Category: Gaining Altitude in the Cloud

When Flying in the Cloud You Can Be Struck by Lightning | Gaining Altitude in the Cloud

Once upon a time there was a cloud storage provider with a compelling offering.  Hundreds of small companies and prominent world-leading companies became its customers and reseller partners and moved their data to the provider’s cloud. Then bigger cloud companies offered services at lower prices and drove the storage provider out of business.

Unfortunately this is a true story. Nirvanix announced on September 17 that it was closing its doors and customers — including resellers whose customers might not have known their data was stored in the Nirvanix Cloud — have been scrambling to move their data in the allotted two weeks.

The Nirvanix story serves as a cautionary warning: You should care whom your service provider selects as its subcontractors and partners, especially if your data is mission critical or your company is in a highly regulated industry.

Nirvanix Cloud’s target market was enterprises and addressing enterprise requirements made its solution more expensive than other cloud storage options. Its pricing couldn’t compete with lower-cost options from larger players such as Amazon, Google and Microsoft, so the venture capitalists refused to do the next round of funding, thus shutting the company down.

Often cloud solutions are ecosystems that have been put together with a lot of subcontracting relationships. It’s a sign of the times and harkens back to the bubble days of the Internet in 2000. You need to conduct careful due diligence to understand those relationships and their ramifications to your business before you turn your workflow and data over to a service provider.

Our advice is to make sure that subcontract relationships are transparent to you so that you can evaluate their risk and evaluate the stability of the subcontract relationship. Above all, make sure that your provider has contingency plans in place that are transparent to you; it’s also wise to develop your own contingency plans in place just in case.

Enterprise Mobility: Let’s Move BYOnD | Gaining Altitude in the Cloud

Bestselling author Nassim Taleb talks in one of his books about the anti-fragile, things that enjoy extreme conditions and thrive in disorder. Enterprise mobility appears to be a creature that loves disruptions in the technology market. With Microsoft’s recent reorganization, Amazon’s enhanced focus on Kindle, the never-ending rivalry between Apple, Google, and Samsung, and the queue of other players vying for this market, (Canonical, Dell, HP, and Lenovo), this disruption phenomenon is not going to fade anytime soon. In fact, when combined with the aspirations of organizations to allow enterprise application mobile avatars, and technology companies developing mobile enterprise application platforms, we have a perfect storm in the making.

However, many organizations still believe that allowing “toys in the workplace” is a good enough IT response to the CEO’s clarion call for employee appeasement and productivity. They are under a strange assumption that Bring Your Own Device (BYOD) = Enterprise Mobility. Fortunately, it is NOT; rather, it’s time to move BYonD it.

 

While mobile device/application management providers such as AirWatch, BoxTone, Citrix, Kony, SAP, and Sophos are witnessing good traction, they have not even touched the tip of the proverbial iceberg due to the limited availability of enterprise applications on mobile devices. However, despite business users’ clamouring for more enterprise applications on mobile, it is not surprising that organizations are slow to adopt.

Smartphones (e.g., from Apple, Blackberry, Google, HTC, Nokia, and Samsung), tablets (e.g., from Amazon, Apple, Dell, Microsoft, and Samsung), and their brethren indeed improve user productivity, but are largely focused on consuming information, rather than enabling performance of complex tasks beyond emailing and web surfing. Combined with the rapid pace of evolving technologies, form factors, and software, buyer organizations are unwilling to invest upfront and, therefore, continue to be fence sitters. In response, device makers show little interest in offering broader capabilities that can help enterprises move beyond BYOD (e.g., partnering with enterprise application platform providers).

However, the inflexion point has arrived. We will witness device makers, enterprise application providers, and mobile app developers coming together to offer factory-fitted popular enterprise mobile apps much like instant messengers (e.g., HR management, inventory management, CRM, social commerce). Moreover, this trinity will make various enterprise applications available on mobile devices, which we cannot even imagine today. Enterprise application providers will also enable easy access to their/partner’s application marketplace via collaboration with the device and network providers. This will enable end-users to seamlessly use their personal devices to access enterprise-class mobile applications.

