Update: Impact of Cloud Computing

For the past year and a half, TSIA has been tracking and analyzing the impact of cloud computing on technology service businesses. There are two key questions in play:

  1. How fast will customers move to cloud consumption models?
  2. What will the impact of cloud computing have on service portfolios?

Adoption Rate Update

TSIA has been tracking the revenues related to cloud consumption models. In my last TSIA Cloud 20 snapshot, I estimated cloud consumption models still represented less than 5% of total Enterprise IT spend. This estimation aligns with others I have read.  However, we know that number is growing rapidly. This week, The Register reported that IDC released some updated guidance:

  • IDC has warned resellers that migration to public and private clouds is happening more rapidly than expected, and they need to gear up for it or risk becoming irrelevant.
  • Figures out today show that early adopters forked out $560m (£345m) on cloud professional services worldwide last year, but by 2015 the number cruncher estimates the market will have ballooned to $8.2bn (£5bn).
  • “We don’t expect everything to go to the cloud, but the early adopters are likely to move a majority of their IT to cloud within the next five years, and the vast majority will follow suit within a few years.”

The bottom line is that more and more industry experts are predicting the tipping point toward cloud consumption models will be fast and furious compared to other paradigm shifts that have occurred in the technology industry. I have spoken to TSIA member companies and many have come to the same exact conclusion. The economics of cloud based IT infrastructure are just too compelling.

Impact on Services

Last year I wrote a blog entry titled “Will Cloud Kill Services?” This entry sparked a healthy debate from readers, which you can review. Since writing that entry it is clear to me cloud computing will not kill technology services, but it will force companies to shift their services portfolio from traditional integration, implementation, and support services to services that are much more focused on aligning technology to business processes and services designed to drive employee productivity. Also, in the short term, there will be an intense demand for consultants that understand both the technical and business challenges related to migrating IT capabilities to the cloud. IDC is warning technology resellers they need to be prepared for this dramatic shift in service requirements:

  • There is a huge migration and integration task ahead, which is good news for service providers, who can expect their traditional revenue to start falling because cloud services are so standardized
  • The fallacy that cloud is “plug and play” will be swept away, she added, and resellers will need to gear up internally for a wave of questions from confused customers.
  • Another important point is that service providers need to prepare for the rapidly growing request for cloud professional services and have the resources available.
  • Right now, demand is mainly for business cases and roadmaps, requiring both business competence and architectural competence, but on a limited scale. But in a just slightly longer time frame, most if not all consultants need to understand cloud.
  • Vendors have substantial investments ahead of them in creating the necessary capabilities to support this rapidly evolving market.

So it is not just TSIA raising the alarm for technology service providers. Here are the key premises you need to internalize as a technology services professional:

  1. Cloud computing will become the preferred consumption model for a vast majority of small, medium, and large companies.
  2. That adoption curve for cloud computing will happen more rapidly than legacy technology providers are willing to acknowledge.
  3. The transition to cloud computing will require a significant retooling of service capabilities.  

If you are a technology provider and you do not believe in all three of these premises, I’d love to hear your perspective: thomas@tsia.com

 

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