evolution of cloud computing markets[1]

8/8/2019 Evolution of Cloud Computing Markets[1]

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Making Leaders Successul Every Day

J 6, 2010

The Evoto O CodComptg Mrkets Ste Red, Ph.D., Hoger Ksker, Ph.D., d Psc Mtzke

or Vedor Strteg Proessos
http://www.forrester.com/


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2010, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Inormation is based on best availableresources. Opinions refect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar,and Total Economic Impact are trademarks o Forrester Research, Inc. All other trademarks are the property o their respective companies. Topurchase reprints o this document, please [email protected]. For additional inormation, go to www.orrester.com.

For Vedor Strteg Proessos

ExECuTiVE SuMMaRy

Looking past the current industry hype surrounding all things cloud, Forrester believes that cloud

computing is a sustainable, long-term I paradigm, and the successor to previous mainrame, client/

server, and network computing eras. Underpinned by both technology and economic disruptions, the

cloud will undamentally change the way technology providers engage with business customers and

individual users. But, at the moment, most customers are suering rom cloud conusion as vendor

marketing stretches the term cloudacross a wide variety o capabilities and, worse, ails to explain

the potentials and the limitations o cloud computing in a well-structured way. Forresters taxonomy o

cloud computing markets provides vendors and customers with clear denitions and labels or cloud

capabilities. With this taxonomy in hand, vendor strategists can position their oerings in the overall

cloud market and better articulate their business value propositions to customers.

TablE OF COnT EnTSCod Comptig Cases A MacroShit O

Tech Idstr Markets

Bsiess Ad Techoog Iterpa Gies Rise

To Cod Comptig

Strctrig The Cod Market

Three Impicatios O A Cod Comptig

Market Segmetatio

The ICT Idstr I The Cod Era

RECOMMEnDaTiOnS

Cod Comptig Wi Stimate A Maor Shit

O The IT Ecosstem

nOTES & RESOuRCES

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2010 sed o ts Eterprse ad SMb Sotwre

Srve, north amerc ad Erope, Q4 2009;

qres; d coverstos wth m vedors,

cdg Csco Sstems, Cords, HP, Hsp,

ibM, Mcrosot, netSte, Orce, sesorce.com,

d SaP.

Reated Research Docmets

Smrt Comptg Drves The new Er O iT

Growth

Decemer 4, 2009

TechRdr For irstrctre & Opertos

Proessos: Cod Comptg, Q3 2009

Octoer 2, 2009

yet aother Cod

J 30, 2009

J 6, 2010

The Evoto O Cod Comptg Mrketsb Stea Ried, Ph.D., Hoger Kisker, Ph.D., ad Pasca Matzke

wth Chrstopher Mes, Thoms Mede, Ph.D., Joh R. Rmer, d Mrosw lsserm

2

3

5

8

11

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mailto:[email protected]://www.forrester.com/http://www.forrester.com/go?docid=55157&src=57232pdfhttp://www.forrester.com/go?docid=55157&src=57232pdfhttp://www.forrester.com/go?docid=54338&src=57232pdfhttp://www.forrester.com/go?docid=54338&src=57232pdfhttp://www.forrester.com/go?docid=54907&src=57232pdfhttp://www.forrester.com/go?docid=54907&src=57232pdfhttp://www.forrester.com/go?docid=54338&src=57232pdfhttp://www.forrester.com/go?docid=54338&src=57232pdfhttp://www.forrester.com/go?docid=55157&src=57232pdfhttp://www.forrester.com/go?docid=55157&src=57232pdfhttp://www.forrester.com/http://www.forrester.com/mailto:[email protected]


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2010, Forrester Reserch, ic. Reprodcto ProhtedJ 6, 2010

The Evoto O Cod Comptg Mrkets


2

ClOuD COMPuTInG CAuSES A MACRO-SHIT O TECH InDuSTRy MARKETS

Cloud computing has an impact on many o the core segments o the $2.4 trillion worldwide spend

by businesses and governments on inormation and communications technology (IC) products

and services (see Figure 1). At the highest level, cloud computing changes how customers deploy

soware applications and middleware, it draws spending rom portions o the outsourcing market,

and it cannibalizes customer investment in hardware and data centers.

