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Large Enterprises: To Be Or Not To Be In The Clouds?

Posted on Monday, Sep 13th 2010

By guest author Shaloo Shalini and Saurabh Mallik

As a niche technology chaser, I have been working closely with several cloud-based technologies in the past three years. It amazes me to see the ease and agility with which startups and small and medium enterprises deal with the question of adopting cloud-based technologies. Contrast this with the measured yet tentative approach that larger enterprises have toward cloud computing.

I wonder at times why, beyond the technology sector, there are so few Fortune 500 enterprises across industry verticals that are actually deploying clouds in a big way for any core business processes, despite the obvious benefits of elasticity, on-demand, and cost effectiveness, among others. Is it the classic case of young versus the old school of thought, no baggage to deal with and nothing to lose for those who are delivering cutting-edge solutions and setting up fresh business? Is it the inertia to change on part of large corporations for something that is already working, or their natural tendency to linger longer inside comfort zones, control, wait and watch, and play it safe until the technologies mature? Maybe it is all of the above. Or could it be that some of them have really fumbled when it comes to cloud computing adoption strategies?

There are many definitions and kinds of cloud computing technology available today. There are newer business models emerging which reduce time to market, especially for smaller players. Almost companies that have software offerings in traditional on-premise or off-the-shelf products are joining the trend of repackaging their software into a SaaS-based form or hosted form internally or outside an organization. The budgets that are being diverted into clouds may be minuscule at the moment compared to average IT costs today, but the cloud has gained significant momentum be it public, private, hybrid, open-sourced or different types of solutions including IaaS, PaaS, SaaS, and XaaS.

Large corporations across industries around the globe are curious about cloud computing, but they are in no hurry to adopt it unless they themselves have any cloud-based offerings of their own or are in a major refresh cycle of one of their core business processes.

Coming back to the question of to be or not to be in the clouds, there are three key considerations which make the question of cloud adoption a complex one, especially for large enterprises.

The first one is absence of clarity and nonexistence of a compelling wholesale adoption use case for established large enterprises. In terms of significant cost advantages, the cloud has helped to level the playing field in favor of small enterprise or startups by removing traditional barriers such as high upfront capital investment and the need for the sales teams to capture newer markets For small companies, it is a question of survival; cloud adoption for them means being able to jump-start their business and shorten time to market, which was unthinkable before the advent of the cloud. That is not true for larger enterprises that already have a significant upfront investment in on-premise IT infrastructure and carefully customized software solutions and application integrations which already work for them. For them, cost benefits are minuscule and there is no significant additional revenue from cloud adoption.

The second and biggest deterrent for large enterprises is integration requirements, which are typically absent or very basic in form for a typical small or mid-sized company. Those with legacy systems and applications in the large enterprises category don’t see cloud offerings as being mature enough yet. They are skeptical whether cloud solutions can address their biggest pain point of integrating newer cloud-based solutions with on-premise applications in a transparent manner without significant costs involved in terms of time or rework and without outweighing the benefits of cloud adoption itself.

Integration of noncloud on-premise applications across different vendors itself is a tricky proposition, and now large enterprises are wary of newer cloud solutions that could lower costs but could also open a Pandora’s box of integration issues and security concerns, not only in terms of functionality but in licensing and managing on-site software installations and cloud-based licensing and payment models.

There is a lot of hype about data access and security, though several IT managers believe that issues are somewhat the same as with noncloud-based solutions. They mostly concur that there are certain additional aspects of security such as legal and geographical considerations and compliance angles which aren’t fully addressed to the satisfaction of large enterprises and fuel their security concerns.

The last and most important consideration is – does cloud adoption bring any significant competitive differentiators for large enterprises? When they deal with solution vendors, most organizations, big or small, focus on capabilities rather than whether one vendor has a cloud-based offering. This may change in the next couple of years, but at the moment the odds are in favor of the most competent solution which brings value to a company’s business.

