Our very own Founder and SVP Product, Tony Lucas, will be speaking at the HostingCon event, Boston, MA. His 45-minute presentation will discuss how the move towards the cloud is an opportunity for hosting companies to achieve significant growth, but also a threat because of new entrants and business models. While it may be valid to compete with homogenous public cloud services, Tony will argue that seizing the opportunity being presented by segmenting the market and even capturing the growing demand for hosted private cloud creates more defensible and higher margin opportunities. He will consider how service providers should react and what they should do to take their existing niche, speciality or uniqueness into a cloud model.
I just read a fascinating financial analyst report on cloud computing from Nomura Research, titled “Sky’s the limit for Cloud Computing”. The detailed report is aimed at board members such as CEOs, CFOs and M & A.
It positioned really well exactly what a major impact cloud computing is going to have on corporate IT over the next five years.
Interestingly enough, the authors of the study use the early days of electricity generation, pre-national grids, as direct comparison with what is expected to happen with the way computing is delivered as a service over the next decade.
Here are my key takeaways from the report:
This report demonstrates how the benefits of cloud computing are being articulated across the corporate, financial and business channels, but most importantly – that this shift in IT delivery is going to go mainstream.
The service provider is and will play an ever increasing role and I guess that’s why the value and smart money is being focused on service providers, not Internal IT.
In part 1 of ‘Service Providers and the decline and fall of the IT empire’, I discussed how cloud computing is often categorised as a disruptive technology and discussed how centralising IT resource and offering it at scale and on an agile basis will make cloud technology to be purchased as a utility, pushing down cost of service.
Now I’d like to focus on what this all means for service providers…
First, let’s consider aggregate demand. The availability of more agile IT resources is going to increase demand from the CIO’s own internal customers. And the fact that IT requirements can increasingly be met using homogeneous service building blocks will increase the likelihood of these being outsourced. So the good news is that this means a huge increase in the demand for cloud services. No wonder Tier 1 Group forecast 68% compound annual growth in this multi-billion dollar market. The bad news is that there will be attrition of non-cloud revenue, as more cost effective cloud services replace non-cloud services. Whilst much cloud take up initially will be new revenue, and legacy services will be protected for a period by sunk costs and migration difficulties, we are already seeing service providers without cloud products losing existing business, as well as new customers.
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.