Over time, the net eect o cloud adoption will be a transormation o traditional soware and

hardware market segments into I services.

igre 1 Forresters Tech idstr Mrket Overvew

Source: Forrester Research, Inc.57232

Global business and government spending on ICT products and services

(US$ billions, 2010)

OS$25

Middleware$117

Custom-builtapplications

$88

Applications$168

Servers$56 PCs

$162

Peripherals$56

Other$32

Storage$41

Strategyand otherconsulting

services$90

Networkoutsourcing

$29

Distributedenvironmentoutsourcing

$60

Desktopoutsourcing

$28

Applicationsoutsourcing

$28

Mainframeoutsourcing

$31

Computer hardwaresupport services

$71

$27

$31

$29

Telcos$182

Enterpriseand

SMBs$151

Systemsintegration

project work$202

Computer

equipment$347

IT outsourcing$246

Software$398

Communicationsequipment

$333

ITservices

$291

$2,500

Telecom services$885

Cloud impact

(numbers may not total to the totals shown because of rounding)


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2010, Forrester Reserch, ic. Reprodcto Prohted J 6, 2010



3

Cod Comptig uderpis The next Era O Tech Idstr Ioatio

Te tech industry has seen several large paradigm changes over the past our decades: 1) Te

mainrame computing era enabled business growth to be untethered rom the number o employees

needed to process transactions manually; 2) the personal computing era empowered business users

to run their businesses based on individual data and applications on their PCs; and 3) a decade

o network computing established an unprecedented level o transparency o inormation across

multiple groups inside a company and an amazing rate o data exchange between enterprises.

Each o these revolutions brought with it new economies o scale. Te cost-per-transaction, the cost

o automating oce and desktop processes, and nally the cost o network bandwidth ell quickly

and enabled business users to apply IC solutions more broadly to create business value. Forrester

believes that cloud computing will help unleash the next wave o tech-enabled business innovation,

which we call Smart Computing.1 Te advent and eventual widespread adoption o cloud computing

inrastructure and applications will be a major stimulus or the Smart Computing paradigm.

Forresters denition o cloud computing thereore ocuses not on the technology but on the delivery

model that enables the change o business models:

A standardized IT capability (services, sofware, or inrastructure) delivered via Internet

technologies in a pay-per-use, sel-service way.2

Given the looming shi o user adoption and spending to a new technology and business model

or much o the IC industry, we have structured this report to answer vendor strategists crucial

questions: 1) Why cloud computing, and why now? 2) What is the structure o the new market

opportunity? 3) How will cloud computing change vendors business models? And how shouldvendors transition current market share and IP to new cloud-based businesses? 4) What are the

longer-term implications o cloud computing?

Vendor strategists ace the challenge o simultaneously creating value or customers and prospects,

communicating their rms cloud positioning, keeping up with competitors, and preparing or a

potentially disruptive change o their business model.

BuSInESS AnD TECHnOlOGy InTERPlAy GIvES RISE TO ClOuD COMPuTInG

Tree major market orces both enable cloud computing and drive its adoption by computing userorganizations (i.e., subscribers to cloud services) and by service providers:

1. I becomes embedded in the business. As enterprises have awakened to the increasing

interdependence o business and I issues, they are building I capabilities within a

broader business context. Te Internet has driven a gradual migration o unctionality rom

applications designed or single departments or processes toward resources that are shared


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and interconnected between people, departments, and companies. And buyers are more

likely to measure technology investments in business terms, measuring technology value in

terms o improved business outcomes, not traditional measures like the scope or speed or size

o technology inrastructure. Forrester reers to this evolution as the shi rom inormationtechnology (IT) to business technology (BT).3

2. Shared service architectures mature. Te simultaneous shi toward shared I resources

reinorces the preerence or one-to-many service architectures that leverage homogeneous

platorms or more economical delivery o a broad portolio o business services and solutions.

Internal consolidation and virtualization o data centers is just the beginning or many

companies.4 Te quest or higher utilization o I resources then leads users to try out shared

platorms operated by external service providers, which have signicantly higher levels o

resource sharing and thereore lower per-unit costs.

3. echnology Populism spreads. As the overall population becomes more Internet-literate,

consumers, and digital natives in particular, are using technology to manage and integrate their

private and business lives.5 Increasingly, digital devices and services will combine to create the

personal cloud, an integrated resource or organizing, preserving, sharing, and orchestrating

personal inormation and media.6 Te rapid evolution o the personal cloud on the consumer

side raises business users expectations or immediate, universal access and unlimited scale o

technology resources.

Cod Comptig Promises Rea Ecoomic Beefts As We

Te combination o these three trends with the potential economic and unctional superiority

o external cloud inrastructures vis--vis internal enterprise I will continue to drive companydecisions to out-task the planning, building, and managing o technology assets and processes.

Senior executives, and in particular CFOs, are beginning to value the potential economic benets

associated with cloud computing, particularly:

Faster time-to-value. Beyond tactical cost reduction, companies are beginning to value thenearly immediate availability o cloud computing services without capital commitments. As

cloud computing converts xed costs into variable costs, it releases capital or investment in

other areas o the business and allows companies to adjust their spending to changing business

needs. In some instances, cloud computing can also enhance the balance sheet strength and

credit rating o a company because the business will be able to direct more capital into revenue-generating activities.

