Showing posts with label Dave Linthicum. Show all posts
Showing posts with label Dave Linthicum. Show all posts

Monday, June 14, 2010

Top Reasons and Paybacks for Adopting Cloud Computing Sooner Rather Than Later

Transcript of a BriefingsDirect podcast on how adopting cloud computing models can lead enterprises to gain business and technology benefits.

Listen to the podcast. Find it on iTunes/iPod and Download the transcript. Sponsor: HP.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you’re listening to BriefingsDirect. Welcome to a sponsored podcast discussion on identifying the top reasons and paybacks for adopting cloud computing.

Like any other big change affecting business and IT, if cloud, in its many forms, gains traction, then adopters will require a lot of rationales, incentives, and measurable returns to keep progressing successfully. But, just as the definition of cloud computing itself can elicit myriad responses, the same is true for why an organization should encourage cloud computing.

The major paybacks are not clearly agreed upon, for sure. Are the paybacks purely in economic terms? Is cloud a route to IT efficiency primarily? Are the business agility benefits paramount? Or, does cloud transform business and markets in ways not yet fully understood?

We'll seek a list of the top reasons why exploiting cloud computing models make sense, and why at least experimenting with cloud should be done sooner rather than later. We have assembled a panel of cloud experts to put some serious wood behind the arrow leading to the cloud.

Please join me now in welcoming Archie Reed, HP's Chief Technologist for Cloud Security and the author of several publications including The Definitive Guide to Identity Management and a new book, The Concise Guide to Cloud Computing. Welcome back to the show, Archie.

Archie Reed: Thanks very much, Dana.

Gardner: We're also here with Jim Reavis, executive director of the Cloud Security Alliance (CSA) and president of Reavis Consulting Group. Welcome back to you too, Jim.

Jim Reavis: Pleasure to be here, Dana.

Gardner: And we are also here with Dave Linthicum, Chief Technology Officer of Bick Group and also a prolific cloud blogger and author. Welcome back to you as well, Dave.

Dave Linthicum: Thanks for having me, Dana.

Gardner: Let me go first to you, Jim, and then to Archie. At the RSA Conference, the CSA and HP announced some findings around "Seven Deadly Sins" for cloud adoption. Tell us a little bit about those Seven Deadly Sins, some of the negative issues, before we delve into some of the positive, some of the perhaps heavenly delights of cloud, if you will.

Foregone conclusion

Reavis: Thanks, Dana. The reason we produce these threat listings and do everything we are doing at CSA is that we believe that adopting cloud is a foregone conclusion. We're going to be spending a lot of time on this webcast talking about the benefits. So, it’s to help people do it in the most appropriate and secure way.

You can find the full listing of the Seven Deadly Sins at website, under "Top Threats." I'm not going to list them all in detail. We found that, when you think about going to the cloud, it’s not just security issues that enterprises are concerned about, but rather compliance. A lot of the transparency issues on what your provider is doing becomes something that we want to think about and be really concerned about.

Data is something that we identified as a key threat issue. You want to know where your data is. You want to know how it’s being controlled. You want to prevent it from being leaked or lost completely. Obviously, that goes with any type of computing, but it's certainly something, as we move to this new model, that you want to understand and be concerned about.

We certainly don’t think what we produced was alarmist, but rather to help people adopt cloud.

Then, there's just a variety of things where we want to understand how bad guys will start using the cloud, what new specific issues there are, and when we have the shared infrastructure, how bad people might be able to get in in some way or another and use some form of privilege escalation through virtualization or other sorts of techniques to be able to move into areas where they aren’t allowed.

It’s definitely food for thought. It’s part of your whole risk-management process, when you think about how to take a certain business initiative and use a certain cloud system to accomplish that goal. That’s the whole point of it, and we've gotten pretty good feedback. We certainly don’t think what we produced was alarmist, but rather to help people adopt cloud.

Gardner: Archie Reed, a lot of companies that I've talked to are trying to do this cost-benefit analysis about cloud and what they should be doing. In order to understand that, you have to look at what you need to do to prevent the risks from getting out of hand, but you also need to know about what you get in return for doing it well.

Let’s look at this cost-benefit analysis. We have a good sense of some of the negatives, what you need to do, and some of the investments. What are some of the high-level potentials? What are the paybacks that would balance out some of those risks and investments?

Reed: Thanks, Dana. Just to reiterate what Jim said previously around the Seven Deadly Sins, in order to understand what the cost benefits are, what the impact to an organization is going to be, you have to be aware of the risk analysis you are going to undertake that feeds into a cost-benefit analysis.

I just want to make a couple of points about the top threats, as we lead into these things. First off, it was all about awareness or enlightenment. Given the tone of our discussion today, the key was, as Jim said, not to be alarmist, but to create awareness.

If you don’t understand what’s going on inside the cloud environment that you're using, be it public or private, or some hybrid of those things, then you can't really get the benefits that you're looking for, because you haven’t taken into account the overall risks that are associated with that.

The same risks

nterestingly, when we look at this list, if we received any criticism for it at all, it was that it presents the same risks that any large, outsourced business service might encounter. Fundamentally, you need to follow good security practices.

So, when we go into all of this discussion around what is the benefit, we need to do our standard risk analysis. There’s nothing too much that's new here, but what we do see is that when you get to the cloud and you're doing that assessment, it comes down to agility.

Agility, in this sense, has the dimensions of speed at scale. For businesses, that can be quite compelling in terms of economic return and business agility, which is another variation on the theme. But, we gain this through the attributes we ascribe to cloud -- things like instant on/off, huge scale, per-use billing, all the things we tried to achieve previously but finally seem to be able to get with a cloud-computing architectural model.

The risks may go down, if it’s a private environment.

If we're going to do the cost-benefit analysis, it does come down to the fact that, through that per-use billing, we're able to do this in a much more fine-grain manner and then compare to the risks that we are going to encounter as a result of using this type of environment. Again, that's regardless of whether it’s public or private. The risks may go down, if it’s a private environment.

Factoring all those things in together, there's not too much of a new model in how we try to achieve this justification and gain those benefits.

Gardner: Dave Linthicum, we've talked about this a bit in the past and one of things that was memorable in talking with you is that you seem to think that we shouldn’t look at cloud computing through a cost savings lens. It may not even be cheaper or more cost efficient, but you had other, more pressing reasons for moving into the cloud.

First, if I'm correct, explain your rationale on the cost issue and then also what you think are some of the top motivators?

Linthicum: The mistake that a lot of people make is that they go directly for the OPEX versus CAPEX cost. In other words, they're sick of buying waves and waves of servers for their data centers and sick of paying co-los and all those sorts of things. They really want to get into a "pay per drink" cost model in how they consume compute cycles, storage, and all the other things that are kind of innate to the data center.

One of the issues is that public cloud computing providers typically -- and sometimes private cloud computing infrastructure that you set up -- are going to be more expensive than a lot of existing infrastructures. That’s misunderstood out there, unless you are like me and for the last two years have done the analysis over and over again.

However, the notion of business agility, which I heard mentioned, is really where the money is made. It's the ability to scale up and scale down, the ability to allocate compute resources around business opportunities, and the ability to align the business to new markets quickly and efficiently, without doing waves and waves of software acquisitions, setups, installs, and all the risks around doing that. That's really where the core benefit is.

If you look at that and you look at the strategic value of agility within your enterprise, it’s always different. In other words, your value of agility is going to vary greatly between a high tech company, a finance company, and a manufacturing company. You can come up with the business benefit and the reason for moving into cloud computing, and people have a tendency not to think that way.

