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Cloud Computing: Defining The Business of IT…And Why You Should Care

“New Normal” – The CEO View

• The correction will impact advanced economy consumer spending for several years to come (5.34)

• IT-enabled changes will be a key element in our post-recession strategy (5.13)

• Emerging economies are poised for a multiyear period of rapid growth and a rising standard of living (4.99)

• The next decade will be far more volatile and unpredictable than the last (4.96)

• There will be a major wave of merger-and-acquisition (M&A) activity in 2010/2011 (4.95)

• Many companies and industries will have to redesign their business models (4.90)

Source: Gartner CEO & Business Executive Survey 2010

Electricity & IT – Industry Parallels?

Did You Know:•In 1902, there were 50,000 private power plants and only 3,600 central stations run by utilities in the US

• In 1907, manufacturing plants produced 60% of all electricity in the country.

•Consumers and SMB were the principal customers of utilities for the first four decades of their existence.

Fragmentation in the supply of general-purpose technology…”forces large capital investments and heavy fixed costs on firms and leads to redundant expenditures and high levels of overcapacity.”- “The End of Corporate Computing,” Nicholas Carr, MIT Sloan Management Review

Cloud Services Market Growth• The worldwide market for Cloud Services was worth $58.6bn in 2009. • By 2014 the market will be worth $148.8bn. • Gartner has revised its five year forecast growth rate from 26.5%

published in last year’s report to 20.5% in this report. This downward revision though simply reflects the law of large numbers; i.e. as the overall market grows growth rates naturally diminish.

• Over the course of the next five years enterprises will spend $112bn cumulatively on Software as a Service, Platform as a Service, and Infrastructure as a Service combined.

• There continues to be great diversity of activity, maturity, and growth amongst the many different elements of the overall Cloud Services marketplace.

Key Issues

• What’s on the mind of CEOs?• What is cloud computing?• What are the business implications and

opportunities associated with cloud computing?

Key Issues

• What’s on the mind of CEOs?• What is cloud computing?• What are the business implications and

opportunities associated with cloud computing?

CEO Concern: Maintaining Internal Cash Generation

83% of CEOs expect internally generated cash flow to finance growth.Source: PwC 13th annual global CEO survey 2010

• CEOs must set strong balance sheets against volatility, while funding recovery.• In 2009, CEOs slashed operating costs ahead of revenue to build a war chest.• Financial self-reliance won't be quickly relinquished• Deflationary trends & growth costs squeeze margins• Bank borrowing remains unreliable.

$1.64 $1.64 TrillionTrillion

Federal Reserveestimate of US nonfinancial company cash and liquid assets*

* June 2010- a 26% increase since 2009.

Free cash flow is the CEO KPI that rose most in importance in 2010Source: NYSE/Euronext CEO Survey 2010- 11

ITImplication

CEOs will be far more interested in IT project business cases that directly drive cash measures

CEO Concern: Investing in New Cost Efficiencies

• Investors seek consistent returns in long-term bear markets.• But competition is harsh, pricing power limited and deflation possible.• By 2011, CEOs will have taken the "low hanging fruit" cost-cutting opportunities.• However, the internal cash pile will permit some funding of deeper productivity and cost engineering.

CEOs identify operational efficiency as the #1 factor influencing profitability through 2011.Source: NYSE Euronext CEO report 2011

CEOs will CEOs will provide table provide table stakes for majorstakes for majorefficiency playsefficiency plays

* e.g. order cycle time reduction, debt recovery support, pay as you go, price optimization, channel disintermediation

ITImplication

CEOs need IT to help cut structural business costs

CEO Concern: Applying Innovation for Growth

"More than two-thirds of companies maintained or increased R&D spending"Booz & Co Global 'Innovation 1000' (biggest R&D spenders) Report Winter 2009

CEO R&D Investment IntentionGartner CEO & Senior Business Executive Surveys 2009 & 2010.

• CEOs funded R&D in the downturn• Now, they must monetize the results• But today's marketplace is digital• So, no IT enablement … no recovery!

Cre

dit:

CC

Mar

io R

ober

to D

uran

Orti

z

* e.g. order cycle time reduction, debt recovery support, pay as you go, price optimization, channel disintermediation

ITImplication

CEOs need IT help bringing new product and service innovations to technology-enabled markets

Example: GM's Chevrolet Volt plug-in hybrid electric car.

U.S. rollout 2011/12

N > 200

Cloud Computing Interest Is Increasing

Key Issues

• What’s on the mind of CEOs?• What is cloud computing?• What are the business implications and

opportunities associated with cloud computing?

Gartner defines cloud computing as "a style of computing where scalable and elastic IT-related capabilities are provided 'as a service' to customers using

Internet Technologies“.