Improved business exibility. From a strategic perspective, companies are trying to achieveI fexibility. Companies need to move swily to adapt to change, seize new opportunities,

and meet the demands or increased productivity and reduced costs. Similarly, as business

workloads and requirements expand and contract, I organizations must quickly match their


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computing resources to current business needs. As cloud computing provides fexible access

to inormation system operations, it helps companies continue to change while maintaining a

competitive advantage.

Bt Preaet Cod Washig Erodes Cstomer Credibiit

Tese driving trends and prospective benets create widespread awareness o cloud computing.

However, not all vendors are leveraging this momentum appropriately. Some are hesitating, and

others are overusing the word cloud. Some vendors and services providers recognized the

cloud momentum early and started to add the cloud tag to many o their existing services. For

example, relabeling as cloud computing a traditional application service provider (ASP) service

mischaracterizes its (nonexistent) pay-per-use and sel-service characteristics. Forrester calls such a

misuse cloud washing.7 Most enterprise customers recognize old wine in new skins pretty quickly.

Nevertheless, cloud washing has been a signicant roadblock to cloud computing adoption because:

Cloud washing causes customers to tune out. I vendors relabel everything as a cloud service,the term cloud computing ceases to mean anything. Vendors waste the unique opportunity to

leverage the benets that cloud computing oers to customers. And or those customers who

have not read enough about the structure o the cloud computing market, they may have the

wrong perception about the technology; cloud washing can create unrealistic expectations that

are impossible or vendors to meet and that impede sales.

Cloud washing diminishes the credibility o existing enterprise solutions.A second andequally harmul side eect is the cloud washing o highly reliable large-enterprise solutions.

Most o these solutions are usually characterized by high perormance, mass volumes o data,

and high availability. Tey are running on-premise or in long-term outsourcing relationshipstoday. Vendors talking up the promise o cloud computing in general terms risk undermining

existing systems investments and creating unrealistic expectations or new, much-lower-cost

cloud solutions displacing traditional enterprise systems.

STRuCTuRInG THE ClOuD MARKET

o guide vendor strategists toward the most promising opportunities, and improve industry

understanding as a prerequisite or realizing those opportunities, Forresters cloud computing

taxonomy introduces a comprehensive way to categorize cloud market oerings and understand

their relationship with more traditional deployment models such as ASP and business processoutsourcing (BPO).

Two Dimesios Defe Cod Comptig Market Segmets

Our cloud computing taxonomy uses two dimensions to dene distinct market segments:


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1. Whatresources are shared (horizontal dimension). Dierent layers o the traditional

I resource stack can be shared by pillars o cloud services: inrastructure, middleware,

applications, and inormation and processes (see Figure 2-1). Inrastructure services in the

cloud replace the purchase o hardware like servers or storage. Middleware in the cloudprovides a pre-integrated, standardized middleware stack to replace the licensing, installation,

integration, and operation o such soware. Te same applies to business applications in the

cloud, which replace the traditional purchase and installation o soware packages with a

subscription access to a managed environment. Finally, inormation, business processes, rules,

and the people who perorm them can be replaced by cloud-based services.

2. With whom resources are shared (vertical dimension). Increased levels o sharing start with

a single company via a private cloud service, then proceed to a dened and trusted number o

companies, and nally move up to the unlimited and anonymous public crowd (see Figure 2-2).

Increasing levels o sharing in the vertical dimension are associated with three distinct favors o

cloud computing:

Private clouds. Tese services share computing capabilities within a single company. I Iorganizations go beyond the virtualization o inrastructure and use fexible sel-service

provisioning tools, the relationship between I and business can be described as a private cloud.

An important dierence between large-scale corporate data centers and private clouds is the

governance model, i.e., how the CIO engages with the business side o the enterprise. I this

engagement is characterized by high standardization o inrastructure and the risk o fuctuating

utilization on the I side rather than on the business side, then the business side perceives the

corporate data center as a private cloud services provider.

Hosted (virtual private) clouds. In this layer, I capabilities are provided by service providers,similar to traditional hosting or outsourcing models but with ar more fexibility regarding

consumption-based pricing, standardization, and usage fexibility.

Public clouds. Services in this layer are oered via the Internet in a standardized, sel-service,and pay-per-use way. Tere are only a ew already-consolidated large-scale public cloud

service providers, such as Amazon.com, that handle huge volumes o identical services without

individual customer interactions.