Innate risks

The point I already made -- and I agree with the guests -- is that you have to weigh that benefit in line with the innate risks in moving to these platforms. Whether or not you are moving from on-premises to off-premises, on-premies to cloud, or traditional on-premises to private cloud computing, there’s always risk involved in terms of how you do security, governance, latency, and those things.

Once you factor those things in and you understand what the value drivers are in both OPEX and CAPEX cost and the trade-offs there, as well as business agility, and weigh in the risk, then you have your equation, and it comes down to a business decision. Nine times out of ten, the cloud computing provider is going to provide a more strategic IT value than traditional computing platforms.

Gardner: Going back to you, Jim, when we think about the benefits of cloud in general, it seems that most people gravitate to this as a way in which we can recast IT processes and functions. But, in a lot of ways, I think there’s just as much interest around using the cloud as a way of reaching audiences, providing services, linking up partners in an ecosystem or process marketplace in ways that hadn’t been possible before.

Do you think it’s a good idea for us to not just think about cloud as a benefit to efficiency and transformation at the IT level, but that in gaining cloud expertise, there's the opportunity to do things vis-à-vis supplying your customers, finding your customers, and even in joining with suppliers in a new way?

Reavis: I'd agree with that, and it echoes a little bit of what Dave has said. When you think about economics, what’s the core of economics? It's supply and demand. Cloud gives you that ability to more efficiently serve your customers. It becomes a customer-service issue, where you can provide a supply of whatever your service is that really fits with their demand.

Their business would not have been able to exist in the earlier era of the Internet. It’s just not possible.

Ten years ago I started a little minor success in the Internet dot-com days. It was called You all remember something called the "Slashdot effect," where a story would get posted on Slashdot and it would basically take your business out. You would have an outage, because so much traffic would go your way.

We would, on the one hand, love those sorts of things, and we would live in fear of when that would happen, when we would get recognition, because we didn’t have cloud-based models for servicing our customers. So, when good things would happen, it would sometimes be a bad thing for us.

I had a chance to spend a lot of time with an online gaming company, and the way they've been able to scale up would only be possible in the cloud. Their business would not have been able to exist in the earlier era of the Internet. It’s just not possible.

So, yeah, it provides us this whole new platform. I've maintained all along that we're not just going to migrate IT into the cloud, but we're going to reinvent new businesses, new business processes, and new ways of having an intermediary relationship with other suppliers and our customers as well. So it’s going to be very, very transformational.

Gardner: Similar question to you, Archie. When HP looks at the potential for cloud in its own right as a company, I should think that there is a lot of interest and efficiency for delivering services and providing a cloud capability for that. You've already got a lot of software-as-a-service (SaaS)-based services for application lifecycle management, and test and dev, and so forth. How do you see the difference between cloud as it affects IT and then cloud as it affects business?

Outcomes are core

Reed: At HP, when we talk to customers and even try to evaluate internally, we talk about this thing called business outcomes being core to how IT and business align. Whether they're small companies or large companies, it's providing services that support the business outcomes and understanding that ultimately you want to deliver.

In business terms, it's more processing of loan requests and financial transactions. Then, if that’s the measure that people are looking at what the business outcomes need to be, then IT can align with that and they become the service provider for that capability.

We've talked to a lot of customers, particularly in the financial industry, for example, where IT wasn’t measured in how they cut costs or how much staff they had. They were measured in incremental improvements on how many advances could be made in delivering more business capability.

In that example, one particular business metric was, "We can process more loans in a day, when necessary." The way they achieved that was by re-architecting things in a more cloud or service-centric way, wherein they could essentially ramp up, on what they called a private cloud, the ability to process things much more quickly.

Now, many in IT realize -- perhaps not enough, but we're seeing the change -- that they need to make this toward the service oriented architecture (SOA) approach and delivery, such that they are becoming experts in brokering the right solution to deliver the most significant business outcomes.

That becomes the latency that drives the lateness of the business process changes that need to occur within the enterprise.

The source of those services is less about how much hardware and software you need to buy and integrate and all that sort of thing, and more about the most economical and secure way that they can deliver the majority of desired outcomes. You don’t just want to build one service to provide a capability. You want to build an environment and an architecture that achieves the bulk of the desired outcomes. Does that make sense?

Gardner: Sure. Dave Linthicum, we talked about agility, let’s see if we can unpack that a little bit and get a little bit more detail. That’s kind of a general umbrella topic or a moniker.

When we think about business process, if you're focused at the business process level, and I think that’s what Archie was alluding to, rather than the supporting infrastructure or the applications, if we start composing business processes from services, rather than discrete applications, it seems to me we gain an opportunity to be responsive. That is to say, a business process can be examined and then perhaps some data analysis can be applied. Then, we can ask how do we do that better.

Does cloud computing allow us to then adjust a business process or even come up with innovations built upon existing processes in ways that traditional IT simply can’t or just can’t within the necessary time frame?

Linthicum: Yes. The latency that people are running into in traditional IT is not really aligning the business processes, because usually they have the ability to do that in one way or form, either in composites or a true business process layer, which already exists. It’s the ability to stand up the services that they need in terms of storage, compute, different things like risk analytics in the financial market, and how all those things basically tie together. That becomes the latency that drives the lateness of the business process changes that need to occur within the enterprise.

Additional capabilities

Cloud computing will provide us with some additional capabilities. It's not necessarily nirvana, but you can get at compute and you can get at even some of these pretty big services. For example, the Predictive API that Google just announced at Google I/O recently is an amazing piece of data-mining stuff that you can get for free, for now.

The ability to tie that into your existing processes and perhaps make some predictions in terms of inventory control things, means you could save potentially a million dollars a month, supporting just-in-time inventory processes within your enterprise. Those sorts of things really need to come into the mix in order to provide the additional value.

Sometimes we can drive processes out of the cloud, but I think processes are really going to be driven on-premises and they are going to include cloud resources. The ability to on-board those cloud resources is needed to support the changes in the processes and is really going to be the value of cloud computing.

That the area that’s probably the most exciting thing. I just came back from Gluecon in Denver. That is, in a sense, a cloud developers’ conference, and they're all talking about application programming interfaces (APIs) and building the next infrastructure.

When those things come online, become available, and we don’t have to build those things in-house, we can actually leverage them into a "pay per drink" basis through some kind of provider, buying those into our processes. We'll perhaps have thousands of APIs that exist all over the place, and perhaps even not even local data within these APIs.

That’s where the value of cloud computing is going to appear, and we haven’t seen anything yet. There are huge amounts of value being built right now.

They just produce behavior, and we bring them together to form these core business processes. More importantly, we bring them together to recreate these core business processes around new needs of the business.

Reed: It's the same for me. I was also at Gluecon this week, and there were several threads going on. Certainly the API thread was fascinating in terms of the sheer number of APIs that were being created and the various approaches being used in those things.

At the same time, one of the other tracks was on a whole set of concerns around the legal and security risks associated with piecing all this together. As it was the developers’ conference, the legal thread was less attended than the API thread. But, there is obvious concern about how all these things piece together, how we put the controls in place, and where we get those services from.

I definitely agree with Dave that some of the core processes, especially for larger and more security-sensitive organizations that consider their core IT to be their business processes, are going to be maintained internal to the organization. Some may be willing to put them out, but in majority of cases, we find people want to retain the IT internally.

