Member Article

Storm Clouds on the horizon (part 2)

How the disruptive force of the Cloud could threaten your business

With Steve Caughey of Arjuna Technologies Ltd

In the last article I described why I believe Cloud Computing will be a disruptive technology. This week I’d like to examine the companies for whom the cloud may represent a significant threat.

IT producers

Established companies who build IT products, particularly traditionally licensed software products, are under serious threat. Hardware manufacturers will lose out in end-user sales but the continued growth in demand for computing in the cloud will probably compensate for that loss. Hardware, and much of the software stack, will however become an increasingly low margin business in which only the biggest and most efficient will survive. Software products will increasingly be delivered as services in the cloud and the ability to cooperate through open source and deliver a huge variety of products via the cloud without any significant capital expenditure will stiffen competition. Microsoft has already recognised that its Office Suite cashcow is under threat from cloud-based offerings (from Google and others) and has responded with a huge investment in its own ‘Azure’ cloud infrastructure.

IT managers and staff

Local IT won’t go away and there will probably always be some applications and data that businesses will keep in-house, but much ‘commodity IT’ will move to the cloud. IT departments who are supporting standard servers delivering packaged applications beware - your CIO (and the packaged application providers) are already be considering how to obtain those services from the cloud. Also, your business users are already starting to experiment with Amazon and Google’s cloud offerings as a means of bypassing the complexities of dealing with the IT department. The cloud is your competitor.

Incumbent companies with significant IT costs

The bar for market entry by your competitors has just been significantly lowered. More and more companies are entering the market with cloud-based IT which can be delivered with very little capital expense by utilising pay-as-you-go, on-demand resources. Furthermore the cloud is able to cope with the scaling out of IT and those companies have the opportunity to grow without significant external funding for IT. We’re seeing the tip of the iceberg right now but cloud infrastructure costs are tumbling and the growth in usage is exponential.

Managed hosting providers

In the short to medium term the cloud might seem like a positive step for managed hosting providers as they can be seen as the local representation of the cloud. However, there is a significant longer-term danger here. Once I’m in the cloud do I really care if my web site, or my packaged application, is hosted in Newcastle or in New Delhi? What if New Delhi is 25% of the cost? There are opportunities for hosting providers to offer customer-focused specialist services, but the local hosting provider looks increasingly like a once-removed IT department to the business user.

This was posted in Bdaily's Members' News section by Supreme Ice Cream .