Enterprises may also experiment with private app stores, as they increasingly require custom-built applications and are not entirely satisfied with a public distribution model. The challenge for them will be creating a platform-agnostic, “no lock-down,” mobility store. They can also develop innovative funding models in which users are incentivized to deploy mobile enterprise applications in return for funding for their personal device. Yet, these efforts will require significant investment and management commitment. Moreover, unlike other technology initiatives, these should be led by both IT and the business users.

Without a meaningful mobile enterprise application strategy, mobility will indeed become an undesirable “anti-fragile” that thrives in disorder.

If you are planning to or already deploying enterprise mobility and want to share your story, please reach out to me at [email protected].

How to Eliminate Your Competitors in IT Services Sales | Gaining Altitude in the Cloud

As a result of the consumerization of IT within today’s businesses, many technology service providers struggle to find a sales approach that drives greater growth. With CIOs now playing a far less prominent role as an intermediary determining the best solutions and, instead, business stakeholders making buying decisions, traditional solution selling is not a very effective approach today. But something akin to solution selling is meeting with success in the business stakeholders market.

At Everest Group, we have come to think about this issue as the difference between a “push” or pull” approach. Here’s what they look like:

  • Push approach: “I have a product or service offering. You should buy it because it will help you run your business better.”
  • Pull approach: The existing or potential client asks: “Can you help us with our business problem?”

CIOs and IT organizations tolerate the traditional push approach, but it doesn’t get traction with the business stakeholders market. In fact, they find the push approach offensive. If you use this approach, you run the risk of coming across as arrogant, effectively telling them that you know how to run their business better than they do.

The surest way to get to a positive sales outcome in the business stakeholders market is to get them to solicit you for a solution. But how can you create a pull and get them to invite you to help solve their business problem?

Two steps are foundational to a pull approach.

1. Establish your credentials as an expert through marketing

First of all, you need a reason to be in the room having a discussion with the prospective client’s business stakeholders. Thus they must perceive you as relevant. In other words, they perceive you as an industry expert and/or an expert in their functional area.

That perception must occur without you going in and positioning yourself, telling them you’re an expert. They need to already think of you that way and pull you in for a discussion. Hence, the role of marketing is crucial.

2. Demonstrate interest in the client’s issues — without selling

You need to express interest in the client’s issues. How do you do that? One highly effective way is to motivate the sales prospect to commission your company to do research in an industry or functional area. First you must show that you recognize they (not you) are the expert in that area.

For example, you could say, “We are looking to make new investments in your industry (or functional area) to serve you and others like you. We recognize that you are a leading firm in this area, and we would appreciate your telling us your thoughts on specific aspects.”

The key to making this succeed is not having a salesperson make that approach. If you move to a sales pitch at this point, you will alienate your prospect.

In the course of doing the commissioned research, you will begin to understand the issues the prospect faces and how they view the world. If you can then further explore (again, not using a salesperson to pitch this) what it takes to resolve the problems you identified, prospects then often ask the question: “Can you help us do this?”

As we pointed out in our blog post about recent earning reports, Cognizant and TCS are leading the services provider pack in growth. We believe that, to at least a small extent, this is because they are being better listeners to their sales prospects in industries where they have expertise and are thus more often able to pull the question: “Can you help us?”

Eliminating your competitors

By the time prospects ask you for help with their business problem, you have already credentialed yourself in their minds. They believe you are interested in them and you have relevance to their problem. At this point, they’re not looking at your competitors; they’re looking to you for help.

At this point, and only at this point, will a sales approach find acceleration in today’s services market.

The traditional sales process with a push approach is quick to reach the RFP and proposal point but then takes a long time going through due diligence and the rest of the RFP process before getting to closure. That process inverts with a pull approach: it’s a long time to proposal, but getting to closure is quick once the prospect asks for your help in solving their problem.

Work-at-home Staff: the Feather in Cloud Contact Centers’ Cap | Gaining Altitude in the Cloud

Our last blog on contact centers focused on how next generation technology can drive new sources of savings in contact center operations. Now let’s turn our attention to how cloud-based contact centers create the opportunity to fundamentally rethink the traditional staffing model.

