We asked the TSIA Executive Advisory Board what issues were top of mind for them as they entered into this year. By far, the impact of cloud computing on the technology services industry is the greatest question mark facing these services executives. And for good reason. How emerging cloud consumption models will actually impact existing business models in the technology industry is very unclear. Let’s look at Microsoft as an example.
This week, there was a great blog entry on Informationweek by CIO Bob Evans:
In this entry, Mr. Evans reports how Microsoft sees cloud computing impacting the Microsoft business model:
Microsoft business software president Stephen Elop says the company’s June launch of Office 2010 will include a cloud-based version that will result in more revenue and profit for Microsoft because the company will end up “doing much more work for the customer.”
“In that cloud environment, we are not only selling them software but we are also saying, ‘We’ll take care of your networking, your hardware, your operations, your customer support,’ ” Elop said in an interview. “We’re doing much more work for the customer. What that does is increases revenue and allows us to participate in more profit.”
Mr. Evans, however, is skeptical:
The big challenge for Microsoft in that approach is setting price points based not so much on having its own revenue come out ahead, but rather on allowing customers to lower their cost of infrastructure, which is a top-level priority for CIOs in 2010.
In other words, for Microsoft to gain revenue and profit opportunities, the economic equation for the customer must look like the image below:
The Microsoft cloud offering must cost customers less than their current IT environment. There are two key challenges I see for a company like Microsoft as they work to create this economic equation and migrate their business to cloud offerings:
- Price Points
- Service Capabilities
Can Microsoft create a hosted version of their software that generates the same margin dollars as their current software license model? Remember, customers will be expecting lower price points for hosted software—especially when the comparison products are coming from Google.
Microsoft believes revenues and profits will increase because the company is doing much for the customer. How much experience does Microsoft have in providing infrastructure as a service? Is the company staffed and skilled to manage IT environments for customers? Building these service capabilities will not occur overnight.
Price points and service capabilities—these will be the sticking points for technology companies as they migrate their business models to cloud based offerings. Technology, in the end, will be the minor hurdle to overcome.