cloud computing: defining the business of it…and...
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Cloud Computing: Defining The Business of IT…And Why You Should Care
“New Normal” – The CEO View
• The correction will impact advanced economy consumer spending for several years to come (5.34)
• IT-enabled changes will be a key element in our post-recession strategy (5.13)
• Emerging economies are poised for a multiyear period of rapid growth and a rising standard of living (4.99)
• The next decade will be far more volatile and unpredictable than the last (4.96)
• There will be a major wave of merger-and-acquisition (M&A) activity in 2010/2011 (4.95)
• Many companies and industries will have to redesign their business models (4.90)
Source: Gartner CEO & Business Executive Survey 2010
Electricity & IT – Industry Parallels?
Did You Know:•In 1902, there were 50,000 private power plants and only 3,600 central stations run by utilities in the US
• In 1907, manufacturing plants produced 60% of all electricity in the country.
•Consumers and SMB were the principal customers of utilities for the first four decades of their existence.
Fragmentation in the supply of general-purpose technology…”forces large capital investments and heavy fixed costs on firms and leads to redundant expenditures and high levels of overcapacity.”- “The End of Corporate Computing,” Nicholas Carr, MIT Sloan Management Review
Cloud Services Market Growth• The worldwide market for Cloud Services was worth $58.6bn in 2009. • By 2014 the market will be worth $148.8bn. • Gartner has revised its five year forecast growth rate from 26.5%
published in last year’s report to 20.5% in this report. This downward revision though simply reflects the law of large numbers; i.e. as the overall market grows growth rates naturally diminish.
• Over the course of the next five years enterprises will spend $112bn cumulatively on Software as a Service, Platform as a Service, and Infrastructure as a Service combined.
• There continues to be great diversity of activity, maturity, and growth amongst the many different elements of the overall Cloud Services marketplace.
Key Issues
• What’s on the mind of CEOs?• What is cloud computing?• What are the business implications and
opportunities associated with cloud computing?
Key Issues
• What’s on the mind of CEOs?• What is cloud computing?• What are the business implications and
opportunities associated with cloud computing?
CEO Concern: Maintaining Internal Cash Generation
83% of CEOs expect internally generated cash flow to finance growth.Source: PwC 13th annual global CEO survey 2010
• CEOs must set strong balance sheets against volatility, while funding recovery.• In 2009, CEOs slashed operating costs ahead of revenue to build a war chest.• Financial self-reliance won't be quickly relinquished• Deflationary trends & growth costs squeeze margins• Bank borrowing remains unreliable.
$1.64 $1.64 TrillionTrillion
Federal Reserveestimate of US nonfinancial company cash and liquid assets*
* June 2010- a 26% increase since 2009.
Free cash flow is the CEO KPI that rose most in importance in 2010Source: NYSE/Euronext CEO Survey 2010- 11
ITImplication
CEOs will be far more interested in IT project business cases that directly drive cash measures
CEO Concern: Investing in New Cost Efficiencies
• Investors seek consistent returns in long-term bear markets.• But competition is harsh, pricing power limited and deflation possible.• By 2011, CEOs will have taken the "low hanging fruit" cost-cutting opportunities.• However, the internal cash pile will permit some funding of deeper productivity and cost engineering.
CEOs identify operational efficiency as the #1 factor influencing profitability through 2011.Source: NYSE Euronext CEO report 2011
CEOs will CEOs will provide table provide table stakes for majorstakes for majorefficiency playsefficiency plays
* e.g. order cycle time reduction, debt recovery support, pay as you go, price optimization, channel disintermediation
ITImplication
CEOs need IT to help cut structural business costs
CEO Concern: Applying Innovation for Growth
"More than two-thirds of companies maintained or increased R&D spending"Booz & Co Global 'Innovation 1000' (biggest R&D spenders) Report Winter 2009
CEO R&D Investment IntentionGartner CEO & Senior Business Executive Surveys 2009 & 2010.
• CEOs funded R&D in the downturn• Now, they must monetize the results• But today's marketplace is digital• So, no IT enablement … no recovery!
Cre
dit:
CC
Mar
io R
ober
to D
uran
Orti
z
* e.g. order cycle time reduction, debt recovery support, pay as you go, price optimization, channel disintermediation
ITImplication
CEOs need IT help bringing new product and service innovations to technology-enabled markets
Example: GM's Chevrolet Volt plug-in hybrid electric car.
U.S. rollout 2011/12
N > 200
Cloud Computing Interest Is Increasing
Key Issues
• What’s on the mind of CEOs?• What is cloud computing?• What are the business implications and
opportunities associated with cloud computing?
Gartner defines cloud computing as "a style of computing where scalable and elastic IT-related capabilities are provided 'as a service' to customers using
Internet Technologies“.