Hosting a contact center in the cloud removes certain technical limitations that dictate the location of your workforce, in particular the need for a centralized working site for employees and equipment. The consequence of this new freedom is the ability to decentralize your workforce, replacing traditional call center employees with work-at-home (WAH) agents. Among contact center services providers, such as Alpine Access, Transcom, and Xerox, we already see WAH agents as part of the delivery model. While a WAH model can significantly reduce the capital costs associated with renting and maintaining a facility and IT equipment, the more interesting – and to some organizations, highly enticing – implications are in its inherent flexibility.

Cloud-based contact centers eliminate the geographically imposed restrictions of physical call centers, allowing employees to simply login from wherever they may be. Thus, in a WAH staffing model, the pool of potential workers is limited only by the availability of skill sets. In fact, the pool for specialized skills becomes larger as workers with unique skills located out of the reach of centralized call centers can now integrate into virtual contact centers through the WAH model. Removing the geographical limitations of call centers also presents opportunities for workers who may have had challenges joining or remaining in the workforce due to age, physical disability, or the need to stay close to home. Due to both of these phenomena, the WAH model reintroduces domestic sourcing as a viable option.

Cloud-based contact centers also allow businesses greater staffing flexibility, as full time employees (FTEs) can be augmented with contract or temporary labor to meet fluctuating capacity requirements on a daily or seasonal basis. This approach also reduces cost obligations such as healthcare, retirement, and other benefits required by FTEs. While organizations may choose to use a high ratio of contractors or temps, Everest Group recommends they retain a minimum level of FTEs, WAH or otherwise, to ensure their ability to provide a base of capacity.

There is another more ambitious possibility for businesses willing to brave a next generation business model. A cloud contact center could be paired with a third-party staffing agency to provide the required number of agents on a daily, weekly, or monthly basis. These sorts of relationships are already forming in the marketplace. For example, staffing and talent firm Manpower Group has a specialized contact center recruitment practice.  Using next-gen forecasting tools to anticipate demand and utilization, a company could embrace a total ”as-a-service” approach to its call center/s, wherein both IT capacity and the staffed call center agents are dynamically scaled against demand, people, and platform-as-a-service (PaaS.) Theoretically, this approach would attain the greatest possible efficiency, matching costs of call center agents and IT bandwidth to demand.

The WAH model has long been associated with additional benefits, such as lower attrition rates, access to specialized and hard-to-find skills, and the ability to offer 24/7 service at lower costs. However, until now, the technical challenges of managing a large number of WAH agents have limited the scope of adoption. We expect this to change, with more organizations using WAH agents in new ways, enabled by the ease and cost-effectiveness afforded by next generation contact center technologies.


Photo credit: Markus Spiering

How Sales and Marketing Teams Can Avoid Being Bitten by the Paradigm Shift in IT Spend Decisions | Gaining Altitude in the Cloud

Organizations are facing a paradigm shift in the way they envision, initiate and fund technology that drives business value. As discussed in my prior blog post, The Curveball Impact on IT Spend Decisions, a shift in influence has created two distinct buying markets within an organization. These two markets behave very differently and thus have different implications for IT vendors and service providers trying to sell into the organization.

The CIO market’s mandate is most often execution, cost reduction, quality, and compliance. The mandate for the business stakeholders market is business impact, time to market, and time to impact.

Further, CIOs typically think in terms of grand strategy — requirements definitions, detailed specifications, and structured PMOs. The new market of business stakeholders think in terms of trying before buying; they want to use a technology first to see how it works, then adjust it. This is a completely different methodology from a requirements methodology. It’s a different kind of buying.they

  • It’s not CAPEX; it’s OPEX.
  • It’s incremental steps, not the big-bang approach of a CIO.
  • It’s making decisions based on what’s best for a business unit instead of the CIO’s approach, which must solve tech needs for the entire organization while also driving out costs.

The two markets’ approaches and mindsets are completely opposite each other. Unfortunately, they’re both happening at the same time in organizations today, and it creates a lot of confusion

Besides the two divergent markets, sales teams must recognize that, although the mandate for today’s CIOs is increasingly tactical, no CIO worth his sale will give up the fight to influence the business constituency and drive innovation and value.

How can sales teams accommodate these two markets and sell tech to the decision makers in both camps?