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igre 3 Forresters F Cod Comptg Toom

Source: Forrester Research, Inc.57232

Infrastructure Middleware Applications

Purecloudmarket

Extendedcloudmarket

Public cloud

Hosted(virtual private)

cloud

Private cloud

Level ofsharing

Businessvalue

Informationand processes

Dynamicinfrastructure

services

IaaS SaaSPaaS BPaaS

Integration-as-a-service

Dynamicapps

services

DynamicBPO

services

Infrastructurevirtualization

tools

Middlewarevirtualization

tools

Appsvirtualization

tools

BPvirtualization

tools

THREE IMPlICATIOnS O A ClOuD COMPuTInG MARKET SEGMEnTATIOn

Te wide variety o services categorized as cloud computing will change the tech industry

signicantly. New supplier business models will become evident in each pillar o the cloud

taxonomy, with dierent market dynamics and evolution, ranging rom incubation to mass

adoption. Vendors will also develop new engagement models with enterprise customers, or

example, ocusing on application standardization versus customization. And strategists will come to

grips with an increasing shi in user spending rom products (computers) to services (computing).

1. new Cod Bsiess Modes Come Ito ocs

Soware-as-a-service (SaaS) applications are already in widespread use, while the new people-

centric business process services are just about to spin o rom their old noncloud origins.

Statements about the overall cloud market are likely to be meaningless given the variety o marketsegments, each o which is driven by dierent business models, revenue streams, and buying

behaviors. Although the business models might be signicantly dierent in the dierent business

value pillars o the taxonomy, we can identiy some common characteristics:


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Te public cloud is a mass-volume I services market. Public clouds are highly standardizedand massively shared, and accordingly the ability to customize eatures and business logic is

restricted. Many inrastructure-as-a-service (IaaS), platorm-as-a-service (PaaS), and SaaS

providers handle their business nearly anonymously like a telco, without really knowing their

customers and their specic requirements. Te margin per subscription is relatively small and

under permanent competitive pressure, and the prot potential is driven by a huge volume o

subscribers and a ast market consolidation. Tis public cloud business is only a sustainable

business model i a provider remains ocused on volume and does not ollow the demand o its

largest customers to oer more customized solutions or even a licensed soware version with

exactly the same unctionality to run on-premise. As an example, salesorce.com does not oer a

licensed soware release o its customer relationship management (CRM) product to run on-

premise because the speed o deployment would be slower than a subscription in the public cloud.

Te private cloud is a licensed tools and consulting market. When a company puts a privatecloud in place, the engagement model between the I and business side within the companychanges. Te I department is not a cost center anymore; it is a service provider that is nanced

by operational expenditure contributions rom the various business units. Forrester sees a new

generation o tools evolving, helping the CIO deliver internally owned inrastructure in the style

o a cloud. So the private cloud market includes virtualization tools, I management soware,

and middleware platorms with multitenancy capabilities. Tus, these segments are aggregations

o parts o traditional licensed enterprise soware markets, plus consulting services that help

corporate data centers undertake a cloud transormation.

Te hosted (virtual private) cloud is an I services market with customer intimacy.In the middle between public clouds and private clouds, hosted (virtual private) cloudservices combine the economy o scale o an external provider with some knowledge o and

customization or an individual enterprise customer. An I outsourcing or hosting provider can

become a virtual private cloud provider i it retains customer intimacy by understanding the

customers core business. Hosted (virtual private) inrastructure should appear like an internal

data center resource while being provided by an external source.10 Ideally, these oerings are a

total service model, and the end customer does not buy any soware license or real hardware

besides network connectivity.

Te business model o a hosted (virtual private) cloud provider is attractive or I outsourcing and

hosting companies i they ocus on a limited number o very large customers rather than a mass oanonymous customers that make up the public cloud market. As examples, Fujitsu Services, IBM,

Siemens I Solutions and Services, and -Systems are transorming parts o their traditional

outsourcing business into this style. Te portolio o such providers also includes cloud/legacy

integration services, such as creating access to the corporate identity management system.


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2. Cod Proiders Wi Create new Egagemet Modes With Eterprise Cstomers

Both vendors and users will create undamentally new ways o engaging with each other when

buying and selling cloud services:

Cloud provider diversity replaces single-vendor sourcing or users. In precloud times, usercompanies tried to consolidate suppliers to a minimum number o hardware and soware

vendors; the cloud, however, will bring greater supplier diversity. For example, many enterprises

ollow a single vendor sourcing strategy and ask or all business application requirements rom

their preerred enterprise resource planning (ERP) vendors rst. However, when a company is

considering a CRM application as a subscription out o the cloud, Forrester has seen that the

existing vendor is not even invited or the request or proposal (RFP) process, as the traditional

vendor does not represent a visionary disruption to the existing soware deployment model.

Instead o the ormer vendor consolidation approach, I users are starting to embrace cloud

orchestration, combining logic rom internal systems with a CRM or business intelligence (BI)application in the public cloud, or instance.

