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Why Moving To The Cloud Is Not All Or Nothing

Too often in the tech industry, the pundits and press try to create needless controversy about an exciting new innovation by declaring that adoption is an either/or proposition and polarizing the marketplace. These polemics can be unfair and a disservice to corporate decision-makers trying to sort out the myths and realities of the over-hyped industry trend. Especially because enterprises and ISVs alike generally require a mix of ‘on-demand’ and on-premise resources to achieve their corporate objectives.

A case in point is the way many have debated the tradeoffs of moving to the cloud.

Although today’s leading cloud solutions fundamentally change the way computing power and software functionality are delivered, procured and utilized, they don’t have to adversely affect the way organizations operate. While moving to the cloud can radically change the economics and elasticity of your IT operations, migrating to cloud alternatives doesn’t have to require revolutionary actions. Instead, it can and should be done in a methodical and incremental fashion.

Unlike the all-or-nothing outsourcing decisions of the past, THINKstrategies believes today’s cloud services represent a new generation of more flexible ‘out-tasking’ alternatives. In the past, if IT and business decision-makers chose to outsource all or part of their IT operations they had to make a long-term commitment and sign a complicated contract filled with byzantine bylaws regarding the policies and procedures for initiating change-orders to respond to changing market forces and customer needs.

Traditional IT outsourcing (ITO) agreements have generally been five to 10 years in length because the outsourcer needed at least three to five years to earn a return. Because of the duration of the contract and difficulty associated with making changes, the outsourcer isn’t incented to respond quickly to customer requests. And, anticipating a customer’s needs over a five- to 10-year period is impossible. So, it is inevitable that the outsourcing arrangement must be modified continuously to keep pace with changing market dynamics and customer requirements.

Given these structural weaknesses, it is easy to understand why traditional outsourcing arrangements have lost their appeal. In fact, Gartner recently predicted data center outsourcing (DCO) growth will decline in 2012. According to Bryan Britz, research director at Gartner, “The data center outsourcing market is at a major tipping point, where various data center processing systems will gradually be replaced by new delivery models through 2016.”

THINKstrategies has seen this trend evolving over the past decade as the number, size and renewal rates of traditional ITO agreements have declined steadily during this period. At the same time, the success rates in the Software-as-a-Service (SaaS) market have skyrocketed.

The pay-as-you-go nature of SaaS drives vendors to work to achieve better than 90 percent renewal rates in order to survive and motivates them to gain greater account penetration in order to succeed. This means customer satisfaction is essential and encouraging continuous incremental adoption is critical.

The success of the SaaS market has created a powerful alternative to legacy software applications and opened the door for a wider array of cloud services, including Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) built on the same business models.

Smart IT and business decision-makers are recognizing the advantages of moving to these cloud services at an escalating rate. As a result, all the major research firms are predicting over 20 percent growth for SaaS over the next three to five years, while installed base of traditional on-premise applications are expected to shrink.

In the same way SaaS is packaged and priced to appeal to the varying needs of particular organizations in a low-risk, rapid return fashion, IaaS providers have pioneered a number of new ways for SaaS vendors and ISVs to acquire and utilize IaaS alternatives incrementally. They can try free or low-cost services on a trial basis for ‘test/dev’ projects for instance before committing to more sophisticated cloud services for more important production purposes.

ISVs and SaaS vendors can take advantage of IaaS offerings that range from ‘spot’ market services to enterprise-class managed services. They can tap public and private services with varying levels of storage capacity, security capabilities and management functionality.

Bottom line: Moving to the cloud doesn’t have to be an either/or proposition. But, there is no question that employing cloud services into your overall sourcing strategies is essential to your short-term competitiveness and long-term success given its unprecedented power, agility and cost-effectiveness.

About the Author

This is a post written and contributed by Jeff Kaplan.

Jeff Kaplan is the Managing Director of THINKstrategies, the only strategic consulting firm focused entirely on the business implications of the transition of the technology industry from a product-centric to services-driven solution model, including Software-as-a-Service (SaaS), Cloud Computing and Managed Services. THINKstrategies helps IT/business decision-makers with their sourcing strategies; solution providers with their marketing strategies; and venture firms with their investment strategies. Kaplan is also the Founder of the Cloud Computing Showplace, the largest, vendor-independent, online directory and best practice resource center regarding SaaS, Platforms-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS), including Managed Services. Jeff can be reached at jkaplan@thinkstrategies.com or 781-431-2690.


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