But being able to reach out through those APIs in a safe and secure way, controlled way, to get data, analysis, and capabilities from within the cloud is definitely where we are headed. That Google analytics stuff is one example.

Internal or external

We've already seen in terms of analysis tools, the GIS stuff, geographical information, where people are just putting maps up and overlaying stuff. The data may be internal to them, but the capability of drawing a map and getting the geographical data comes from outside, and that’s created incredible types of what we call mashups, such that we expect and have seen in some cases.

Businesses are now doing their own mashups and they only get there by understanding how all these APIs, these security tenants, these legal requirements, come together. In some cases, they're ignoring those for expediency today, but ultimately the management of those things is going to be key here.

Linthicum: Just a short comment on that. One of the things that was not a message that was well received at Gluecon, being a bunch of developers, was that you need to do your stuff in the context of a good security strategy and a good governance strategy. So, how you are going to leverage these systems and policies and usage you put around it? That really becomes the core problem to solve before you go off and make this happen.

I don't know if you saw my keynote presentation I did the first day of the conference, but I went into a lot of those things. When I talked to some of the attendees, I noticed that really wasn’t well understood or even well received.

That’s a tad scary, because they're driving out in the market, creating and leveraging these APIs. In many instances, they're ungoverned. They're insecure. We don’t know exactly what they're doing, and they actually can create some vulnerabilities, which will open the risk that costs way more than any kind of benefits we're getting from cloud computing.

I think it requires them to translate their governance concepts and their controls into a new environment. It's going to take some real thinking to do that.

Gardner: Jim Reavis, let’s look into governance a bit. When companies start exploring more business process and agility efficiencies around cloud, they get exposed in ways that they wouldn’t if they were locked down inside their four walls.

But, becoming exposed, sharing data, exploring and using APIs from other parties, doesn’t this, in a sense, force these companies to adopt better methods and policies and start thinking about things that they probably should have been doing anyway? The question is, does cloud, by its nature, force organizations to become better at things like governance, policies, and best practices?

Reavis: I think it requires them to translate their governance concepts and their controls into a new environment. It's going to take some real thinking to do that.

I was one of the three, I guess, who didn’t go to Gluecon. So, thanks Dave and Archie for not inviting me. I guess it's because they're authors and I just read cartoons all the time, but I think the points there are very well made.

We're going to see the market provide the SOA governance and brokering tools that allow you to control a lot of these things and give the customer the ability to put in XAML, for example, and create some policies that they can embed and have some brokering involved, so that when the developers are out trying to create these mashups with a variety of different APIs, they can insert some sort of policy governance and have that look like another SOA-type service.

Frameworks and tools

We're not trying to dictate to the developers completely how they develop these new applications, but we are giving them some frameworks and tools that they can embed in the way they understand things, in the way they like to do business.

I want to quickly mention, though, that we've got a huge history behind us that tells us that internal networks are not locked down and secured. Having data on 100,000 machines, laptops, and every place else that has no controls over it, is a pretty perilous place to be.

Now, we understand that we're moving to a new platform. Let’s do our best to control that, but let’s try and deflate little bit that traditional IT is more secure than cloud. I'm really not ready to say that.

Reed: There are a couple of points I want to make, so that we're sure we're not just hand waving and all that. I think the incentives, the risks, and all those things change dependent on the type of business we're looking at.

Ultimately, it does require that you shore up a lot of your security and governance processes within organizations that probably don’t do security and governance processes as well as they think they do.

Certainly, when we talk to smaller organizations and mid-sized organizations as well, they're looking for the edge that they can gain in terms of cost and support and, in most cases, more security. In this case, they look for broader back-office solutions than perhaps some of the larger organizations, things such as email, account management, HR, and so forth, as well as front-end stuff, basic web hosting and more advanced versions of that.

We've implemented things like Microsoft Business Productivity Online Suite (BPOS) for many customers, especially in the mid range. They do find better support, better up time, better cost controls, and to Jim’s point, more security than they are able to provide for themselves.

When we get to talk to larger organizations, some are looking for this. We know, even in the financial industry, which you might consider to be one of the most security paranoid type environments there are outside of the three-letter agencies, they find that kind of thing appealing as well. Some of those have actually gone to use for some of their services.

But, they're generally more concerned with the security stuff and they often find specific capabilities more appealing in a service model, such as data processing, data analysis, data retrieval, functional analysis, and things like that. The mashups are definitely more popular as a type of model or the service-oriented nature is more popular model with larger organizations that we talk to.

Gardner: What do you think Dave Linthicum? Is there an under-appreciated value to cloud in that, in moving to cloud models, you have to adopt the right processes around security, governance, and other risk mitigating activities that makes you a stronger, better company overall. That is to say, cloud is like New York -- if you can make it there, you can make it anywhere?

Linthicum: Ultimately, it does require that you shore up a lot of your security and governance processes within organizations that probably don’t do security and governance processes as well as they think they do.

Huge exposures

In some of the audits that I do, I often find huge exposures in how they do the on-prem systems. As they're moving into cloud, they push back on the security aspects of it all the time, and people are walking off on a daily basis with laptops full of customer data, critical data, and their IT. They just don’t understand it, because they don’t have the audits, the best practices, and the security mechanisms around that.

Moving into cloud is going to make people think in a very healthy, paranoid state. In other words, they are going to think twice about what information goes out there, how that information is secured and modeled, what APIs they are leveraging, and service level agreements (SLAs). They're going to consider encryption and identity management systems that they haven’t done in the past.

In most of the instances that I am seeing deploying cloud computing systems, they are as secure, if not more secure, than the existing on-premise systems. I would trust those cloud computing systems more than I would the existing on-premise systems.

That comes with some work, some discipline, some governance, some security, and a lot of things that we just haven’t thought about a lot, or haven’t thought about enough with the traditional on-premise systems. So, that’s going to be a side benefit. In two years, we're going to have better security and better understanding of security because of cloud.

Gardner: So, as we're now looking for even more benefits, paybacks, and improvements to your overall business by being a cloud adopter, how about at the competitive level? It seems to me that there are benefits to first movers.

In terms of first mover, late to market, or fast follower, there’s always a potential risk and benefit to any of those things.

It's been established by some of the best management consultants and business schools in the world that being the first to a market gives you very powerful benefits. Does cloud offer the opportunity for those who are willing to do the work and be aggressive and innovative an opportunity to enter markets in new ways?

One example is Apple computer. Apple has been aggressive. They don’t talk about cloud, but when you look at MobileMe, iTunes downloads, and the App Store, these to me are cloud-based services that have allowed Apple to grow mightily in the past few years, not just based on their devices, but based on their use of cloud.

So, there’s a first-mover advantage. Do you all agree -- and we will go around the panel -- that there’s a competitive benefit, at least for the foreseeable future, in your own markets, as enterprises have exploited cloud as a competitive cudgel. How about that, Archie?

Reed: In terms of first-mover, late-to-market, or fast-follower, there’s always a potential risk and benefit to any of those things. I agree that perhaps Apple has benefited, but I wouldn’t call them first movers in this space. I would say that they have been fast followers.

By that, I mean that even if you look at iTunes or the iPod itself, those things came after existing services already were in place. What they were able to do, if we take that as an example, was tie those together into an ecosystem that basically created their momentum to move forward.

Scaling really fast

The reality is not that the advantage is being able to be the first mover in cloud computing, but the fact that cloud allows you to scale and go big really fast. It allows you to sit in the fast-follower position and gain just as much as any first mover, because the gap between seeing a business opportunity and being able to deliver on that requirement or business opportunity is so much less than what it was previously.