Vendors ocus on standardization o applications and platorms, not customization.Cloudcomputing signicantly disrupts vendors practices as well. In the past, business applications

vendors successully tailored their oerings to all kinds o customer requirements. Tey added

more customization options to standard products at the request o a ew o their largest customers.

Te results were complex implementation projects and unpredictable behavior rom badly

congured application packages. In contrast to this, the most successul cloud vendors are those

that convince even the most infuential customers to live with standardized application logic. o

reach a high SaaS market share, a vendor actually must notlisten to customers or some time. For

example, salesorce.com basically rejects extensions to its packaged application; instead, it has

established a standardized platorm where customers or independent soware vendors (ISVs) can

develop extensions. Tis keeps the core CRM application on a high-growth, mainstream path.

Some vendors will separate their cloud and legacy businesses. Most traditional ERP vendorsthat tried to deliver a SaaS alternative realized painully that SaaS is a totally dierent business

model. Te cloud style o soware vendor strategy is so dierent rom the existing corporate

culture that it will be easier to spin o the SaaS business in a totally separate business entity.

While this will slow the transormation o traditional soware vendors into the cloud, we

predict a ast transormation o traditional outsourcing and hosting providers. Tey will manage

to standardize portions o their oering into a hosted (virtual private) cloud delivery model.But again, most traditional hosting companies will stay out o or struggle with a public cloud

inrastructure oering.

3. Cod Market Segmets Draw user Spedig rom Existig ICT Markets

Te revenues or the various cloud computing market segments will not appear as new money

in the tech industry! Most cloud categories will gain their market size purely by displacing user


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spending on existing markets. Some are mixing contributions rom cannibalization and net new

buying potential, but we have not identied any cloud market that raises only new market volumes.

Inrastructure-as-a-service oerings, or example, will replace, in many cases, a users real hardware

spending on non-mission-critical servers. Hardware or development and testing purposes isalready shiing to the IaaS alternative. Obviously, the utilization o the hardware beneath the IaaS

oerings at the cloud provider is ar higher than individual development machines. So, as this

portion o hardware spending shis to cloud services, it will shrink by perhaps 30% at the same time.

THE ICT InDuSTRy In THE ClOuD ERA

Cloud computing represents both a signicant threat and opportunity or IC vendors. Strategists

must contemplate the threat o current revenues shrinking and shiing away to new cloud providers

and the opportunity to develop disruptive business models that can capture some o those shiing

revenues. Cloud computing will have a proound eect on how I unctionality will be delivered,

priced, and consumed. Te paradigm shi will be a undamental change in the direction o

I investments as computer buyers become computing subscribers, shiing away rom capital

expenditures on technology products (hardware and soware) toward I investments being made

through operating expense budgets or services.

The Short Term: Cod Acceerates The Shit To Serices

Over the next two to three years, cloud computing will:

Frame a services-centric industry ecosystem. Although companies will continue to invest inI products and technologies, they will increasingly do so in the context o services. Enterprises

will increasingly rely on external services providers to acilitate the respective solutions basedon their superior shared service delivery architectures as well as their partnerships with other

leading technology vendors. As a result, we will see the emergence o a new services-centric tech

industry ecosystem where large service providers act as aggregators and deliverers o multiple

computing and application technologies as well as business process unctions.

Alter the nancial and sales business models o product vendors. Services-centric ecosystemswill shi the underlying nancial business models o most tech vendors. Given customers ocus

on liquidity, tech providers will be orced to move away rom producing xed capital goods

to making circulating capital available in the context o their ongoing services. While this will

have a massive impact on the vendors balance sheets, it will also require a signicant changein their sales and go-to-market approach. Te ocus will have to move rom a culture and sales

incentives built around one-time product sales to a culture and corporate governance that

embrace long-term customer relationships and trust.

Expose the tech industry to more cyclical spending patterns.While cloud computing inthe short term will open new revenue growth opportunities or dierent vendors within the

ecosystem, in the long term, the revenue fow will be subject to strong cyclical changes in


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customers buying patterns. With the shi rom products to services, corporate and consumer

tech spending will much more explicitly mirror the ebbs and fows o the underlying business

cycles. In order or vendors to maintain growth through these cycles, strategists will adjust their

portolios, emphasizing up-cycle themes like speed and fexibility in good times and down-cyclebuying themes such as cost reduction and eciency in not-so-good times.

Serve growing I demands with shrinking I spend. Businesses and consumers willincreasingly depend on data volume, quality, and ubiquity in the coming decades. However,

we expect the on-premise deployment o soware in corporate data centers and on personal

devices to decrease in the ace o mounting cost and complexity. How to resolve this seeming

paradox? With cloud computing, where provider-hosted oerings will gradually replace data

volume and compute power in corporate data centers and on personal devices.