Selling to the CIO market

When selling to CIOs, remember that they will want to understand the technology, require proof that it’s going to work, and want develop a rigorous implementation plan. They will also want to make sure the solution is compliant and in line with the emerging standards in the industry.

Because their mandate is to reduce costs, CIOs likely will issue an RFP and get competitive bids, so you need to expect that competitive tension.

Selling to the business stakeholders market

Selling to business stakeholders is more of a vision-leading exercise. It’s crucial to understand the stakeholder’s vision so you can share how your technology or services could either implement that visions or shape it into being a more impactful outcome.

You then need to move from vision to experimentation. Business stakeholders won’t wait for your company to build the tech solution they envision. You need to sell a technology that is already developed to the point that users can start experimenting with it, and you’ll be competing against new SaaS and cloud offers that pop up quickly and allow try-it-before-you-buy it models.

The budgeting impact 

CIOs are quite happy to go through a budgeting process, and your sales approach and timing needs to fit into the budgeting rhythm.

In contrast, the business stakeholder market often won’t focus on a large budget. They want to take initial baby steps to understand the technology. You won’t need to offer them a complete entrée; you just need to focus on the next couple of steps.

When the two markets converge

Once the business stakeholders believe in the value of the technology, they will need to bring the CIO into the discussions in order to help them roll it out broadly or expand the scope. At this point, you’ll be required to recognize and meet the CIO’s agenda. You won’t meet with the CIO face to face, but as part of the sales framework, you have to be prepared to answer her questions related to cost, scale, compliance, etc.

Bottom line

Selling into the two markets with opposite mindsets and behaviors, and eventually having to deal with both of them at the same time, is a much more complicated sale than in the past. It requires more patience and highly customized communications. But the prize for your successful strategy and efforts can be very large.

The Curveball Impact on IT Spend Decisions | Gaining Altitude in the Cloud

There is an interesting new twist these days on how organizations initiate, fund, and make IT spend decisions. It’s sparked by two major trends: Nicholas Carr’s 2003 Harvard Business Review article claiming that “IT doesn’t matter” and the consumerization of IT. As a result, some organizations no longer view their CIOs as responsible for generating business value through IT decisions.

Instead, increasingly the CIO’s mandate today is to take tactical steps to reduce the cost of IT. Make it run anytime, anywhere, available when and where needed. Make sure it’s compliant and highly reliable — and cheap. The cost of IT on the balance sheet or the operating statement has been creeping up past one percent to two or three and sometimes six percent of total corporate revenues. Now the mandate is to take that down by several points, and even below one percent.

More automation, increased use of private clouds and increased role of labor arbitrage combine to lower the cost. Simplification and standardization also play a prominent role in achieving cost objectives. The mass commoditized world is overwhelming the bespoke world or customized environment, and the focus is on eliminating variations and getting to one kind of server, one kind of data center, one kind of virtualization and operating system. In addition, processes are more ITIL-based, which leads to a cheaper, more reliable, more flexible environment. And it makes it easier to interact with third-party providers.

The power of the purse

This CIO mandate is growing in importance and increasingly is more prominent in CIOs’ agendas. But it comes at the expense of their desire to drive innovation and value into the business. With the consumerization of IT, the business stakeholders are taking over decisions about IT functionality and benefits, as well as how to use IT to drive value in the organization.

They grew up with technology and don’t feel they need to collaborate and partner with IT, certainly not up front. They feel very self-confident and build their own vision of how things could change.

And IT funding has shifted to the business stakeholders along with envisioning and initiating technology decisions that drive innovation and business value. The CIO’s budget is constrained or cut, whereas the business stakeholders’ budgets are now flush; they have the power of the purse.

Traditionally, organizations (through CFOs and CIOs) controlled the introduction and allocation of technology by constraining or managing costs; the point of control was through CAPEX. But in the new world with business stakeholders driving decisions, capital isn’t needed. Business users can leverage ready-made tools that are available in the cloud and through SaaS that don’t require CAPEX and also don’t need as much, or any, IT team participation to launch — making experimentation easy.

Two completely opposite markets

These shifts in influence on delivering value and control over funding create two markets within organizations, and they behave very differently from each other. Their contrasting behaviors and mindsets pose fundamental issues and create a lot of confusion for the enterprise and for the IT vendors and service providers trying to sell into the organization.