David Rutchik, partner at Pace Harmon Outsourcing Advisory Firm, had some insights from the perspective of the Fortune 500 clients that his firm primarily deals with. He said, “Our clients are primarily Fortune 500 companies, and they are increasingly interested in the ability to obtain more cost effective, agile and on demand services as opposed to making a considerable capital investment and locking in to technologies that are required in a traditional service platform. Many of our clients still have concerns around security and commercial definitive SLAs that they are not able to obtain in a cloud environment.”

He added, “We are seeing more SaaS elements of clouds being piloted or adopted in bits and pieces – that certainly is taking hold and some of our clients are looking at Google Mail or Salesforce.com or Workday for HR or Netsuite. From a larger perspective it is something that a lot of companies are piloting and considering but are not embracing in as big a way as media attention might suggest.” Rutchik thinks that cloud computing is based on Web technologies and is not only Internet enabled but Internet dependent, which can be a challenge at times, especially for Fortune 500 companies. “We have seen cloud deployed on a case-by-case application basis as opposed to a wholesale change in strategy,” he said.

In terms of budgets allocated for cloud-based solutions, he believes they will definitely have their place as a component in the corporate budget pie, but it is still fairly early. The most commoditized and least strategically differentiating workloads in Fortune 500 companies are the most likely candidates to move into the clouds, says Rutchik.

He said, “No company is winning in the market as its e-mail system is better or their basic sales tracking is better by moving to cloud, say. It may be a requirement but not a differentiators. Some of the basic storage capabilities, basic database management functionalities and some use of parallel processing power being tried out in the cloud but when it comes to strategic differentiators, he does not see as much of adoption.”

In terms of vendor preference of large enterprise segment, Rutchik is largely seeing that there is greater level of comfort with traditional providers who are branching into cloud space – for example, Microsoft BPoS. He said, “There is some amount of confidence level that such a cloud offering is going to be secure and supported long term from an established vendors. So companies are more comfortable with some of the larger providers that are enabling this cloud in their existing offerings.”

I do believe that ultimately clouds will play a significant role in delivering conventional enterprise IT requirements and maybe even beyond. The private cloud is expected to remain a critical part of large enterprise IT infrastructure. Most core differentiating applications may never move completely out of the enterprise because of their mission-critical or business-sensitive nature until entrepreneurs come up with truly groundbreaking innovations related to cloud computing.

If you are an entrepreneur or a startup looking at Fortune 500 as your target market segment, you may want to ponder some of the potentially good candidates for innovation and cutting-edge solutions. From the large enterprise perspective these are applications that do not provide a competitive advantage, are not mission-critical, and are not tightly integrated with other important applications commonly deployed at Fortune 500 companies. As an entrepreneur, you still have time, and clouds on your side while large enterprises are busy waiting and answering the complex question of “to be or not to be in the cloud.”

Happy innovating!

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Good post! One of the deterrents for adoption is confusion caused by hype from vendors. Once there is a clear set of standards to help differentiate between solutions and customers can feel comfortable differentiating hype from reality, there may be wider adoption.

Larry Carvalho Monday, September 13, 2010 at 2:48 PM PT

Thanks Larry!

Shaloo Shalini Monday, September 13, 2010 at 9:29 PM PT

There really isn't an attractive storage management model from storage vendors which addresses the key issues (failure recovery, backup/restore, space management, cloud expansion etc.).

SMEs are outsourcing their storage infrastructure as opposed to building their own, but as they expand, they tend to gradually build up in-house solutions (look for some key Amazon S3 customers to go in-house in the not too distant future).

CIOs aren't about to let 3rd parties have physical access to enterprise data. The tendency is toward increasingly restricted access inside enterprises.

Ask just about any large enterprise about cloud based application projects, and you will find a list of started and then abandoned efforts, as it was felt that the applications were becoming far too complex.

John Carmichael Tuesday, September 14, 2010 at 4:28 AM PT