IT spending is coming back in 2011, but it's important to keep in mind that it's not likely to entirely come back. This translates to more spending on on-demand and pay-as-you-go services, and continued, restrained spending on fixed assets like internal hardware, software, and networks. This means cloud computing services.
It’s also worth noting that most CIOs, whether they hail from large enterprises or smaller companies, are increasingly familiar with cloud solutions and how these solutions might best be employed in their businesses. This familiarity, along with active cloud adoption that has occurred over the past three years, is beginning to produce business usage patterns that could well presage how cloud will be used in the future.
Current data suggests that...
Large enterprises are most comfortable when they create their own clouds that they control and operate, especially if they already have major investments in their internal infrastructures. They like this model of cloud deployment because they can control security, while also sidestepping corporate reliance on outside vendors for mission-critical applications.
Small and midsized businesses (SMBs) find themselves pressured to compete in a global economy against enterprises that are much better endowed with resources and internal IT expertise. These companies have to find ways to level the playing field, and going with cloud-based services enables them to do this. Consequently, they are likely to use cloud for both mission-critical and non-mission-critical applications.
Those SMBs developing comfort levels with the cloud are beginning to explore the possibility of moving away from public and more into private or even internally hosted cloud computing.
So what does this all suggest?
“What it suggests is that many companies, even small ones, that start out on a pay-as-you-go basis by utilizing our cloud services, eventually reach a point of critical mass where it makes sense for them to in-source the solution,” says one industry solutions provider. “This is why we provide both cloud-based and internal system versions of our solution.”
One of the primary drivers for the transition to cloud and then back to internally hosted systems is cost. This is because at some point, a company looks at its cost models (which were what originally drove it to the cloud), and discovers that it is no longer more economical to keep an application in the cloud, compared to hosting it internally. This happens as seats are added (many cloud models charge companies on the basis of a per-seat/per-month pricing model).
The second driver is what large enterprises already believe: that the company reduces its risk from vendor failure, sudden pricing increases, vendor financial instability, and vendor technology failures or security breaches when a system is maintained internally, where it is directly under IT supervision, governance, and control. It appears that SMBs are no different in their thinking.
The end result is that we may, indeed, have a lifecycle emerging in the use of cloud services for SMBs. This lifecycle begins with the enthusiastic adoption of cloud-based services to avoid capital and operating expenditures, and then gradually migrates into an internally hosted cloud once the cost savings are no longer realizable in the cloud pricing model.
Naturally, that’s not the end of the story. Cloud services and other IT solution providers see these trends, too. They will likely respond with offerings that are more aggressively priced, and that come with richer feature sets -- with the goal of making the cloud argument so compelling for customers that they will never, ever want to go back to internally hosted systems.