The Medim Term: BPO Serices Moe To The Cod

Te outsourcing o people-centric services has taken place or many years under the label o

business process outsourcing (BPO), a multibillion-dollar business annually. raditional BPO is

not cloud computing, however, as contracts typically run or ve or even 10 years, which is the

opposite o the elastic pay-per-use consumption model that characterizes cloud services. So we do

not include traditional BPO service in the inormation and business process pillar o our cloud

computing taxonomy. However, we expect new categories o cloud services to emerge over time,

based on a combination o human-resource-based services with cloud-style delivery models. We

predict these new services will create enormous elasticity in volume at a compelling price point or

each o the three levels o resource sharing:

Business-process-as-a-service (BPaaS) in the public cloud. One example o a business process ina highly shared mode is event marketing and management services provided by a company called

Meeting Expectations. It provides everything rom the I system or online registration to the

payment process to the sta who manages the on-site acility at an event. Whats remarkable is that

a customer has no contract beyond a single event, and the provider oers its business service to

everybody publicly. Tis provides higher business value with human involvement than just a

business process management (BPM) soware system running in a public cloud environment.

raditional BPO services will gradually shif to dynamic BPO services. Similar to traditionalapplication outsourcing, which will shi gradually to dynamic application services, Forrester

predicts an evolution rom traditional BPO services into dynamic BPO services. While stillkeeping some customer intimacy, the dynamic BPO service will dierentiate itsel with cloud-

style characteristics. One example is a BPO-style outsourced HR department, which might

move a customers entire HR department, including sta and I systems, to an external provider.

A dynamic BPO service would give customers the option to move some but not all processes

into the cloud and to keep some sta inside the company. Customers could request additional

business process volumes (including sta) in a sel-service style rom the provider with

fexibility similar to what we see between private and public I inrastructure.


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Future shared services centers will embrace internal private cloud engagement models.Tein-house alternative to BPO is also not new. It is a shared service center that consolidates, or

example, all HR departments o all business units o a larger corporation into one corporate

acility. Tis type o shared services center used to be one physical location in many cases,

but it can also be a virtual shared services center. Te important dierentiator is the way

the shared business services are charged to the business units. I, in addition to the people-

centric eorts, the total cost o I systems are charged in a transparent pay-per-use model

(with the shared services center basically making the same evolutionary step into a business

process virtualization), than the pure data center has transormed rom a virtualized hardware

landscape into an internal private cloud approach.

The log Term: CodDeried Bsiess Modes Emerge

And in the longer term, we see the potential or new, cloud-derived business models, including:

Te intercompany or collaborative cloud. Precloud soware applications and business modelstypically ocused on one business step, such as trading (buying and selling) goods. Hence, most

nancial soware packages are strictly structured in accounts receivable and accounts payable.

As such transactional accounting is not a real dierentiator or a trading company, it might

source this rom a cloud-based service. Once a number o the trading companys suppliers and

customers use the same cloud-based system, we envision a totally new generation o nancial

soware that is based on a trading chain volume, ocusing on value add and margins based

on a commonly shared network o transactional inormation. A single transaction record

would simply appear on the accounts receivable report in one subscriber company and on the

accounts payable record on another subscriber to the same SaaS application. Such an approach

would dramatically decrease manual eorts and stimulate dierent business models or

trading companies. Similar to this sharing o transactional data, the sharing o master data and

metadata, such as spare part specications on purchasing marketplaces, or quality assurance

data and risk management data would be possible in a collaborative cloud.11

Te cloud broker. In the same way that a travel agent represents multiple airlines, we expectthat once many comparable providers o standardized cloud services are on the market,

potential subscribers would ask a broker to recommend the service that best ts the companys

requirements.

Te cloud-legacy application integrator.Te distributed location o data and business logicembodied in a hybrid ederation o cloud computing and traditional computing will be a hugechallenge to middleware soware stacks and their providers. Forrester calls this challenge cloud

orchestration and the corresponding consulting services cloud/legacy integration.12


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R E C O M M E n D a T i O n S

ClOuD COMPuTInG WIll STIMulATE A MAjOR SHIT O THE IT ECOSySTEM

Forrester recet deted or mjor ceters o grvt the crret tech dstr: pckged

sess ppctos, mddewre d dtse sotwre, hrdwre, d iT servces.13 Whe

vedors were stsed to p oe or two o these some ers go, the recet cqstos o S

Orce, EDS HP, d mer o others re pshg ths pctre to ew eve o

cosodto d ew ce o power. Eve rther dow the rod, cod comptg w hve

sgct mpct o the ce g. Hrdwre d the two sotwre csses decrese

mportce, d sht to servces-cetrc modes w go og wth the cod comptg tred.

