Cloud Computing – Fizzle, Bubble or Real Pay Dirt? – Part I

I recently traveled through Europe and regularly also spent a fair amount of time talking to folks stateside about all things Cloud Computing. These are not just Silicon Valleyite technorati I talk to, but folks from all parts of an organization and many industries. Summarizing these conversations, I’m struck by two things:

1. Most everyone has heard of Cloud Computing and is sure it’s a happening, important trend. A few brave souls admit they don’t really know what it’s about, and many others have latched on to some aspect or the other that they regard as the truth about Cloud Computing. But outside Silicon Valley, it’s a minority that truly seems to have grasped the essential concepts of Cloud Computing.
2. No matter what their level of expertise, many aren’t really clear on why Cloud Computing is a good thing from purely a business point of view. The technically minded love the flexibility of allocating server capacity on demand, for example, and whisper knowingly about utility computing. But when pressed for some thoughts about the associated financial payoffs, relatively mundane things like power savings or lowering capex get mentioned. Nothing that has the potential of moving an organization’s financial needle to the extent the buzz surrounding Cloud Computing should warrant.

I believe that conceptual void has two reasons: First, Cloud Computing by and large still is a technology revolution driven by technorati for the technically literate, amplified by the punditry in the media that want to make sure they’re not missing out on reporting about the next big thing. Second, the business community at large has not yet wrapped their minds around the product potential of Cloud Computing, and thus far, by and large, sees it as a server cost reduction opportunity.

Almost every Cloud Computing solutions provider we talk to, after they’re done talking about the technical virtues of their offerings, privately admit they’re struggling engaging with the business leadership in a targeted organization. Typically those solution providers end up selling their wares into mid-level IT decision makers, and the TCO benefits that justify a sale indeed center on things like capex or power cost reduction. In the meantime they are trying to figure out how to engage the C-Level folks with a larger story, a story that for the most part is still elusive, however.

For all the technical elegance of the Cloud Computing solutions in the market place today, the industry as a whole has not yet addressed what I call the “product opportunity”. I.e., offering the market compelling solutions that facilitate the launch of new classes of products. The big payoff for a new technology comes when it spawns the launch of new types of disruptive products that bring with them new revenue potential, vs. simply offer cost reductions for earlier technologies. In the latter case, the total upside of the new technology will never surpass the total revenue of the industry it is replacing.

So, for Cloud Computing to outlast its own buzz and truly have profound financial impact on the entire technology industry, it needs to be understood by the technology-buying business community as being more than a technology for more efficient server utilization. Instead it needs to be perceived as being capable of spawning new products with new revenue potential. What some of these product ideas might be will be the topic of my next blog. Stay tuned.

- A list of cloud related reading materials is here: http://www.btclogic.com/pov/resources.cfm

- A somewhat more technical definition of what Cloud Computing is can be found here: http://www.btclogic.com/documents/BTCLogic_CloudComputing_Why.pdf