Navigating the cloud Transformation journey

Navigating the cloud transformation journey?

Cloud computing, with the promise of consumption-based pricing and low-cost switching, will require significant scale or locking in to a long-term supplier to generate value for the companies providing services. Will this lead to monopolistic pricing and inflexibility for the organisations consuming these services?

For large enterprises, the move to cloud is logical for many reasons. As an effective means of dealing with the complexity of infrastructure management, cloud brings with it benefits including reduced cost, standardised and improved security, and the ability to deliver the speed of implementation demanded by digital transformation.

Corporates and governments are buying into these benefits at an increasing pace, as they try to shake off the cumbersome legacy of managing their own data centers and the often inflexible application software that comes with it.

Cloud comes in multiple elements: software as a service (Saas), platform as a service (PaaS) and, at the base level, infrastructure as a service (IaaS). While the market grows and suppliers chase market share, we would expect all three of cloud computing services to remain priced competitively. However, as the market starts to mature, we expect the following challenges to arise for enterprises buying cloud across all three categories:

• IaaS, in reality, is supplied globally at scale by two companies, with another playing catch-up. This may result in longer-term pricing pressure, as the required investment scale and barriers to entry are significant.

• PaaS, which promises on-demand computing without alignment to specific infrastructure, has yet to alight on an open standard. This essentially means that re-factoring business logic on PaaS can leave an organisation locked into a relationship with a specific supplier and associated downstream switching costs.

• SaaS, where it works for global businesses, is far from the pay-as-you-go consumption model that a business might hope for. Private investors and public markets demand longer-term license agreements to justify R&D investment and technology stock valuations.

According to Gartner, Inc. the worldwide public cloud services market is projected to grow 18% in 2017 to total $246.8bn, up from $209.2bn in 2016, The highest growth will come from cloud system IaaS, which is projected to grow 36.8% in 2017 to reach $34.6bn. SaaS is expected to grow 20.1 percent to reach $46.3 Bn.”1

While these trends play out, the cloud transformation journey needs to be carefully navigated by CIOs and CTOs. There are a number of options to remove the risk of longer-term negative economic impacts of these trends:

1. Defer the cloud transformation journey in the hope that the situation becomes clearer
2. Wait until cloud economics becomes clearer
3. Carefully navigate cloud transformation, anchoring the enterprise cloud transformation road map in benefits cases that build pricing risk into the business case

Whilst it may seem to make sense to a risk-averse organisation to wait for greater clarity, we recommend carefully navigating the prospect of cloud transformation by optimising the target enterprise blueprint and plan, gaining clarity around the options by thinking about longer-term switching costs, and selectively deploying the three tiers of cloud for the most value. In short, beware of wholesale transformation too soon.

Whatever CIOs and CTOs decide to do, it is important to keep an eye on the future and incorporate longer-term financial considerations into the enterprise architecture road map, as this will be an important and, hopefully, dynamic part of decision-making, going forward. This means that all business cases need to hold the long-term economics as a key element, and longer-term options should be carefully considered until there are clear standards that allow a road map from one platform to another within each tier of cloud services.

In summary, cloud is the inevitable way forward to enable business, technology and digital transformation. CIOs and CTOs need to task their teams to create enterprise architectures and road maps that allow corporations to stay in control of the future technology estate and optimize longer-term operating costs.

 


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