Gve ths dsrptve dstr cotet, vedor strtegsts shod:

Target the appropriate segmet o the cod market. Forresters cod comptgtoom s comprehesve csscto o cod servces d toos. Vedor strtegstsshod se ths to derstd d compre the pcomg oergs o prters d

compettors mppg ther crret portoo to the toom. Mrketg mgers c

det whch res o ther crret portoo re ste or cod messgg t d

whch portoo eemets do ot show o the cod chrcterstcs d shod ot e

cod-tgged.

Seect the middeware battefed care. Mddewre vedors c tr to host ther PStechoog stck o ther ow, s Mcrosot s dog hostg Wdows azre. However,

ths dmges prtershps wth otsorcg provders tht ke to cotrte the ve o

hostg o ther ow. The cod rstrctre sotwre mrket c st e sotwre toos

mrket. i cotrst, Orce, or empe, rees o prtershps to host ts jst-ched PSoerg. Prters m e pesed ot to ce other compettor t w chege the

provder o the PS techoog wth mttet d mgemet efcec reqremets.

i smer mddewre vedors ether host ther PS oerg or provde PS stck to

hostg prter, the shod t est mpemet sophstcted cod/egc tegrto

cptes to st compettve.

Aticipate a shrikig ERP impemetatio market. Trdto depoed ERP sstemsreqred hrdwre vestmet ddto to the sotwre cese. The mpemetto d

cstomzto o sess ogc ws s costg project o two to or tmes the sze

o the t cese cost. Wth SS, the hgher eve o stdrdzto d ster dopto

cce w press the mpemetto dow to rto o ot 0.5 tmes the mpemettocost compred wth three-er sscrpto vome. Cever sstems tegrtors (Sis) mst

strt to trsorm ther dstr kowedge rom costg, d-rte-ocsed oerg

to more pckged pproch. Some re strtg to oer dstr-specc dd-os

srrodg pckges SS ppctos ke Sesorce CRM.


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15

Shit hardware saes rom eterprises to cod serice proiders. The server hrdwresod to ed sers s der the ggest prce pressre o . ad the competto rom the

cod s ct trgg dgeros: Cstomers w ot egotte or some stdrd

86 server; the w smp stop ssg RFPs d sorce some portos o ther workod

reqremets rom the cod. Thereore, hrdwre vedors w ot see ther compettors

wg these des. The corporte dt ceter hrdwre mrket w smp ever

recover rom the ecoomc dowtr o 2008 to 2009. Hrdwre vedors eed to det

ew che pproch or the cresg vomes reqred cod provders. new

prtershps wth vrtzto too d PS techoog stck vedors w hep ee ths

ew css o hrdwre ses.

Iest i hostig portoio maagemet, messagig, ad positioig. The provsogo hostg cptes s der vse prce pressre the emergg cod er. athogh

m cstomers trst ther crret hostg provder d ve the og-term retoshp,

the w ook t prce-edg iS oergs d chege ther trdto provder o ths

ss. Hostg provders hve to vest revsed go-to-mrket pproch, sttg cer

where the ocs d where the do ot. The hve to edcte ther cstomers og

Forresters cod comptg toom d prevet them rom comprg ppes d

orges. Eterprse-css servces c ret the cstomer dvtge the dd ve o

top o iS oergs rom pc cod compettor, s Cpgem s dog wth ve-dd

pproch o top o amzos Estc Compte Cod (EC2).14

EnDnOTES

1 Forrester introduced the concept o Smart Computing in December o 2009. See the December 4, 2009,

Smart Computing Drives Te New Era O I Growth report.

2 Forresters denition o cloud computing is very close to the widely used denition o the National Institute

o Standards and echnology (NIS). However, the ocus is clearly on the level o standardization and

the consumption models. See the September 9, 2009, Best Practices: Inrastructure-As-A-Service (IaaS)

report.

3 Forrester is currently exploring in multiple reports the I-to-B shi or CIOs. However, we predicted

this challenge earlier or vendors that have to prepare their positioning in time to address the shied

expectations o buyers. For the initial introduction o the impact to vendor positioning, see the January 16,

2008, Introducing Forresters Vendor Positioning Review report.