This dramatic change from the traditional ways of governing technology and IT spend are like a curveball in baseball. Depending on the grip and hand movement, a pitcher can throw a baseball with a spin so that it swerves downward and deviates to the right or left, surprising the batter and making it difficult to hit the ball. Similarly, the two differing IT markets in today’s organizations throw a curveball at senior leadership and sales/marketing teams, necessitating developing new approaches, concepts and communication about IT initiation, allocation and spend.

For example, a central IT team used to manage through traditional IT governance “gates” such as capital allocations and compliance, which facilitated the ability to look across the organization. But a world where everyone does what’s best in their own eyes poses challenges to managing IT.

There is an upside. To the business stakeholders’ credit, it is more effective to stand up a technology, see how to use it, and then understand how to change it, rather than building an elaborate requirements document up front. It facilitates understanding the nuances, consequences and organizational challenges in a much deeper, more realistic way than can happen by developing a requirements document that is, at best, an abstract vehicle.

It also plays into the idea of agile development but also goes beyond that concept by stringing together fully formed components that already exist in the marketplace. Business stakeholders can see how the components relate and see how to benefit from them; and they can easily add to them or discard them quickly. So it turns the risks of a big planning exercise into a much more measured incremental march that facilitates fully understanding the technology before fully rolling it out.

On the downside, in a world where everyone makes decisions on what is best for their own needs, it can be challenging to scale it across an entire organization at a later point. Potentially it also can create complications for the CIO’s mandated agenda to create a low-cost, highly resilient, highly compliant factory.

It isn’t that the CIO market or the business stakeholder market is right and the other market is wrong. They’re just very different. Borrowing from the claim in the days of the Roman Empire, we’re not here to bury Caesar or to praise him; it’s just a fact that Caesar was very different from Augustus.

So, we must accommodate this new phenomenon of the two markets and celebrate the benefits this brings in terms of a deeper understanding of how to use technology and achieve faster speed to impact. It will necessitate building tools and new management structures that support the inevitability of the new divergent structure. And it will necessitate a new approach and communication strategy for selling IT. In our next blog post, we’ll provide some strategies and tips for how to succeed in hitting a home run despite facing a curveball.


Photo credit: Jason Alley

System Integrators Join the Party in the Cloud | Gaining Altitude in the Cloud

Many folks, even those who follow the technology services industry closely, attribute the cloud computing ecosystem to the public/cloud hosting service providers and SaaS/platform providers. While these two categories of service providers indeed form the backbone of the cloud universe, others also play pivotal roles in enabling cloud services. The following image illustrates the service provider categories that constitute today’s cloud ecosystem:

it providers

With the expansion of cloud services, enterprise buyers are steadily realizing that they need help not only from pure technology providers, but also from firms that serve as system integrators (SIs).

Yet, in a universe in which hosting providers (Rackspace, AWS, etc.), SaaS/platform providers (Salesforce, Workday, etc.), and cloud enablers (CISCO, VMware, etc.) deliver the core resources to enable cloud-based services, is there enough room for SIs to establish their importance?

The answer is a resounding yes. SIs are, and will continue to be, an integral part of the cloud vendor ecosystem. Here’s why:

SIs provide a roadmap for transition to cloud

SIs have inherent design and consulting capabilities, and help buyers put in place a roadmap for transition. They make the cloud integration and deployment process more seamless and customized to each buyer’s requirements.

SIs bridge the gap between cloud solution owners and the enterprise buyer community

Enterprise buyers seeking to migrate to the cloud will need a facilitator to interact with and among multiple players in the vendor ecosystem. It is the SIs who act as this bridge between cloud technology providers and the buyer community.

SIs help manage multiple large complex buyer environments

Given their multiple complex environments with varying requirements, large global enterprises really need a party to serve in the role of moderator. SIs are well equipped to take on this responsibility due to their global delivery and management capabilities.

Additionally, after setting up a cloud environment within their organizations, buyers will most likely need support from SIs to maintain and manage the new system. With increasing moves toward cloud-enabling large IT stacks rather than just specific applications or infrastructure, it is only logical that the role of SIs will become more critical for enterprise buyers that are about to take the leap of faith by transitioning to cloud services.