You don’t have to ramp up huge amounts of services that take months. You can scale up in a matter of hours or days. As long as the wave isn’t so huge, and it rarely ever is, you can always get into that market space using this type of model.

Gardner: I'd like to pick up on one of the points you made about being able to establish an ecosystem. If you're exploiting cloud effectively, does that give you an advantage in how you can carve out an ecosystem, become a hub, and therefore be in a very profitable position within that ecosystem?

Reed: I'll take a quick stab at that. I think there's going to be a window for a number of years where that is the case. There will be businesses that are willing and able and can manage cloud-type environments to their benefit. But, eventually, the gaps become so small and the availability of these services online becomes so ubiquitous that I'm not sure how long this window goes for.

I don’t want to say that, in a few years, everybody will be able to deliver the same thing just as quickly. But for the moment, I think there’s a few forward thinking organizations that will be able to achieve that to great success.

There are going to be a lot of new capabilities that will only be accessible in this platform, and they're going to come a lot quicker.

Gardner: Jim Reavis, same to you. What about the competitive benefits that businesses should consider when evaluating cloud in terms of that cost benefit analysis?

Reavis: Businesses are so dependent on technology now and into the future, and we always try to stay innovative and competitive. If you just look at this from a developer standpoint, you don’t see a lot of new applications for the Commodore 64 anymore.

The organizations that are developing what they think is state-of-the-art, but it’s not cloud, are going to be struggling, because all of the neat, interesting new developments. It’s hard to even put your head around all of implications of compute-as-a-utility and all the innovation we are going to see, but we know it’s going to be on that platform.

If you think of this as the new development platform, then yeah, it’s going to be a real competitive issue. There are going to be a lot of new capabilities that will only be accessible in this platform, and they're going to come a lot quicker.

Five years from now

So, in terms of the first movers and the environment now, it’s going to look very different. Anybody who carved out some space right now and some lead in the market in cloud shouldn't feel too comfortable about their position, because there are companies we don't even know about at this point, that are going to be fairly pervasive and have a lot to say about IT five years from now.

Reed: I just want to make a point there, Jim. You can actually get a Commodore 64 emulator for the iPhone. So, there may be some new stuff coming up. I'm not sure, but it is possible.

Gardner: Yeah, there is the long tail in reverse. It’s backward-compatibility from the cloud.

Dave Linthicum, same question to you, the competitive benefits of being aggressive in cloud computing at some of the highest business issue levels.

Linthicum: We already talked about the business agility aspect of it, but ultimately, even as these younger companies who are leveraging more cloud than a lot of the older companies out there start to grow up, they are going to find that their IT CAPEX costs are, in many instances, nonexistent.

They are going to have some on-premise systems, but they are used to putting things in the cloud. They are adopters early on. They're using Amazon now. They've figured out security and governance and ultimately they are going to have these very agile business systems that are able to run rings around their competition.

Some of the things we always talk about around enterprise architecture are going to kill the company, because they can’t do the acquisitions and they can’t move into market spaces.

I don’t think we're going to see this anytime soon, but I definitely think that by 2015 or 2016, you're going to see some businesses suffering from IT bloat. They're very static, monolithic systems, very difficult to change, and very fragile. Some of the things we always talk about around enterprise architecture are going to kill the company, because they can’t do the acquisitions and they can’t move into market spaces.

By the way, their new competitors that came out of nowhere get cloud computing because they've used it from the get-go. They're going to be able to leverage that as the strategic value that’s going to allow them to dominate the market. We're seeing some of this today in some of the smaller spaces, but it’s not very pronounced.

But, it’s going to be very pronounced to the point that business journals are going to talk about it, and a lot of companies are going to go out, because some of the folks are able to leverage technology for strategic IT advantage to beat them into the ground. Look at Wal-Mart. They leveraged IT for a huge strategic advantage to beat their competitors into the ground to lower their prices. We're going to see that a hundred times over in five years.

Reed: I'd agree. I can give you an example, Dana. I spoke to a very small group of individuals, fewer than 50. They're designers and architects, and they've come together to form this company. Their claim was that they didn’t need any IT anywhere, because they were using cloud services for everything.

Even the provisioning system, the controls about who had access to what, was all done in the cloud. All they needed was their big old Macs, the 27-inch Macs, and their huge HP screens. As long as they could get online, they were in business.

This small company's claim, when I was talking to them, was that they had just beaten out the largest established architectural firm in Ireland for a bid in Dublin. They had done that by being able to work round the clock, online, at all times, and deliver it to the customer in a much shorter time than anyone else was able to. They did it all through cloud services.

So, it’s quite compelling to see small businesses compete with the larger businesses, and unless big businesses understand what’s going on, we're going to see a few start to lose business in this sense.

Gardner: Well, I'm afraid we'll have to leave it there. Suffice it to say that we've clearly identified in the market, over the past several years, some significant hurdles and risks to cloud computing. But, some of these benefits also sound extremely compelling and almost not an option, when you consider the competitive issues. That cost-benefit analysis can easily come down on the side of a must-do, even if the risks are substantial.

We've been talking about identifying some of the top reasons and paybacks for adopting cloud computing and why you should perhaps do those sooner rather than later.

I want to thank our panel. We've been joined by Archie Reed, HP’s Chief Technologist for Cloud Security and the author of several publications including "The Definitive Guide to Identity Management" and "The Concise Guide to Cloud Computing." Thank you so much, Archie.

Reed: Thank you.

Gardner: We've also been joined by Jim Reavis, executive director, Cloud Security Alliance and president of Reavis Consulting Group. Thank you Jim.

Reavis: Thanks, Dana.

Gardner: Lastly, I also want to thank Dave Linthicum, CTO of Bick Group and a prolific cloud blogger, podcaster, and you said that you did your 100th cloud podcast recently Dave?

Linthicum: Just filed a 100th podcast, after two years.

Gardner: Congratulations. And also the author of several notable books. Thanks to you.

This is Dana Gardner, Principal Analyst at Interarbor Solutions. You've been listening to a sponsored BriefingsDirect podcast. Thanks for listening and come back next time.

Listen to the podcast. Find it on iTunes/iPod and Download the transcript. Sponsor: HP.

Transcript of a BriefingsDirect podcast on how adopting cloud computing models can lead enterprises to gain business and technology benefits. Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.

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Monday, April 05, 2010

BriefingsDirect Analysts Pick Winners and Losers of Cloud Computing's Economic Disruption and Enterprise Impact

Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 51 on the impact of economics and business model disruption from cloud computing.

Listen to the podcast. Find it on iTunes/iPod and Download the transcript. Charter Sponsor: Active Endpoints.

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Dana Gardner: Hello, and welcome to the latest BriefingsDirect Analyst Insights Edition, Volume 51. I'm your host and moderator Dana Gardner, principal analyst at Interarbor Solutions.

This periodic discussion and dissection of IT infrastructure related news and events, with a panel of industry analysts and guests, comes to you with the help of our charter sponsor, Active Endpoints, maker of the ActiveVOS business process management system.

Our topic this week on BriefingsDirect Analyst Insights Edition, and it is the week of March 8, 2010, focuses on cloud computing and dollars and cents. We'll dive into more than the technology, security, and viability issues that have dominated a lot of cloud discussions lately and move to the economics and the impact on buyers and sellers of cloud services.

When you ask any one person how cloud will affect their costs, you're bound to get a different answer each time. No one really knows, but the agreement comes when the questions move to, "Will cloud models impact how buyers and providers price their technology? And over the long-term what will buyers come to expect in terms of IT value?"

