Implications of Cloud Computing

March 16, 2012

Suppose you are an investor in an entertainment company such as Sky Broadcasting that uses satellite for broadcasting television channels. Who would pose the greatest threat to your company? Not other entertainment companies, but rather internet service providers and telecoms companies. The reason is the fibre optic cabling of huge tracts of cities and towns will provide these companies the opportunity to bundle telephone, internet and entertainment services in a single package that can be marketed to the consumer at a great discount and, further, provide the customer with the convenience of dealing with just one provider. So, in times of innovation and rapid change, a company’s biggest threat is less likely to come from its competitors in its industry vertical and more likely to come from outside. Much like the motor car replacing the horse buggy at the turn of the 20th century.

Let us consider companies such as IBM and HP – technology companies that are conglomerates of various concerns that, to a large extent, have as their focus the data centre. (The customers of these companies use a centralized model of software delivery where the IT department acts as the arbiter and broker of IT services.) Their immediate threat comes not from their own industry, but from software companies such as Microsoft and Oracle. The reason is that the software companies have an upper hand in terms of defining the license terms of their software when used in cloud computing. And cloud computing creates a prospect of the data-centre companies’ customers migrating to a more loose, federated model of IT service delivery that has the customers’ business stakeholders bypassing their IT departments to obtain cloud services when and where they want.

You may argue that IBM and HP are also software companies as they have an extensive, and quite a good, portfolio of applications. However, almost all of their applications are geared towards the data-centre or for ensuring that the core infrastructure functions well. None of their applications provides a function useful to their customers’ business. In other words, if – as a businessman — you wanted to write business letters, perform book-keeping, reconcile your orders, understand your risk, balance your books, purchase inventory, create fliers, etc., then you would need to turn to a software company such as Microsoft, Oracle or Adobe to help you, not HP or IBM.

So what are the implications for the likes of HP and IBM in future? They will simply gravitate to becoming cloud infrastructure providers or cloud implementers for companies such as Microsoft, Oracle, Google and Amazon. The latter, in turn, will become providers of cloud services. This means that the software companies will essentially take on the role of the customer companies’ IT departments by delivering IT services, via cloud computing, to their customers’ business groups. Whilst HP and IBM will need to concede ground to the software companies, so will their customers. The result will be contraction in business for HP and IBM, and growth for the software companies.

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