A few weeks ago Bathwick ran one of its regular breakfast briefings with CIOs in the UK and the topic for discussion on this particular occasion was Cloud Computing. To be honest we were a little sceptical about levels of interest in the subject within the CIO community, but we got a good turnout and came to some interesting conclusions about potential buying trends.
CIOs are genuinely interested in Cloud Computing largely because they see it as having a potentially large impact on their role within organisations. Quite a few CIOs have been reading about the fate of the company electricity director in the early decades of the 20th century and see Cloud Computing as having the same career-killing outcome. Ultimately CIOs suspect that the rise of Cloud Computing heralds the demise of retaining internal technological expertise. IT services will be delivered by external suppliers who will be managed with (yet to be) established procurement processes.
Possibly because of this viewpoint most CIOs expect the Cloud to come to them in a piecemeal way, they have rather less interest in the idea of creating private Clouds. This is not because they don’t expect their organisations to move in this direction, but because they already are moving in that direction with server and data centre consolidation and virtualisation and don’t view this as being of particular business interest to themselves as CIOs. Private Clouds are a technical infrastructure necessity and are being developed by IT managers and will be supported by the traditional infrastructure logos: IBM and HP.
Gorilla marketing...
What is of greater strategic interest is what their organisations can do with SaaS, rather than developing their own applications, or upgrading their creaking ERP systems. For example, one CIO thought that “Cloud could be useful in terms of getting service provision correctly reallocated back to different departments…because with Cloud, departments get real autonomy since you can switch applications on and off which may make proper service allocation easier to manage internally.”
There currently appear to be only three gorilla logos in any CIO discussion about Cloud and they are:
- Amazon Services for infrastructure services to support testing and analytics
- Google applications for low cost, easy collaborative project solutions
- Salesforce.com for sales support
Now clearly this is not accounting for very much IT budgetary spend which is still dominated by traditional IT vendors with their old world revenue streams and licensing models. But when pressed many CIOs do not believe tomorrow’s IT services spend belongs to the vendors they use today. They think the world is changing quite radically and they are keen to experiment with new providers. While they won’t put the existing enterprise infrastructure into untried hands they don’t believe that current mainstream providers have the impetus to move very far or fast in the direction of cloud delivery. As one CIO put it, “I don’t think of the traditional IT supplier organisations as being natural providers of cloud services because they struggle with the commoditisation of traditional revenue streams and licensing models.”
Not a partnership
This is a comment worth contemplating, especially when the conversation turned to whether you could trust new companies building solutions on open source: the answer seemed to be that you could if the deal was constructed with commercial security in mind so that, for example, archives were cached locally. Once there is stability in determining the best practice for developing enterprise deals for provision of such SaaS solutions then tranches of the IT services market would change irrevocably. As another CIO commented, “for Cloud services we should be thinking of real commodity services where suppliers can be swapped out every couple of years to keep up with the most competitive deals. Cloud is not a partnership approach.”
Those CIOs that were already consuming cloud services for infrastructure had made the business case on the lower cost of using an external service rather than internal servers, nobody had attempted to create a Cloud v. non-Cloud business case. At a business level the type of infrastructure being used is not relevant (assuming you operate in an unregulated industry) rather it is gradually becoming a question of pricing internal or external service delivery. And the benefits of external service delivery also include the ability to provide many businesses with ITIL standards and disaster recovery capabilities that are beyond the investment reach of most in-house provision at the moment.
The message that emerged clearly from the breakfast should give every existing IT infrastructure, outsourcing, ERP, technical consulting and systems integration vendor indigestion. And it is this: you are trusted to manage the old world of tin until IT fades from organisational memory as something that ever had to be acquired, but the new world belongs to new logos, and those new logos will primarily belong to a new generation of SaaS Providers.
Dr. Katy Ring is a Principal analyst with the Bathwick Group, developing Bathwick’s new Global IT Services research programme.
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