For more details on how IT service providers and SIs fit in the cloud ecosystem, please see Everest Group’s recently released research, Enterprise Cloud Services – PEAK Matrix Assessment and Profiles Compendium, which profiles the players on the proprietary Everest Group PEAK Matrix.

And keep watching this space for a deep-dive into providers of cloud application and infrastructure services through a series of blogs.


Photo credit: cuatrok77

Awarding Enterprise Adoption of Cloud Computing | Gaining Altitude in the Cloud

Originally posted on CloudAve


One of the longest-running criticisms of enterprise cloud computing is the dearth of publicly referenceable implementation case studies.

Thankfully, this is starting to change. Indicators such as speaking at industry events and talking to reporters about what works and what doesn’t in cloud migration suggest that enterprises are starting to open up and share.

There are several possible explanations for this (technology maturation, commoditization of implementation models, C-suite recognition that cloud is not about cost compression), but the net benefit accrues to the entire industry: the more we share, the faster that standards and best practices will emerge.

It is with this trend as a backdrop that Cloud Connect and Everest Group are co-producing an awards program designed to recognize enterprises that have demonstrated innovation through the adoption of cloud solutions.

Called the Innovation through Cloud in Enterprise (ICE) Awards, the program will recognize companies that have shown success in leveraging cloud computing to transform business processes and unlocked new value by successfully implementing cloud strategies.

Qualifying organizations must have at least 2,500 employees with operations in North America or Europe that are consumers of cloud services. The cloud solution should have resulted in one or more of the following:

  • Striking business impact in terms of revenue, costs, pricing, reduced time to market
  • Notable technology transformation leading to process simplification, new feature functionality, flexibility, business agility
  • Significant positive effects on stakeholders, improved customer satisfaction, improved collaboration, reduced resource consumption footprint
  • Achievement of organizational transformation

Companies meeting the criteria should complete the online application. There is no fee to apply. The deadline for submission is 9 p.m. EST, July 26, 2013. Finalists will be announced on August 16, and winners will be invited to share their stories at Cloud Connect Chicago on October 21 via video and selected main-stage presentations.

The ICE Awards Judges Panel will select winners across a variety of industry sectors, including consumer goods & retail, financial services, healthcare, media & entertainment, and others. Additionally, a crowdsourcing process conducted via social media will select a winner for the “Viewers’ Choice” award.

Submission close on July 26. And remember that vendors can apply for their customers. Service providers and vendors can apply on behalf of their clients and customers. Awards programs like these can help the entire industry by expanding the library of publicly referenceable case studies. Start the application process here.

Love Thy Enemy to Float in the Cloud | Gaining Altitude in the Cloud

Many nations celebrate Friendship Day on the first Sunday in August, with citizens spending time together, exchanging gifts, cards, and wristbands to proclaim their friendship to each other. And when Oracle, an organization that trashed cloud earlier, partners with bête noire Microsoft, Salesforce.com, and NetSuite, and when Microsoft extends olive branch to its rival Engine Yard, and adds its platform to Windows Azure marketplace, it’s a clear sign that technology company “frenemies” have inaugurated their own variant of Friendship Day a little in advance of the official date.

These newfound friendships are testimony to the fact that the market for cloud services is driving these companies to bury their hatchets and think about computing in a totally different way. While money, (e.g., Oracle’s poor performance in selling new software licenses, Microsoft’s issues in traditional software sales,) is one of the key drivers, these technology providers now also realize the disruption in the competitive landscape, and appreciate, accept, and are evolving along with the changes in the market dynamics and requirements.

As an example, consider that Salesforce.com always ran on an Oracle database. Although it investigated competing open source technologies, (e.g., NoSQL,) it is now committed to Oracle’s hardware and middleware, perhaps moving away from commodity infrastructure. Similarly, Oracle is partnering with NetSuite to target the mid-market and ensure that its Fusion human capital management (HCM) works with NetSuite’s ERP. If they enter into a distribution agreement, Salesforce.com and NetSuite may get access to Oracle’s direct sales channel, resulting in interesting competitive dynamics.

