Cloud Futures

The most interesting set of tech developments today relates to cloud computing positioning and services.  At the Enterprise Connect conference, Salesforce and Global Crossing both made cloud announcements, and both had what I see as a common thread; create a SaaS cloud service and build a platform-as-a-service offering around it.  Salesforce did this based on a social-network-integrated customer service platform (Service Cloud 3) and GC did it based on an integrated UC-friendly model that bundles the cloud with SIP trunking.

We don’t need more cloud acronyms (or hype) but there’s some substance here in the trend, at least, and possibly both offerings as well.  Enterprises and SMBs have sharply different appetites for cloud services, with the former preferring IaaS/PaaS services targeted at backup and overflow management and the latter preferring SaaS.  The primary reason for the difference is that most enterprises already run most applications they need internally, and so there’s an issue of tossing one model and embracing another, something that gets assigned a high risk premium in cost-benefit terms.  But UC and social customer service aren’t typically implemented internally at this point, so there’s less pushback.  That could converge the sales models for all business sizes, and not only create a better total market picture but also create broader reference accounts to accelerate deployment.

There were also a number of service provider cloud announcements this week, beyond the GC one, and it’s becoming clear that the providers plan to be major contenders in the cloud space.  IBM and Microsoft are both positioning actively to support provider cloud plans, with the former stepping up their game in what we’ve called the “Symbiotic Cloud”, the model of provider cloud that combines internal IT (OSS/BSS), feature hosting and monetization, and cloud service offerings into one infrastructure.  Obviously this trend, and the fact that GC is already calling its cloud “network-centric”, means that network vendor cloud plans will have to mature in a hurry if they want to be doing something other than holding the coats of the IT giants.

The SaaS model is interesting to operators because it displaces more cost and thus justifies a higher price (that’s also true of PaaS versus IaaS).  Early indications are that operators are most interested in getting into SaaS via partnerships or through services like UC/UCC, where they believe they have a natural market.  Our research consistently shows that network operator cloud services are more credible when presented through a sales force than when presented through a retail portal.  It appears that some of the portal disadvantage could be overcome through effective marketing, but of course “network operator” and “effective marketing” are hardly synonymous even in areas where the operator has some incumbency.  Partnerships thus seem likely to rule here.

Most infrastructure players are not looking to partner in the cloud, largely because it reduces the profit margin.  Where operators have a potential advantage is that their internal rates of return are low, their ROI expectations are more easily met, and thus they can be profitable on a relationship with tighter margins.  Operators can also normally create what’s perhaps the best economy of scale in capital infrastructure and operations of anyone in the market, particularly if they involve their own applications to build up their cloud base.

Economic recovery is going to help the cloud market, I think.  We’re going to see demand grow faster than confidence, and that means that there will be at least an early tendency to take a service-based solution to incremental computing demand rather than to commit to a capital project.  In total revenue, this absolutely will not be the “Year of the Cloud” but it may be the “Year of the Cloud Paradigm” for those who want to sell the services.  Positioning an offering is likely to get a lot harder in 2012.


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