What Winds are Blowing the Cloud?

The Light Reading story on Verizon comments regarding  cloud adoption by enterprises is yet another example of the issues that face a revolutionary development in an age of instant knowledge gratification.  It’s a decent story, and it frames the cloud dilemma of our time.  There is no question that the cloud is revolutionary, but there’s a big question on our readiness to project its value effectively.

Almost 20 years ago, CIMI started modeling buyer behavior based on a decision model, and that process obviously required us to survey buyers to determine how they made decisions and what factors influenced them.  There are obviously differences in how revolutionary stuff is justified versus evolutionary stuff, and this survey process made it clear that for revolutionary developments buyers pass through some distinct phases.

The first phase is the buyer literacy development phase.  You can’t make a business case for something if you can’t begin to assess the costs and benefits.  When something like the cloud bursts on the scene, the first thing that happens is that businesses start grappling with the question “what good is it?”  In the last fifteen years, this grappling process has been hampered by the fact that objective information on value propositions is increasingly difficult to obtain.  In the spring survey, buyers told us that there were no truly credible sources for business-level validation of a revolutionary technology.  Vendors over-promote, the media trivializes, and analysts are seen as either agents for the vendors or simple-minded regurgitators of the standard market party line—everything new is good.

When buyer literacy reaches about 33%, meaning when about a third of a market can at least frame the business value proposition, the market can sustain itself naturally.  When literacy is below that, the problem is that buyers can’t readily assess the technology, and can’t validate it through conversations with their peers.  We have yet to reach anything like that threshold with the cloud, and so the market is struggling, and Verizon’s original comment about slower-than-expected adoption is right on.

Obviously, a sub-par market literacy rate isn’t the same as a totally illiterate market.  Within the mainstream enterprise market are pockets (verticals) where literacy exceeds the required threshold, and in those sectors it’s possible to move things along.  We are in fact seeing some of that movement today, and so when Verizon says that the cloud’s adoption rate is picking up that statement is also correct.

The real problem isn’t the inconsistency of Verizon’s view of the cloud, it’s the question of just what “value proposition” buyers are becoming literate with.  Stripped of all the hyperbole, the value proposition of the cloud is that hosted resources can be more efficient in addressing IT needs than dedicated resources because the latter will likely be under-utilized and present lower economies of scale for both capital/facilities costs and operations costs.  That statement is true for the SMB space because smaller IT users never achieve good IT economies.  It’s also true for some enterprises, where distribution of IT resources has already created pressure for “server consolidation”.  It is not true for mainstream IT functions because large enterprises achieve nearly as good an economy of scale as a cloud provider would.  Furthermore, cloud pricing strategies and the inherent dependence of cloud applications on network connectivity create issues in price/performance, and most companies will be reluctant to cede mission-critical apps to a cloud player (look at Amazon’s recent outage as a reason for this).  So where Verizon is not correct is inferring that we are seeing a gradual but uniform acceptance of the cloud.  What we’re seeing is increasingly literate buyers recognizing what makes a good cloud application and what makes a lousy one.

If your app runs on a rack-mount server in a big data center with backup power and a staff of techs keeping it going, you are not likely to gain much by taking this app to the cloud.  If the app requires maintaining and accessing a couple terabytes of data per day, you’re not likely to get anything out of the cloud either.  More resource utilization, less cloud value.  More effective in-house operations support, less cloud value.  Higher data and access volumes, less cloud value.

Of course, all of these truths (and truths they are, regardless of vendor or media hype) are predicated on an important assumption that might not be true itself.  The assumption is that the value of the cloud is in its ability to lower costs.  That value proposition, in my surveys, has consistently led to the conclusion that about 24% of current IT spending could be cloudsourced.  Less than a quarter, and not including the prime business core apps.  But suppose we went deeper.  We could gain nearly four times this level of cloud adoption by fully realizing the potential of cloud computing to support point-of-activity empowerment, the framing of IT power at the service of a worker wherever that worker is and whatever that worker is doing.  But to do this we have to rethink the way we empower workers, we have to rethink the way we build applications, how we organize and store data, how we couple processes to business activities…everything.

Which is why you don’t hear about this from cloud players.  Who wants to sit back and live off the in-laws while you wait for your prospects to restructure their whole IT plan?  Why not just go out there with a simple “get the cloud to save money” story, and hope that somehow enlisting media and analysts to support the cloud as being a kind of divinely mandated future will pay off for you?  Earth to cloud providers—you will never achieve your goals if you don’t help your prospects set and achieve reasonable goals for themselves.

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