Gartner's Definition of Cloud Computing & the Critical Attributes of Cloud Services

Internet Technologies Services are delivered through use of Internet Identifiers, Formats, and Protocols.5

Metered By Use Services are tracked with usage metrics to enable multiple payment models.4

Shared Services share a pool of resources to build economies of scale. 3

Scalable & Elastic Services scale on-demand to add or remove resources as needed.2

Service Based Consumer concerns are abstracted from provider concerns through service interfaces1

5 A

ttrib

utes

that

sup

port

out

com

es

The Cloud Computing Spectrum

OwnerOwner Company Company Provider Provider Provider

OperatorOperator Company Provider Provider Provider Provider

Service Service AccessAccess

Closed (enterprise)

Closed (enterprise)

Closed (enterprise)

Closed group(community)

Open

Level of Level of ControlControl

Full High High Low None

Points of Points of LeverageLeverage

Skills (none)Assets (none)Arch. (none)

Skills (strong)Assets (none)Arch. (strong)

Skills (strong)Assets (some)Arch. (strong)

Skills (strong)Assets (strong)Arch. (strong)

Skills (strong)Assets (strong)Arch. (strong)

VirtualPrivate Cloud

Company A Company A

Com

pany

A

Com

pany

B

Com

pany

A

Com

pany

B

Prov

ider

X

Use

r Z

Closed Private Open Public

CommunityPublic Cloud

PublicCloud

Managed Private Cloud

Company A

CustomPrivate Cloud

Cloud Services Exist in a Value Chain

Providers

Provider vs. Enabler business models

Up the chain Value is delivered

Down the chain, Value is derived

This is when “aaS” happens!

Delivery

Opt

iona

l Bro

kera

ge

Delivery Capabilities

Consumption

Delivery Capabilities

Consumption

(People & Process)

Opt

iona

l Bro

kera

ge

This is the basic cloud equation!

Providers

Capabilities

Consumption

(Technology)

Providers

EnablersEnablers Enablers

Positives & Negatives Of The Public Cloud

-+AgilityFlexibilityUser Self-ServiceCost (perceived & real)Opex vs. CapexStandardizationSimplified SourcingEnable New SolutionsSMB Benefits

✖ Data Location✖ Process Isolation✖ Regulatory Compliance✖ Portability✖ Trust✖ SLA Guarantees✖ Licensing Issues✖ Bandwidth & Latency✖ Financial Models

What are People Doing In the Cloud?Collaboration and

ProductivityInterest in simple, cloud-based productivity appsDevelopment

&TestMock up the data

and move now

Web Application Serving

Servers are half there already

EmailMost Major Universities

Seeking to Move

SaaSSucessfactors won with a

420,000 seat deal with Siemens

PrototypingTry before you

buy

CrowdsourcingMining what the collective knows

ContextInformation about people

is everywhere

Key Issues

• What’s on the mind of CEOs?• What is cloud computing?• What are the business implications and

opportunities associated with cloud computing?

The Financial Side of Cloud Computing

• Capacity without capital• Transparent services improve cost

management• Exponential scale without exponential cost• Allocating IT resources towards mission

critical activities• Reduced upgrade & migration costs

Services that cost approximately $500 million or more in 2007 will likely be delivered by the most efficient companies for approximately $295 million in 2010 and for $132 million by those who migrate to the cloud by 2015- Dr. Howard Rubin (MIT Sloan School of Management & Gartner Advisor)

Enabling Business With Cloud Computing

• Business self-sufficiency & business accountability for resource consumption- Effective when carefully managed

• Propagation of standardized business processes• Dynamic adjustment to changing business

requirements• Sandboxing business solutions

Cloud Computing Risk Management

• Vendor viability- by 2013, 50% of cloud-computing processing

power will be provided by the top four cloud-computing vendors

- vendor failure has bigger consequences

• Loss of control requires due diligence

• Regulatory compliance

Cloud-enabled Business Opportunities

= Supply Chain Expertise

Commercialize through retail, or… …discrete, external cloud-based process

Supply Chain Cloud

Big Business In Big Cloud Data

Give away personal finance software Get aggregated financial data

Net result – acquired by Intuit for US$170m after 2 years of operations

Industries are Changing: Government Cloud Initiatives Can Affect Private Sector Decisions

Anyone

Exclusive

ServiceAccess

OwnershipAgency Third PartyGovernmentwide

LimitedMembership

CentralizedMultiagency

CloudServices

SharedMultiagency

CloudServices

ExternalMultiagency

CloudServices

Internal Single-Agency

CloudServices

Shared Single-Agency

CloudServices

ExternalSingle-Agency

CloudServices

GovernmentPublic Cloud

Services

Public CloudServices

1. The right to retain ownership, use and control of one’s own data

2. The right to service-level agreements that address liabilities, remediation and business outcomes

3. The right to notification and choice about changes that affect the service consumer’s business processes

4. The right to understand the technical limitations or requirements of the service up front

5. The right to understand the legal requirements of jurisdictions in which the provider operates

6. The right to know what security processes the provider follows

7. The responsibility to understand and adhere to software license requirements

What are the Rights and Responsibilities of Cloud Service Consumers?So…Assess Your Rights and Responsibilities in the Cloud

If There’s One Thing You Should Take Away…Cloud computing isn’t just an “IT thing” – it’s about business…

Agility

Innovation Externalization