Further, as cloud adoption grows more pervasive and complex, partnerships are emerging to provide buyers with the requisite ecosystem to enable enterprise computing with cloud DNA. For example, Microsoft is partnering with Engine Yard in an acknowledgement that developers need more capabilities and require application and infrastructure abstraction to work across multiple clouds. While many may view these strange bedfellow affiliations as an indication of large technology companies’ inability to compete with nimbler players, Everest Group believes this is a positive development that enables enterprise buyers to leverage the best of the cloud delivery models.

Yet, when competitors become partners and it becomes fashionable to be frenemies, should buyers worry about collusion? To guard against possible challenges, every buyer needs to ask itself and its technology providers:

  1. How does a partnership with an erstwhile competitor change the product lifecycle, commitment, and roadmap?
  2. Should I be wary of a “tacit understanding” between these newfound partners that impacts my ability to buy the best business solution?
  3. Does this affiliation give technology providers a perverse incentive to unofficially agree not to rock the boat of enterprise computing?
  4. Does this partnership dent technology providers’ capability to innovate to stay ahead of the competition? If yes, then how does this lack of innovation affect my technology landscape?

On the surface, everything may look great as vendors pitch broader solutions citing partnerships. But enterprise buyers need to have laser precision vision – and more than a sprinkling of clairvoyance – on their business objectives in segregating the high pitch, (and sometimes false,) marketing spiel of the provider community.

Empire Building: The Impact of IBM’s Acquisition of SoftLayer Technologies | Gaining Altitude in the Cloud

The cloud services space just got a lot more interesting. Announced earlier this month, IBM paid a hefty price — $2 billion — to buy Dallas, Texas-based SoftLayer Technologies, the world’s largest privately held cloud computing infrastructure provider.

IBM is now well on the way to delivering on the goal stated in its 2012 annual report: to make a key impact on cloud and reach $7 billion annually in cloud revenue by the end of 2015. Clearly IBM wants to participate in the revenue potential from the growth of cloud services. Big Blue has already spent $4.5 billion over the past five years to build its SmartCloud portfolio of cloud services, but those acquisitions were in the private cloud arena. To compete broadly in this lucrative market, IBM needed a compelling offering in the public cloud arena.

A recent report from North Bridge Venture Partners and GigaOM Research predicts the cloud market will reach $158.8 billion by 2014. And Gartner predicts the market will grow to $210 billion by 2016.

The SoftLayer acquisition accelerates IBM’s efforts to establish a footprint in the public cloud arena without having to start from scratch when AWS, Google, Rackspace and others already dominate the space. SoftLayer’s cloud infrastructure platform, and its existing 21,000 customers, gives IBM immediate scale and relevance.

Other than increased revenue, why does IBM want to have a compelling offering in the public cloud space in the first place?

They believe — correctly, I think — that significant workloads will migrate from the data center and private clouds to the public cloud. There is a set of workloads that, quite frankly, are more attractive in the public cloud than they are in a private cloud space (web hosting, application development and testing, and email, for example). It makes more sense to pay for these services on an hourly basis rather than on a monthly or yearly basis.

We believe these types of services currently comprise about 50 percent of the workloads that currently run in IBM customers’ data centers or their private cloud environments. So about half of IBM’s customer workflows are well positioned to move into the public cloud. They won’t all move at once, but we see clear indications that they are starting to move. If IBM is to provide comprehensive cloud services, it needs a smooth path for migrating those workloads. SoftLayer gives IBM the capability to create a glide path.

Thus, IBM’s acquisition of SoftLayer is both a defensive strategy and an offensive strategy. On the offense, they want to increase market share in the fast-growing public cloud space and need a compelling offering to compete with AWS, Google, Rackspace and other cloud players. On the defense, they need to create a migration path from traditional IT infrastructure space into the public cloud.

I don’t think the SoftLayer acquisition is a game-changer. Nor do I think it remakes the cloud space. But it does put IBM into a credible role.

Will this acquisition be enough to secure IBM’s position as a cloud leader? I suspect it isn’t enough, given the role that IBM likely will want to play. I think we will see further acquisitions to build up IBM’s capabilities and scale.


Photo credit: Simon Greig (xrrr)

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