The agreement is that things are about to change, probably a lot and probably for good. The ways in which IT has been bought and sold will never be the same. So how does it become a different model? What comes when we move to a cloud based pay-per value pricing, buying, and budgeting for IT approach? How does the shift to high-volume, low-margin services and/or subscription models affect the IT vendor landscape? How does it affect the pure cloud and software-as-a-service (SaaS) providers, and perhaps most importantly, how do cloud models affect the buy side?

Not many enterprises and their IT budgets are yet set up for this shift. Who is in charge of the budget structure, and the changes, and what does that portend for a corporate power or politics shift around IT procurement?

These are just a few of the easy questions we have for our panel today. Please join me now in welcoming, Dave Linthicum, CTO of Bick Group, a cloud computing and data-center consulting firm. Welcome, Dave,

Dave Linthicum: Hey Dana, thank you for having me on.

Gardner: We're here also with Michael Krigsman. He is the CEO of Asuret and a blogger on ZDNet on IT failures. He also writes analyst reports for IDC. Welcome, Michael.

Michael Krigsman: Hey, Dana, how are you?

Gardner: Very good, thanks. We are also here with Sandy Rogers, an independent industry analyst. Welcome back, Sandy,

Sandy Rogers: Thanks, Dana, great to be here and participating in this timely discussion.

Gardner: Let me take my first question to you, Dave Linthicum. How much change should we expect in terms of IT economics as a result of cloud computing?

More money up front

Linthicum: We're probably going to have to spend more money initially. That's really what the takeaway is from the initial cloud-computing projects that I am involved in. At the end of the day, it's about strategic use of technology. Ultimately, cost reduction should be part of the result, but in getting there, we're going to have to spend additional dollars.

I was listening to your podcast with Peter Coffee, talking about service oriented architecture (SOA) and cloud computing, and he said something that was very profound. The fact of the matter is that, if you're looking for cheap IT, we can give you cheap IT. However, you're not going to be able to keep up with the competitive value that IT needs to bring to your enterprise. To get that competitive value, you're going to have to spend additional money.

The myth is that cloud computing is always going to be less expensive. I think cloud computing typically is going to be a better, more strategic, more agile architecture, but it's also typically going to be more expensive, at least on the outcome.

Gardner: Why is that, why is it more expensive on the outcome?

Linthicum: Because it does require lots of changes. You're going to have to redo your infrastructure, as I write in my book, to leverage newer architectural patterns, such as SOA, and that's typically very expensive to get out and access the services that are available to you on demand, out of the cloud. So that's an expense onto itself.

You're going to have to retrain and re-skill your people within your data center, all the way up into your executive ranks, on what cloud is able to do and how to manage, govern, and secure cloud. You're going to have to pay for the cloud computing providers, which in many instances are going to be less expensive than on-premise systems, but in many other instances are going to be much more costly than on-premise systems.

Ultimately, you get to a much better, higher value strategic architecture which is going to add more value to the business, but it's going to cost you some additional dollars to get there.

People and companies who are strategically thinking typically find cloud computing to be an easy sell.

Gardner: So it seems once again we are asking IT planners and those in charge of IT direction and strategy to make a bet along with the industry, which is to say, you will have to spend upfront but you will get something far better further down the road. Do you think they are receptive to that? Is there enough trust in cloud computing to make that kind of bet?

Linthicum: Some are receptive to that and they understand a long-term strategic direction of the technology can bring value to the business. People and companies who are strategically thinking typically find cloud computing to be an easy sell, and it's something they want to buy to basically add value to the existing IT.

Companies that think tactically, in quarter to quarter expenses, and consider IT kind of an expense that they rather not have to spend money on are going to fall by the wayside within cloud computing. They're just not going to get it.

It's very much like the Internet was in the mid-'90s. Suddenly, it's a big huge deal, and companies that got on board four or five years ago are leading the market, where companies that suddenly were trying to play catch-up football in 1999, 2000, found that the market left them behind. Many of those companies just went out of business, because they didn’t see the wave coming. Cloud computing is going to be very much like that.

Little bit of confusion

Gardner: Sandy Rogers, it sounds like there is a little bit of confusion. Dave Linthicum says it's the strategic long-term thinkers that get cloud and yet some of the discussions that I hear, it's the people who want to get out of the IT business in enterprises that are attracted to cloud. Can you have it both ways?

Rogers: One of the things that Dave noted was the idea of architecture, which is very important. There are particular use cases that are building with respect to leveraging cloud now, yet the technology and the architectures need to mature in order to really think about transitioning all of your IT into the cloud.

It's learning where you're going to need that elasticity, what is the short-term and long-term outlook for the types of solutions that are being built, and -- to Dave’s point -- what might be strategic to your organization in the long run versus what you might need to get tactically out the door.

It's a balancing act. It's one of many options to organizations to turn to cloud, and it's learning when to use it right and then how to use it correctly.

Gardner: So it sounds as if it's possible that some of those people who want to offload things, perhaps a certain set of applications, thinking about SaaS perhaps more than what we might consider pure cloud or infrastructure related cloud, might get what they want, which is to offload apps and maybe cut costs, but the other long-term thinkers, the other strategists could also look architecturally at a cloud and see a much more agile IT capability in the future.

Rogers: Right. Again, it's being able to look at all the different implications, as you scale out, and who are going to be the users of the technology? A lot of the innovation that we see happening on the cloud is really other providers that are starting to build their businesses on the cloud to leverage that partnership and the network that's starting to be created there.

They're learning that there is a web-scale business to be obtained out there, and that's really where we are seeing the biggest innovation.

They're learning that there is a web-scale business to be obtained out there, and that's really where we are seeing the biggest innovation. A lot of the enterprises are going to then learn from those organizations that have to act at web scale and understand which are the right use cases to put out there and how to leverage it.

What is also really interesting to know is that it's more than just technology. It's really transitioning to engage with services and services providers. Those who are attempting to move out there onto the cloud are learning that that is a big piece of the puzzle. Many technology providers have to grow into the role of a service provider.

Gardner: Sandy, we saw a lot of similar promises or expectations around SOA, say four or five years ago -- if you do this, later on you will really benefit. That was a hard sell. Now we're in a recession and we have tight budgets. Isn’t cloud going to be a hard sell as well?

Rogers: In some instances, in the short-term, it's an easier sell for those organizations that are looking very tactically at what they are going to be able to relinquish out of their capital expenditures. But, those who are looking at, "I need to grow, I need to be more agile," they are the ones who are really looking at the long-term benefits of cloud.

Gardner: Michael Krigsman, you've been studying how IT failures manifest themselves and are difficult to understand. When you listen to these discussions about cloud computing and you hear things about shifts in cultures and budgets, no one really knows what the cost implications would be, but we are pretty sure that over time it's going to be better. Do you have any kind of tingles in your antenna, any lights flashing? What do you sense?

Hopes and dreams

Krigsman: Hopes and dreams are always delightful, in a sense, but we've been talking so far about IT value. Dave brought up the notion of cheap IT, and I ask the question, is cheap IT really the goal? I realize that that's not what Dave was proposing, but I think for many organizations there is this tactical sense, as Sandy was saying, to embrace the cloud, because they say, "Our costs are going to go down in this very short-term."

To me, the real question, the longer term strategic question, is "How does this new IT infrastructure map onto our business processes and our business requirements looking forward into the long-term?" There are some mismatches and mismatched expectations in that domain.