4 In Forresters Enterprise And SMB Soware Survey, North America And Europe, Q4 2009, we askedrespondents rom 1,007 enterprises with 1,000 or more employees the ollowing question: How important

are the ollowing soware initiatives in supporting your rms current business goals? Tirty-one percent

o the respondents said that increasing the use o soware-as-a-service (SaaS) or other cloud services

was a very high or high priority. Sixty-eight percent o the same group said that they will consolidate or

rationalize enterprise applications. Virtualization technologies are signicantly helpul to achieving this

goal. See the February 12, 2010, Te State O Enterprise Soware And Emerging rends: 2010 report.
http://www.forrester.com/go?docid=55157&src=57232pdfhttp://www.forrester.com/go?docid=48378&src=57232pdfhttp://www.forrester.com/go?docid=43785&src=57232pdfhttp://www.forrester.com/go?docid=55802&src=57232pdfhttp://www.forrester.com/go?docid=55802&src=57232pdfhttp://www.forrester.com/go?docid=43785&src=57232pdfhttp://www.forrester.com/go?docid=48378&src=57232pdfhttp://www.forrester.com/go?docid=55157&src=57232pdf


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16

5 Forrester denes digital natives as individuals who were born in the late 1990s, having been raised in a

world in which Internet and mobile were commonplace. See the April 26, 2007, European Mobile Youth

Consumer Survey, 2007 report.

6 Forrester predicts that consumer expectations will change. Work- and private-lie related applications and

data should be accessible together rom a single mobile device or desktop or any other device. See the July 6,

2009, Te Personal Cloud report.

7 For Forresters introduction to the danger o cloud washing, see the July 24, 2009, How o Message Cloud

Oerings And Not Get Lost In Te Fog report. For a description o the challenge to an initial version o

Forresters cloud taxonomy, see the July 30, 2009, Yet Another Cloud report.

8 For a detailed analysis o the platorm-as-a-service (PaaS) market size and a maturity model o the soware-

as-a-service (SaaS) market, see the July 13, 2009 Platorm-As-A-Service Market Sizing report, and see the

August 14, 2008 Forresters SaaS Maturity Model report.

9 Scenario planning is a relatively old strategy tool. However, its not easy to apply it to current vendor

strategy challenges successully. For best practices, see the January 26, 2010, Scenario Planning Successully

Applied report.

10 echnically, a server o a virtual private cloud appears, or example, within a corporate data center with

an IP number o the data center, and with knowledge o user identities rom the corporate LDAP or AD

repository. Tis might require some virtual private network (VPN) and manual conguration eorts or the

rst subscription o this kind o virtual inrastructure. However, it should not impede the elasticity and sel-

service mentality o the nal business model.

11 For an initial discussion o collaborative cloud business models, visit Holger Kiskers blog post on the topic.

Source: Holger Kisker, Te Rise O Te Collaborative Cloud, Holger Kiskers Blog, September 10, 2009

(http://blogs.orrester.com/holger_kisker/09-09-10-rise_collaborative_cloud).

12 For Forresters introduction o the concept o cloud/legacy integration and cloud orchestration, see the

December 30, 2009, Market Overview: Te Middleware Soware Market, 2009 report.

13 Forrester identied the business applications, middleware soware, I services, and the hardware business

as the our major centers o todays I industry. See the April 22, 2009, Oracles Sun Acquisition Is A Game

Changer report.

14 Source: Capgemini Makes Cloud Computing or the Enterprise a Reality with Amazon Web Services,

Capgemini press release, November 18, 2008 (http://www.us.capgemini.com/services/serv_pressrelease.

asp?ServID=6&ID=718).
http://www.forrester.com/go?docid=52820&src=57232pdfhttp://www.forrester.com/go?docid=52820&src=57232pdfhttp://www.forrester.com/go?docid=54839&src=57232pdfhttp://www.forrester.com/go?docid=45074&src=57232pdfhttp://www.forrester.com/go?docid=45074&src=57232pdfhttp://www.forrester.com/go?docid=54907&src=57232pdfhttp://www.forrester.com/go?docid=47483&src=57232pdfhttp://www.forrester.com/go?docid=46817&src=57232pdfhttp://www.forrester.com/go?docid=56031&src=57232pdfhttp://www.forrester.com/go?docid=56031&src=57232pdfhttp://www.forrester.com/go?docid=47591&src=57232pdfhttp://www.forrester.com/go?docid=54504&src=57232pdfhttp://www.forrester.com/go?docid=54504&src=57232pdfhttp://www.forrester.com/go?docid=54504&src=57232pdfhttp://www.forrester.com/go?docid=54504&src=57232pdfhttp://www.forrester.com/go?docid=47591&src=57232pdfhttp://www.forrester.com/go?docid=56031&src=57232pdfhttp://www.forrester.com/go?docid=56031&src=57232pdfhttp://www.forrester.com/go?docid=46817&src=57232pdfhttp://www.forrester.com/go?docid=47483&src=57232pdfhttp://www.forrester.com/go?docid=54907&src=57232pdfhttp://www.forrester.com/go?docid=45074&src=57232pdfhttp://www.forrester.com/go?docid=45074&src=57232pdfhttp://www.forrester.com/go?docid=54839&src=57232pdfhttp://www.forrester.com/go?docid=52820&src=57232pdfhttp://www.forrester.com/go?docid=52820&src=57232pdf


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