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IT Services: A Market that Works | Gaining Altitude in the Cloud

Large company competition is a high stakes game. In many industries, major investments change the course of company fortunes – perhaps for decades at a time. Last week’s announcement of a landmark deal by American Airlines (AA) to modernize its fleet with a record-setting order of 460 aircraft from Airbus and Boeing typifies the game. AA is the only U.S. airline that lost money last year (US$470 million) and is expected to lose money this year (AA announced a US$286 million loss for the second quarter of this year at the same time announcing their aircraft order). Saddled with a relatively ancient fleet (an aircraft average age of 15 years), AA’s less efficient planes burn fuel at rates surpassing every one of its competitors, making profitability a distant goal as gas prices continue to rise. These “stranded assets” of sort created an anchor from which AA had to seek relief. In boldly moving to modernize its fleet, AA structured a deal that could hobble their key competitors. Some reports suggest that AA’s order will tie up much of the aircraft manufacturers’ capacity, making it very difficult for other carriers to match AA’s new young fleet of fuel efficient and passenger-friendly aircraft. (After all, turnabout is fair play!)

Flying in one of AA’s relics as I write this, I am reflecting on how different today’s emerging IT Services market is. Everest Group’s recent discussions with executives about cloud services suggest that the questions that C-level executives are contemplating are shifting rapidly from “if” to “how”. They are recognizing that these Next Generation IT services provide unprecedented levels of flexibility and efficiency for many types of applications while placing the “stranded asset” ownership with parties who are much better positioned to manage investment decisions than individual enterprise users. It is like buying an option for future and current benefit at a price that is less than your traditional option for just the current services.

The CXOs that are farthest along the cloud services path recognize that capturing the compelling flexibility and efficiency benefits do not come without hard work. Crafting the organization approach to actively manage these Next Generation solutions, which nearly always encompass a hybrid of classic and new services, requires vision, dedication to building different skills and processes, and discipline to enforce principles that guide a strategic roadmap to value realization.

Early returns, however, suggest that the “juice is worth the squeeze.”  Those who have taken the first steps are already reaping benefits of advanced capabilities at very attractive economics. These capabilities and economics are on a trajectory that will deliver even greater returns for the enterprises taking advantage of them. Amazon Web Services, for example, continues to drive pricing down:

Other cloud services providers, including many Software-as-a-Service providers, continue to advance their offerings to add more features and capability at the same or lower prices. Unlike those in the airline industry who are hobbled by investments that must last for decades and potentially yield subpar results, the IT Services industry appears to be a market that works with service providers driving innovation and value that buyers of all sizes and types can select to fit their requirements.

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