Gardner: What happens when we have mismatched expectations?

Krigsman: When you have one group that is expecting certain types of outcomes and results and you have another group that is capable of delivering results that don’t match the first, namely between buyers and sellers, then the end result is predictable failure or disappointment somewhere down the line.

Gardner: With that knowledge and hindsight into other business and IT activities, Dave Linthicum, what do you think we need to do to prevent that potential failure? How do we match expectations of buyers and sellers? How do we accomplish a sense of value throughout the progression to cloud?

First and foremost is to set the expectations as to what the value is going to bring and where the value is going to come from.

Linthicum: First and foremost is to set the expectations as to what the value is going to bring and where the value is going to come from. We've had a tendency to focus on reducing cost over the last few years, with the recession and all, and ultimately cloud computing and SOA is about bringing strategic value back into the business in the form of IT. The ability to align your IT resources to the needs of the business quickly, get into markets fast, delight customers, sell more, and create supply chain integration systems that provide with frictionless commerce is really where the value is in this.

It's not about the number of servers you can save, the number of virtualized systems you can have, or the number of public clouds you can sign up with. It's about moving to that kind of an architecture. The traditional architectures that exist in enterprises today are highly dysfunctional. They're very fragile. They're overly complex. They can't be changed easily, and that puts a limitation on the business.

What we're moving to is something that's much more configurable and agile. Leveraging cloud computing is just a target architecture to get there. It doesn’t necessarily mean that it's going to provide less expensive IT, but it always should bring potential value to the business.

The first thing I do is walk someone through what this really means to your IT architecture, what this really means to the business. And, how this is going to provide value back into the business, both in hard costs, in other words, the dollars and cents around the IT expenditures, which typically may bolt up a bit initially as you do the strategic stuff.

Where the money is

More importantly, the strategic cost, the ability to get more customers, get more supply chains, add more value to the core business is really where the money is made. Those expectations need to be set in the minds of the people who are going to pay the bills, the stakeholders. We are just doing an awful job in that right now.

Gardner: It strikes me that it's hard enough with on-premises IT to get a handle on what your actual costs are. There is the short-term cost. There is cost over time. There are four- to five-year cycles of maturation around technologies. There are the operations and maintenance budgets on top of the initial. It's really hard to ask any enterprise to say precisely what IT costs.

Don’t we muddy the waters even further when we start doing cloud computing in addition to on-premises, hybrid types of models, mixing of on-premise traditional pricing as well as subscription model pricing? Will we lose track of how to even know what IT costs as a result of cloud?

Krigsman: You're talking about muddying the waters and bringing complexity. Complexity exists. It's here today. If you're not able to keep track of your costs and expenses now, and you add in new elements, the situation is going to get worse. But, the situation is pretty bad right now. So, from that standpoint, what's the big deal?

If you're not able to keep track of your costs and expenses now, and you add in new elements, the situation is going to get worse.

Gardner: Is there an opportunity to make it better?

Rogers: In some respects cloud providers, because they are in the business of providing a service, are starting to become much more transparent regarding the usage in order to help their customers make decisions and plan for the future. In a way, the ability to correlate the computing that's being used with what the value is to the business may actually move forward with cloud and put a lot of pressure on those that are providing computing resources on-premise to provide the same kind of metrics.

Gardner: Dave Linthicum, does a service level agreement (SLA) model with a price card the size of a postcard help compared to the licensing and maintenance and other hidden gotchas that companies have been unfortunately accustomed to on the on-premises procurement process?

Linthicum: It actually does help. Even some of the on-premise guys sold services, basically renting software. That was a nice, innovative model. Now, we have the same sort of thing within the cloud computing universe.

The pay-as-you-go model of cloud computing, even though it can be more expensive in many instances, when you really kind of amortize the cost over many years, is something that's attractive to at least United States IT. It's not always to foreign corporations, but definitely in the United States.

We like the pay-as-you-go cable bill kind of thing that we get, and also the ability to turn the stuff off or move away from it, if we need to, without having a big footprint already in the data center and things we need to deinstall and millions of dollars of hardware that we have to sell on Craigslist if the thing doesn’t work out.

The selling point

That becomes a selling point and really is part and parcel of value of cloud computing. But, it also can be the Achilles' heel of cloud computing, because ultimately people are going to make decisions around financial metrics that may not be realistic. If you look at those financial metrics in light of the requirements of the business, in many instances people are buying cloud computing because of the cost model and not necessarily the strategic value it's going to have to the architecture and therefore have to the business.

Gardner: In talking with some folks recently, I've heard them say that the move to cloud computing -- planning and thinking and architecting for cloud computing -- actually helps companies discipline themselves and modernize themselves around security, green and energy costs, governance and management, and even into business process management and people productivity issues. Does that make sense to anyone that there are these other paybacks from cloud computing beyond the dollars

Rogers: What I have seen is that immediately upon speaking about cloud computing, the idea of SOA has been brought up much more. What was very difficult to get across to the business and to varying roles within the IT ecosystem was what SOA and service orientation is all about. Cloud is really giving that use case to organizations, and a better way for them to understand it and embrace it. In that respect, it definitely is moving the bar forward and with a set goal in mind.

Gardner: Wait a minute. So what you are saying is that cloud computing is the killer application of SOA.

Rogers: It always has been when you think about cloud computing in a broader sense. It's really about taking advantage of network resources and services, wherever they exist, and to be able to provide and scale to whatever is necessary to support a business process or business function. It's the sharing of the resources. It's that next step in the shared services model, only at a much grander scale.

There really are no cloud vendors today that I can think of that can support the backbone infrastructure of a large corporation across all the functions.

Gardner: Michael Krigsman, do you see any indications from your work that the conceptualization, even the theory, around cloud computing is helping organizations tidy up areas that have been messy, such as how to make security holistic across IT activities and governance as more of a holistic undertaking? What do you think?

Krigsman: I think that for those processes that are automated with cloud, the cloud vendors have security built-in, for example. From that standpoint, security becomes easier. But, there really are no cloud vendors today that I can think of that can support the backbone infrastructure of a large corporation across all the functions.

You end up today, still having the security problems and so forth, but now your environment is mixed. Some of your functions are in cloud and some are on-premise, and you add it all together and, at least in the short run, there is this greater complexity.

Ultimately, if you had a theoretical vendor that could support a wide range of processes and they had a unified security model and so forth, in that case it would be simpler, but for large organization today, I don't see that simplicity.

Gardner: Dave Linthicum, any thoughts on this notion that cloud computing provides an on ramp to discipline for greater scale across some of these other major challenges, like governance, security, energy consumption, and the business process productivity?

Linthicum: Actually it does. I'm bullish on cloud computing being a catalyst for architectural change and typically for the better. So cloud, to the point just made, is not great at security and governance as of yet, but in many instances it's much better than the current security and governance in lots of these existing enterprises, which is poorly defined or nonexistent.

Improvement model

Ultimately, as people revamp their architectures to leverage cloud, moving into SOA, looking at cloud as an architectural option for bit pieces of parts of their data and parts of their processes, they go through an improvement model.

They go through some architectural changes, create new governance models, and create new security models. They leverage identity management versus simple encryption. They learn to be more secure. If they didn't have a chief security officer, they may now have a one, if they are moving into cloud.

