Cloud computing is often categorised as a disruptive technology. What does that mean? A disruptive technology is one that does more than change the dynamics of an existing market; rather, it changes the entire structure of the market. For example, the internet is a disruptive technology: by providing a means of locating and accessing content, it has disintermediated traditional content providers such as newspapers, publishers, software distributors and other media, and changed the way content is provided and consumed. Assumptions as to the structure of the content market that held good in the early nineties no longer hold true. Voice over IP technologies are doing the same with voice telephony – lucrative markets for international calling have been decimated first by competitive operators using VoIP technology, and now by that copy of Skype running on your computer.

So, why will cloud technology disrupt the market for IT services? To answer that question it’s instructive to examine how IT services are consumed and provided at the moment.

Large organisations typically have large IT departments – in some cases of vast proportion. Businesses have become used to IT projects requiring large amounts of custom design and heterogeneous components. As a consequence the accepted norm is that that they are expensive, take a long time to execute, and often overrun in both cost and time. Look at just about any government IT project to illustrate the point. The IT department is in effect a service provider for the rest of the organisation, but it’s often an inefficient service provider as it faces little competition: switching costs are high, and the rest of organisation often lacks the knowledge for outsourcing to be a cost effective alternative.

Cloud technology is changing this. By centralising IT resource and offering it at scale and on an agile basis, cloud allows IT services to be purchased as a utility, and pushes down cost of service. The IT department will face a ‘Wizard of Oz’ moment where the curtain is pulled back and it’s discovered that the magic they are adding is not so magical after all.

Does this sound far fetched? Not at all. Ten years ago, it would have seemed perfectly reasonable for large IT projects to provide sales lead tracking management or multi-site email with remote access. Now even the most technologically naïve CEO or CFO will be asking “why not” and “why not gmail?” These of course are the low hanging fruit of cloud adoption, but increasingly organisations are questioning why it takes weeks to provision a server that can be provisioned in the cloud in minutes.

Is this the end of IT empire? Yes and no.

•    First – the need for business process redesign and application redesign, combined with caution, change resistance, and bloody-mindedness will all act as brakes upon this change. Newer or more agile organisations will suffer less from this, giving them a competitive advantage over older organisations who not only have legacy systems and hardware, but also legacy management structures and departments. Do you see many new software companies buying lots of servers?

•    Second – there will still be a role for in-organisation IT professionals, but that role will change: someone will need to specify, procure and manage these cloud services. This is no greater a leap than saying that the availability of IT outsourcing has significantly changed the role of the CIO.

Part 2 of this blog will cover what this all means for service providers.