Gartner's Definition of Cloud Computing & the Critical Attributes of Cloud Services
Internet Technologies Services are delivered through use of Internet Identifiers, Formats, and Protocols.5
Metered By Use Services are tracked with usage metrics to enable multiple payment models.4
Shared Services share a pool of resources to build economies of scale. 3
Scalable & Elastic Services scale on-demand to add or remove resources as needed.2
Service Based Consumer concerns are abstracted from provider concerns through service interfaces1
5 A
ttrib
utes
that
sup
port
out
com
es
The Cloud Computing Spectrum
OwnerOwner Company Company Provider Provider Provider
OperatorOperator Company Provider Provider Provider Provider
Service Service AccessAccess
Closed (enterprise)
Closed (enterprise)
Closed (enterprise)
Closed group(community)
Open
Level of Level of ControlControl
Full High High Low None
Points of Points of LeverageLeverage
Skills (none)Assets (none)Arch. (none)
Skills (strong)Assets (none)Arch. (strong)
Skills (strong)Assets (some)Arch. (strong)
Skills (strong)Assets (strong)Arch. (strong)
Skills (strong)Assets (strong)Arch. (strong)
VirtualPrivate Cloud
Company A Company A
Com
pany
A
Com
pany
B
Com
pany
A
Com
pany
B
Prov
ider
X
Use
r Z
Closed Private Open Public
CommunityPublic Cloud
PublicCloud
Managed Private Cloud
Company A
CustomPrivate Cloud
Cloud Services Exist in a Value Chain
Providers
Provider vs. Enabler business models
Up the chain Value is delivered
Down the chain, Value is derived
This is when “aaS” happens!
Delivery
Opt
iona
l Bro
kera
ge
Delivery Capabilities
Consumption
Delivery Capabilities
Consumption
(People & Process)
Opt
iona
l Bro
kera
ge
This is the basic cloud equation!
Providers
Capabilities
Consumption
(Technology)
Providers
EnablersEnablers Enablers
Positives & Negatives Of The Public Cloud
-+AgilityFlexibilityUser Self-ServiceCost (perceived & real)Opex vs. CapexStandardizationSimplified SourcingEnable New SolutionsSMB Benefits
✖ Data Location✖ Process Isolation✖ Regulatory Compliance✖ Portability✖ Trust✖ SLA Guarantees✖ Licensing Issues✖ Bandwidth & Latency✖ Financial Models
What are People Doing In the Cloud?Collaboration and
ProductivityInterest in simple, cloud-based productivity appsDevelopment
&TestMock up the data
and move now
Web Application Serving
Servers are half there already
EmailMost Major Universities
Seeking to Move
SaaSSucessfactors won with a
420,000 seat deal with Siemens
PrototypingTry before you
buy
CrowdsourcingMining what the collective knows
ContextInformation about people
is everywhere
Key Issues
• What’s on the mind of CEOs?• What is cloud computing?• What are the business implications and
opportunities associated with cloud computing?
The Financial Side of Cloud Computing
• Capacity without capital• Transparent services improve cost
management• Exponential scale without exponential cost• Allocating IT resources towards mission
critical activities• Reduced upgrade & migration costs
Services that cost approximately $500 million or more in 2007 will likely be delivered by the most efficient companies for approximately $295 million in 2010 and for $132 million by those who migrate to the cloud by 2015- Dr. Howard Rubin (MIT Sloan School of Management & Gartner Advisor)
Enabling Business With Cloud Computing
• Business self-sufficiency & business accountability for resource consumption- Effective when carefully managed
• Propagation of standardized business processes• Dynamic adjustment to changing business
requirements• Sandboxing business solutions
Cloud Computing Risk Management
• Vendor viability- by 2013, 50% of cloud-computing processing
power will be provided by the top four cloud-computing vendors
- vendor failure has bigger consequences
• Loss of control requires due diligence
• Regulatory compliance
Cloud-enabled Business Opportunities
= Supply Chain Expertise
Commercialize through retail, or… …discrete, external cloud-based process
Supply Chain Cloud
Big Business In Big Cloud Data
Give away personal finance software Get aggregated financial data
Net result – acquired by Intuit for US$170m after 2 years of operations
Industries are Changing: Government Cloud Initiatives Can Affect Private Sector Decisions
Anyone
Exclusive
ServiceAccess
OwnershipAgency Third PartyGovernmentwide
LimitedMembership
CentralizedMultiagency
CloudServices
SharedMultiagency
CloudServices
ExternalMultiagency
CloudServices
Internal Single-Agency
CloudServices
Shared Single-Agency
CloudServices
ExternalSingle-Agency
CloudServices
GovernmentPublic Cloud
Services
Public CloudServices
1. The right to retain ownership, use and control of one’s own data
2. The right to service-level agreements that address liabilities, remediation and business outcomes
3. The right to notification and choice about changes that affect the service consumer’s business processes
4. The right to understand the technical limitations or requirements of the service up front
5. The right to understand the legal requirements of jurisdictions in which the provider operates
6. The right to know what security processes the provider follows
7. The responsibility to understand and adhere to software license requirements
What are the Rights and Responsibilities of Cloud Service Consumers?So…Assess Your Rights and Responsibilities in the Cloud
If There’s One Thing You Should Take Away…Cloud computing isn’t just an “IT thing” – it’s about business…
Agility
Innovation Externalization