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The target systems that are using cloud computing, the target architectures that are leveraging cloud computing, are almost always more secure than the traditional systems from which they came. That doesn't mean they're completely secure and without issues, especially in the cloud computing side. But, people make logical choices about what pieces of information and what processes to run in the cloud and which ones to run on-premise based on security models, and typically, if they are revamping into a new architecture, they are always going to be more secure and better governed, if the architects know what they're doing.

Gardner: I subscribe to that as well. This is an opportunity for a catalyst, for some of the shifts that we have been looking for, for some time, this sort of pulls it together. It's like the web. As the word pulled people together to understand the Internet, cloud is a word that helps pull people together to understand some of the major shifts in IT across a number of different aspects of IT.

Let's look at some of the shifts. If we move into IT as an organization, in many enterprises, it strikes me that one of the things it's going to have to shift is the way that IT organizations behave and the role that they play. While many IT organizations focus on operations and maintenance as sort of their core reason for being and the procurement and development and customization as an add-on, it strikes me that cloud and the movement to cloud can shift that.

The operations on maintenance side is more of an add-on, and that the role of IT becomes more as the definer of the SLAs, the enforcer and governor and policy manager for what constitutes good computing, while opening up more customization and flexibility and agility to the business users.

The lack of governance that exists today across the industry is pretty startling.

If you subscribe to that, or even if you don't, Michael Krigsman, what are your thoughts, about the shift within IT culture and isn't that an important necessary step to prevent failure as you move towards cloud?

Krigsman: Well, I think that there is no question, as Dave just mentioned, that driving toward cloud changes the architecture and requires proper governance. The lack of governance that exists today across the industry is pretty startling. So, as organizations move in this direction, there is simply no question that the cultural dimension of getting IT to work more effectively with the business side and so forth must drive with it.

If it doesn't, then, in the end, the solutions that are built with cloud will still have the same set of problems from a business standpoint that current IT solutions have today. This has nothing to do with technology. This is a matter of collaboration and communication across these various information silos.

Gardner: So to your company, Asuret, it's important to measure the progress you might be making at that cultural level, if you want to recover the investments that you have made on the technology side?

Data to work with

Krigsman: Regardless of architecture, you need to have data to work with, if you want to make decisions that are the right decisions, not just based on ad hoc guesses, and you want to get people on the same page. This aspect of it has nothing to do with technology, however the drive toward a unified architecture can be a great motivator to get different parts of an organization focused on these very important issues.

Gardner: Sandy Rogers, you worked with a lot of enterprise IT departments back when you were at IDC in another capacity. Do you see them making this cultural shift, and do you think it would be welcomed by IT to move beyond maintenance and red light-green light management into, "Let's define the best way to do IT and then give those tools to the business that they need to succeed?"

Rogers: A lot of organizations have already been trying to do that, but they were constrained by their own internal resources. In a way, it opened up the toolbox for them to help solve and help be a partner of the business.

One thing that we're finding from those cloud service providers that had originally targeted the end business customer, is that they're working with the CIOs and the IT departments more. They're working through those issues of security and having backup contingency plans.

It's just a state of education that varying parties within the IT ecosystem have to come on board and understand how to leverage this.

It's just a state of education that varying parties within the IT ecosystem have to come on board and understand how to leverage this.

One of the biggest points -- and Mike brought up the issue -- if there is a vendor out there that can support all of this, it's still a mixture of different technologies that have to come together. That’s always been one of the biggest, complex roles that IT needs to serve.

Right now, there are a lot of dependencies on specific technologies internally. A lot of organizations do not want to make those same mistakes with external providers. They're really looking to the IT group as an advisor to guide them and help them in the decisions moving forward.

Gardner: Dave Linthicum, in your work with Bick Group, in terms of your customer base, are there any lessons or wisdom to be drawn from how IT perceives itself and may shift in its definition of its role and character as it moves to cloud? Are there any success indicators in terms of the culture?

Linthicum: The culture that can adapt to these changes and understand that the investment in these changes is strategic to the business are really the cultures that are going to win the game.

In moving to cloud computing, the patterns are very similar to the on-premise systems. We store stuff, we have databases, and it's just a matter of where they reside. Through economies of scale, shareability, and also very innovative mechanisms that would be in the cloud, we can get a hand up in the way in which architecture can be constructed.

Evolution not revolution

I'm seeing more of an evolution than revolution. People who are evolving to leverage bits and pieces of their architecture to move into the cloud computing, where it make sense, around the innovative nature of the cloud and embracing what's going to work for them are the ones who win.

The ones who are going to lose are those with the same kind of behavior I saw in the early and mid-'90s, when the web started to pop-up Those who folded their arms and said, "We're never going to have the Internet running in this organization. We're never going to be on the web," ultimately missed out. We're seeing a very similar revolution today.

It's a little different. It's more IT resources versus content, but, in five years, if you go forward, you are going to find that the winning companies are the ones that are more innovative around their IT infrastructure, inclusive of cloud computing.

They're going to be more integrated with their suppliers and more integrated with the vendors and the customers that they are dealing with. Their customers are going to be delighted with them, because the speed of response, they're able to get information to them and able to get their products, goods, and services to them. They're going to be the real winners there.

Those people who have that kind of innovative nature around these changes, can figure out how it functionally works within the enterprise and then how to evolve their architecture in that direction are going to be the winners.

The losers are the arm folders and the guys who push back on any kind of technology that’s out there, without understanding the value of that technology and how it fits in the context of their business.

In five years, you are going to find that the winning companies are the ones that are more innovative around their IT infrastructure, inclusive of cloud computing.

Gardner: I suppose there's another constituency in the enterprise that needs to be brought on board with all of this and that would be the budgeters, those who are in-charge of the money and how its spent and even the planning about how budgets operate and/or change.

The reason I bring that up is that I have a cousin who is an IT executive at a telecommunications company. I can't describe it more than that, given that he doesn’t have permission to talk in public.

One of his frustrations as a IT person is that he wants to go out and explore and experiment with cloud and services, but the budgets don’t have any line items for him to do that. The people he reports to financially don’t like the idea of opening up a whole new set of line items around “cloud” when you can't take from Peter, that being the already existing IT budget, to pay Paul.

So, to your point Dave, you need to spend a little and invest a little more to get somewhere. He doesn’t have the means to get those monies and he is having a hard time explaining to the budget people why they should.

What message can we take in terms of cloud computing for the business accounting, CFO types, whose job of course it is to keep costs as low as possible?

Fundamental point

Krigsman: Can I just make a comment responding both to this and amplifying something that Dave just said. This is a fundamental point -- the cloud computing winners are going to be those who combine architectural vision and discipline with superior governance and who are also capable of making the adaptive cultural and business transformation changes, such as you were just talking about, things like budgeting, for example. Success in the cloud will require a mixture of all of these things together.

Gardner: So, perhaps this is a board-level discussion and not an IT discussion or even a business management or process management or organizational discussion. It has to go pretty much at the top, which I guess is what we used to say about SOA as well.

Rogers: Exactly, One of the things that we saw was that there needs to be a real business case to utilize any new technology and any new architecture. Nothing is really different here. It's really looking into what the organization requires in targeting those use cases that are tested out and tested out when it needs to scale.

Gardner: I suppose another way to get the attention of the board is through the competitive issues. If your competitor does cloud computing really well and you don’t -- you're folding your arms, as Dave says -- what's the likely competitive result?

Dave Linthicum, any thoughts about a bifurcation in the market between those who embrace cloud computing and those who don't, and whether that will get the attention of boards across the board?

I think that they're waiting for 100 companies to be successful with the technology, before they start investing and moving forward. I keep hearing that over and over again.

