloud computing is quickly beginning to shape up as one of these major changes and the hundreds of thousands of business customers of cloud offerings from Amazon (Amazon Web Services), Salesforce (, and Google (many offerings, including Google App Engine), including a growing number of Fortune 500 companies, is showing both considerable interest and momentum in the space.

8 ways that cloud computing will change business

  1. The creation of a new generation of products and services. The economics of cloud computing lets innovative companies create products that either weren’t possible before or are significantly less expensive than the competition (or just more profitable.) This part of cloud computing is an arms race and there are short windows of opportunity since competitors can often put the economic advantages of cloud computing into their product formulations fairly quickly once they see that it works for you. Where it gets interesting is that many business ideas that required prohibitive amounts of computing power, scale, or radically new business models (the aforementioned open supply chains and Global SOA) but couldn’t be implemented due to existing technical limitations or cost-effectiveness, can now be realized. Every improvement in storage, processing power, or technology enables innovations that weren’t possible before (high speed Internet, for instance, made products like YouTube possible) and cloud computing makes these opportunities unusually accessible. Smart companies will take notice.
  2. A new lightweight form of real-time partnerships and outsourcing with IT suppliers. Companies that did traditional outsourcing of their IT services a few years ago already know what this feels like; a large part of what used to be in-house is now being done somewhere else and changing anything is hard. But unlike traditional outsourcing of IT, cloud computing will provide agility and control that traditional outsource cannot match for the most part. Don’t like your cloud vendor? Unless you negotiated a long-term contract, you can often switch far easier than changing IT outsources. In fact, many cloud computing relationships consist of nothing more than a cancel-at-the-end-of-the-month commitment and corporate invoice. For many companies, this will actually be improvement over what they have now and give them choices they perhaps never had when everything required internal execution or to go through the outsourcing supplier relationship.
  3. A new awareness and leverage of the greater Internet and Web 2.0 in particular. Most companies are still notoriously critical of Web technologies as “not serious” computing. But the Web has grown up considerably in the Web 2.0 era and the challenges in scale, performance, and satisfying fickle audiences of millions has created technologies, solutions, and architectures that can address them in powerful yet economic ways that many enterprise systems are finding hard to match. When cloud computing is adopted by an organization, they will find themselves thrown into the pool with the rest of the online world in many ways, whether this is the employment of social tools, SaaS, non-relational databases or a host of other technologies in their new cloud. And in the end, this will serve them very well and allow many companies to acquire the skills and perspectives required to compete effectively in the 21st century.
  4. A reconciliation of traditional SOA with the cloud and other emerging IT models. A great post this week from our very own Joe McKendrick illustrates how SOA is evolving because of the cloud. The advent of cloud technologies will have to be dealt with and somehow encompassed by SOA initiatives that are already looking at their current toolset of heavyweight approaches and technologies with an eye towards seeking an onramp to change and improvement. Web-Oriented Architecture fits very well with cloud technologies which are heavily Web-based and it’s a natural, lightweight way of building SOA at virtually every level of the organization. For many organizations, the cloud will likely be the straw that broke the back of traditional SOA and move it to a place where it will meet new business and technical requirements, faster rates of changes, and new business conditions.
  5. The rise of new industry leaders and IT vendors. While we’re seeing many of the top players in computing use their existing strengths to create successful cloud computing offerings, there were also be a new generation of companies that businesses generally aren’t used to dealing with as suppliers. Amazon and Google are two firms that generally aren’t regarded as deeply experienced in the enterprise, and there are many others. While it doesn’t seem that we’ll see many entirely new players compete with the big firms, it’s certainly not out of the question (and given the opportunity, likely from an investment standpoint) that we’ll see some very well-funded new cloud startups that lack the baggage of existing leaders (thereby moving very quickly) and bring a new sensibility (radical openness and transparency, new technologies, and Web-focus) that’s often needed with cloud computing. We may see perhaps even before the downturn ends. Either way, the industry landscape will be remade by cloud computing as it is one of the very few new IT developments that will be very broadly adopted in the next several years.
  6. More self-service IT from the business-side. Many cloud solutions, particularly as they relate to SaaS, will require increasingly less and less involvement from the IT department. Business users will be able to adopt many future cloud computing solutions entirely using self-service. This also heralds, as McKendrick indicates, that many of these scenarios will be much smaller and more numerous, tapping into the The Long Tail of IT demand.
  7. More tolerance for innovation and experimentation from businesses. With fewer technical and economic barriers to creating new ways to improve the business (LOB, marketing, sales, customer service, IT, horizontal services), cloud computing will enable prototyping and market validation of new approaches much faster and less expensively that before. While legal, branding, and compliance will often struggle to keep up the pace with the rest of the organization, there will be gradual thawing of the glacial pace of change as business possibilities become, well, more possible in the cloud computing world. This won’t fix the often broken innovation mechanisms in businesses, but then again, cloud computing is so accessible that many new internal entrepreneurs (see previous point) will use the tools to create new solutions anyway.
  8. The slow-moving, dinosaur firms will have trouble keeping up more nimble adopters and fast-followers. Not adopting cloud computing doesn’t spell the immediate demise of traditional companies that aren’t good at making technology and cultural transitions (and make no mistake, cloud computing is a big cultural change), but it will pile onto other recent advancements and make it even harder to compete in the modern business environment. In the end, those too slow to adopt the benefits while managing the risk are likely going to face serious and growing economic and business disadvantage.

For many organizations in the short term the apparent potential of the individual changes above will often not be sufficient to them to make the transition to cloud computing, particularly as the cloud market is so new and major players such as IBM and HP have yet to arrive in full force. But gaining competency in cloud computing today by conducting pilots and building skills will server companies well and begin to position them for the future IT landscape. Longer term, cloud computing is increasingly appearing to be a transformative change in the business landscape.

Courtesy of Dion Hinchcliffe,

Category: Cloud Computing

Comments are closed.