The Future is Cloudy

Seismic shifts in the technology landscape are rare: the rise of distributed client/server computing to displace the mainframe is one. We are currently in the middle of another such shift, the inexorable rise of cloud computing. Anyone who has run an operational computing environment for a large enterprise will know that the sheer complexity of layer upon layer of infrastructure is proving a major constraint to businesses. Each time you want to upgrade an application (or are forced to by a vendor) then you have to consider the impact on the various versions of operating systems, databases, compilers, web servers etc. All these interconnecting layers need to be carefully tested to be sure that changing one of them will not break the delicate software ecosystem. Just making a minor software upgrade to an ERP system can take many months to plan and execute. 

Cloud computing’s main appeal is to shift that burden from the enterprise to the cloud provider. Essentially you are outsourcing the problem to someone else. With a cloud application you just fire up a browser and access it. All those software layers are still there of course, but they are in someone else’s data centre, and it is their problem to ensure that system upgrades work. Moreover, the way that cloud computing has evolved has brought in incremental pricing based on usage. If you add some more Salesforce.com users or apps then you pay more, but you can start off at a very modest monthly fee. This is a very different situation to the traditional perpetual software license beloved of large vendors, where you might pay millions of dollars before you had implemented the software, whether or not it actually worked for you, and maintenance n top.

With these advantages it is not surprising that cloud adoption is rocketing. According to Gartner, the global IT market will grow at 3.7% in 2015. Estimates for cloud computing growth vary significantly by market research firm, but by contrast range from 18% to 36% annual growth.  Various surveys show cloud as the highest priority item in IT budgets. It needs to be acknowledged that cloud is still a small fraction of overall spend, around 6% of the roughly 2 trillion dollar total global IT spend, depending on which survey you believe. However a 2014 Information Difference showed that 49% of companies have at least one operational cloud deployment. There is little doubt that the cloud is growing at a considerable pace, and even established legacy vendors are being forced into providing cloud options by their customers, even though the profit margins can be much slimmer than the traditional model.

The benefits of the cloud are too compelling for this trend to be reversed; the same 204 Information Difference Survey found that five times as many customers found cloud to be better value than on-premise than the other way around. The main barriers are mainly perceptions and fears around security and reliability, but these will likely recede as cloud computing becomes more familiar and pervasive, which it is clearly already doing. Legacy vendors are nervous about this situation, conscious of the more profitable nature of the traditional software license model. Much of their software needs re-engineering in order to be suitable for cloud deployment. Newer, more nimble, vendors seem likely to prosper since their software is designed for the cloud from the outset, and they do not have profitable installed bases of on-premise software to protect. They also have cost structures that are built around the cloud model, which enables them to adapt more easily to the new world than companies that were organised around the traditional way of doing things. Given the evident benefits of this style of deployment, the cloud genie is out of the bottle and will not go back in. Customers should exploit what the cloud has to offer and choose vendors that actively embrace it.

Andy Hayler is a data warehousing professional and food critic. He led the creation of the dynamic data warehousing architecture within Royal Dutch Shell that he later commercialized as the KALIDO Active Information Management software product of Kalido, the Shell subsidiary founded by Hayler in 2001. In 2002, Hayler was selected for the “Top 10 Innovators” list by the editors of Red Herring, the magazine of business technology innovation and entrepreneurism.

 

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