Linthicum: It's going to be those people who win in the market around cloud computing, very much like -- I keep going back 10 years -- those who won in the web. They're going to really get the attention of the Board. Everybody has a tendency to follow, not necessarily lead. I think that they're waiting for 100 companies to be successful with the technology, before they start investing and moving forward. I keep hearing that over and over again.

It's going to be rather a tough sell within these boards of directors and people who are making critical decisions around utilization and new technologies, strategic technology, inclusive of cloud computing. You really need to lead with the value. You need to understand, there has to be a commitment for return on investment (ROI) from IT.

They need to put some skin in the game, as to the fact that this is going to actually have some kind of a core benefit to the business. And if they are not willing to do that and not wiling to take the risk, I don’t think that the stakeholders are going to sign off on it.

If you are in the IT world today, you need to understand that if you are moving to a new architecture, you have to commit to a certain amount of value that comes back to the business. Typically, it's going to be a five-year horizon in the United States, perhaps a ten year horizon in the Asia-Pacific. But, that has to be shown and that has to be returned. If it's not returned, then ultimately it's going to be considered a failure.

Start now

You need to start committing to this stuff right now and putting some skin in the game, and I think a lot of people in these IT organizations are very politically savvy and want to protect their positions. There are a few of them who want to put that skin in the game right now.

Gardner: Another way that we have seen disruption in the market -- and I'll double down on your comparison to the early days of the web 15 years ago -- was that newcomers to the market, whether they are startups or they are existing businesses that changed their strategy and entered new and different markets, is there a greenfield advantage here that’s significant enough to convince people of the power and value of cloud computing as a productivity and agility enhancer?

Will newcomers to some markets that embrace cloud efficiencies get such a leg up? We've seen this happen with Amazon in retail, Google in advertising, and of course there are a number of other examples across ecommerce. Is that perhaps a likely way in which cloud computing from a business standpoint will become a bit more of a priority?

Linthicum: I think we are going to see kind of an unfairness in business. People who are starting businesses these days and building it around cloud infrastructures are learning to accept the fact that a lot of their IT is going to reside out on the Internet and the cost effective nature of that. They're going to have a huge strategic advantage over legacy businesses, people who've been around for years and years and years.

There are going to be a lot of traditional companies out there that are going to be looking at these vendors and learning from them.

As they grow and they start to go public and they start to grow as a business, they get up to a half a billion mark, they are going to find that they are able to provide a much more higher cost and price advantage over their competitors and just eat their lunch ultimately.

We're going to see that, not necessarily now, because those guys are typically smaller and just up and coming, but in five years, as they start to grow up, their infrastructure is just going to be much more cost effective and they are just going to run circles around the competition.

Gardner: So I guess we could call this the Barbarians at the Gate effect. How do you see that, Sandy?

Rogers: What's really different is that startups in the space are starting to learn how to run their businesses beyond their technology much earlier. How to manage that partnership ecosystem is really important to how they can capitalize and grow their business. Given the low cost dimension, the per usage type of charging that cloud providers initially engage in, they have a lot of startup cost. It's what I've heard venture funders call "getting that flywheel going."

They're looking at both the short term to ramp up and promote that agility, and get that low hanging fruit and then move into sort of that broader scale. There are going to be a lot of traditional companies out there that are going to be looking at these vendors and learning from them, and it's really about being able to garner that trust.

Tried and true

Large enterprises will often look to the tried and true, because they feel they're going to be around for a long time. So for those that are starting up, they need to present a case that they are working well across the entire IT periphery and working well with those traditional providers in order to gain that trust and mitigate risk.

Gardner: Michael Krigsman, when you look at IT failures, if the startup that exploits cloud computing to the hilt can quickly more from $100 million a year company to $700 million a year company rapidly because IT can keep up with them, in that it's a cloud based, or largely cloud based IT, does that scenario make sense, and is there a cloud benefit to avoiding IT failures?

Krigsman: Both Sandy and Dave hit on this. When a company starts up, they are trying to save money and so they become very adaptable very quickly, and they gain the experience of what's it like to have their data out there in the ether some place, and as that company grows, they are able to make better use of the flexibility and the agility that the cloud offers.

From that standpoint, they do have an advantage over an incumbent, and, again, the cultural aspect here is very important, because there are differences in how an organization relates to on-premise software versus the cloud.

Gardner: Last question and it's a follow-up to this last one. Dave Linthicum, you mentioned that there is a difference between the way the U.S. goes about IT and business compared to say other regions, for example, Asia-Pacific. Now, if the same advantage to being a newcomer to a field works at an individual company level, is there a regional benefit? That is to say, if the United States or any other region, were to embrace cloud computing and aggressively move into markets, would they have an advantage on the global scene? Is there a globalization effect of cloud computing?

Linthicum: I think they would have an effect on the global scene, because of the efficiencies to the architecture and also their ability to move quickly around some new technology spaces in some of the European and Asia-Pacific companies. Again, generally speaking, there are instances of very innovative and very quick moving companies in those areas.

What you're going to find is the biggest uptake of any kind of new technological shift is going to be in the United States or the North American marketplaces.

Ultimately, it would be about the ability to leverage technology that's pervasive around the world. What you're going to find is the biggest uptake of any kind of new technological shift is going to be in the United States or the North American marketplaces. We're seeing that in the U.S. right now.

The uptake on cloud computing in Europe is there, but it's not necessarily as quick as it is in the United States. The uptake in the Asia-Pacific countries is very slow typically, as they usually follow new technology. So, we could find that the cloud computing advantage it has brought to the corporate U.S. infrastructure is going to be significant in the next four years, based on the European enterprises out there and some of the Asia-Pacific enterprises out there that will play catch-up toward the end.

Also, they're dealing with some rather draconian regulations around data. In other words, in many countries, they can't let their financial data or the customer data reside outside of their country. So, if there is no cloud-computing presence in those countries, Amazon or the cloud computing providers, then it's illegal for them to leverage cloud computing.

Either laws are going to have to change or they are going to have to figure out some way around those laws in order for them to take advantage of the emerging cloud computing marketplace.

Gardner: Well, great, We have covered a lot of ground. I want to thank our panel. There's certainly a lot more to keep track of over the next several years to see where the economic and productivity advantages do or don't exist vis-à-vis cloud computing.

So let me thank our guests. Dave Linthicum, CTO of Bick Group. Thank you so much.

Linthicum: Thank you, Dana.

Gardner: Michael Krigsman. He is the CEO of Asuret and a blogger on ZDNet on IT failures. He also writes analyst reports for IDC. Thank you, Michael.

Krigsman: Thank you.

Gardner: And, Sandy Rogers, independent industry analyst, thanks so much for your perspective.

Rogers: Thanks, Dana, and the rest of the panelists.

Gardner: I would also like to thank the sponsor, our charter sponsor for today's BriefingsDirect Analyst Insights Edition, that's Active Endpoints, maker of the ActiveVOS business process management system.

Gardner: We have been discussing cloud computing through the lens of economics and the impact on cost and productivity. This is Dana Gardner, Principal Analyst at Interarbor Solutions. Thanks for listening and come back next time.

Listen to the podcast. Find it on iTunes/iPod and Download the transcript. Charter Sponsor: Active Endpoints.

Special offer: Download a free, supported 30-day trial of Active Endpoint's ActiveVOS at

Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 51 on the impact of economics and business model disruption from cloud computing. Copyright Interarbor Solutions, LLC, 2005-2010. All rights reserved.


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