IT leaders are ready for the cloud - but are their suppliers?

Now here’s an irony. After two or three years of vendor cloudwash and relentless marketing to IT leaders about why they should move to the cloud, it seems those CIOs have accepted their suppliers’ advice – but it’s those very vendors that are about to realise the monster they have unleashed.

Last night I hosted a Computer Weekly roundtable debate about the roadmap to the cloud, with guests including CIOs and IT directors from the likes of Jaguar Land Rover, LCH.Clearnet, Deutsche Bank, and Her Majesty’s government – in other words, the sort of large enterprises that are the ideal target for cloud suppliers.

Two clear messages emerged from the discussion:

  • Cloud adoption (or not) is not about technology, it’s about ownership of risk. CIOs are saying to vendors, “We want you to take more of the risk of operational IT delivery, and we are willing to pay you a premium if you do.”
  • The biggest commercial impediment for large organisations is supplier’s licensing and contractual terms and conditions. IT leaders say to vendors, “I don’t want to pay for a licence for every employee who might use your software, but I am willing to have a higher pay-as-you-go charge per user if I can turn that service on and off at will.”

And of course, for many of the biggest IT suppliers, the combination of those two factors is anathema to their business models, built as they are around big up-front product or licensing costs followed by ongoing support and maintenance fees. Turn those off, and replace them overnight with a flexible pay-as-you-go fee, and bang goes the P&L.

Deputy government CIO Bill McCluggage, one of the guests at the event, described the message he is giving to potential cloud suppliers with a line that I expect will be repeated often, saying: “We want no up-front costs, no [contractual] lock-in to time, and no lock-in to volume.” 

So we are close to reaching something of an inflexion point, where CIOs understand what they want from the cloud and are asking their strategic suppliers to provide it – but those suppliers cannot commercially do so unless enough of their customers come together to give a financially viable critical mass to switch from the legacy form of licensing to a new, flexible cloud model.

Of course, smaller suppliers can already offer this sort of service, those that built what we now know as a cloud model from the start – the likes of Salesforce.com and Netsuite, plus hosting providers who can offer virtual machines switched on and off on a utility basis. But for the biggest customers, only the biggest suppliers will be trusted to support their corporate cloud-based needs.

Now that is a challenge for the big players that, if they didn’t see it coming, means they never really understood the cloud in the first place.

The technology bit is easy, we can solve that, and IT leaders realise that fact. But it’s the issues of risk ownership and commercial terms and conditions that will determine the future of cloud. There is a huge opportunity for whichever of those suppliers finds a way to get a first-mover advantage on these two critical issues.

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I never thought for a second that vendors like Oracle and SAP would seriously make the internal systemic change required to actually become true cloud vendors. This would call for massive operational and cultural overhauls starting with having to shed swathes of sales and marketing jobs and perks, which the enterprise licence fees fund. These vendors have been reluctantly offering some cloud 'options' as a hedge to diversify their portfolios and become buzzword compliant. They didn't face the prospect of cloud replacing on-premise in the enterprise to the extent that it is happening - spurred on by the long recession and poor recovery - and now I reckon they are in crisis mode while the likes of saleforce.com, Workday and SuccessFactors (which implemented the largest enterprise Cloud application to date at Siemens) continue to gain marketshare. These companies (none of which I have any vested interest in btw) are getting big enough in terms of size, experience and ecoystem to serve enterprise customers.
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